Most of top listed firms fail to meet minimum CSR spending

Mumbai: Most of India’s top listed firms did not manage to meet the minimum spending requirement on corporate social responsibility (CSR) as laid down in the New Companies Act 2013, even though aggregate CSR spending was high as some of them spent more than the mandated amount.

About 32 of the Nifty 50 companies have missed this target, according to data compiled by CimplyFive Corporate Secretarial Services Pvt. Ltd, a firm provides services and technology to improve regulatory compliance across firms.

The fiscal year ended 31 March 2015 was the first year in which companies had been asked to spend a minimum of 2% of their average profits of the past three years on CSR projects.

Three of the Nifty 50 firms are loss making and are exempt from this provision. The data has been compiled from annual reports filed by these firms.

The data further shows that there is wide divergence between what companies have spent, with 10 firms spending more than the required 2%. This helped put the aggregate spending at ₹ 3989 crore or 79% of the mandated amount.

A separate study of wider set of BSE 200 companies conducted by Shareholders Empowerment Services (SES), a proxy advisory firm, shows the BSE 200 companies spent ₹ 5,402 crore of the mandated ₹ 7,433 crore, or 72%, in fiscal 2015.

“Companies have taken a longer time to formulate their CSR policy because a lot of clarification came only about September-October of 2014,” said Shankar Jaganathan, founder and chief executive of CimplyFive Corporate Secretarial Services. Twelve of the 32 non-compliant companies, in their annual reports, explained that the mandated amount could not be spent as it was the first year of the CSR mandate and capacities to spend on are still being built.

J.N. Gupta, co-founder and managing director of SES, agrees that companies need more time to find suitable avenues to make CSR allocations.

“This being the first year, it is difficult to find a project. It is better than spending money aimlessly,” Gupta said.

According to the provisions, companies do not need to carry-forward any shortfall in the mandated CSR expenditure to the next financial year.

Explaining the reason for non-compliance, nine of the Nifty 50 firms said they have sanctioned spending on CSR projects but the implementation has spilled over to the next financial year. Another four of these companies said they have sanctioned expenditure towards CSR projects but the execution would happen over multiple years.

Delay in formulating CSR policies and lower cost of CSR projects than budgeted for were some of the other reasons cited by firms.

“The law allows companies to not spend and just explain. Keeping that in mind, the fact that companies have at least shown some expenditure is a good start,” said Noshir Dadrawala, chief executive of CAP, which provides advisory services to companies on CSR compliance.

Under the new legislation, companies are required to either comply or give reasons for non-compliance. It does not involve any punitive measures.

“If you need better compliance mandate alone will not do. The comply or explain method will ensure companies move towards compliance,” said Jaganathan. Those who have not spent and not explained will be treated non-compliant, he added.

Of the 50 companies, two firms did not explain reasons for non-compliance.

Of the ₹ 3,989 crore spent in financial year 2014-15, more than 50% of the funds have been spent on causes such as education and related activities, health care and sanitation, and poverty and hunger eradication.

Dadrawala says most of the focus continues to be in the health, education and skill development sectors.

“That is where the need is, too,” he said.

Promoting gender equality, measures for reducing social and economic inequalities, and environmental issues were also among the popular CSR projects were significant funds were spent.

“Most of the public sector companies have opted for creating toilets in schools. If we can take the same model year by year with a different theme and put the ₹ 5,000 crore and channelise them towards one theme, we could see a substantial progress,” Jaganathan said.