Companies focus on compliance than on effectiveness3 min read . Updated: 25 Sep 2015, 01:52 AM IST
A clear challenge in the first year of the new CSR rules implementation is impact assessment. But perhaps it is too early to expect companies to invest in this
Anyone spending money—whether individual or a company—needs to know where the money is going, how it is being used, who it is benefiting and how. But the corporate social responsibility (CSR) Rules, 2014 have no clear indication or requirement of impact assessment. The rules merely mandate that companies with a net worth of ₹ 500 crore or revenue of ₹ 1,000 crore or net profit of ₹ 5 crore should spend 2% of their average profit in the last three years on social development-related activities.
In the first year of the rules taking effect, most companies were focused on compliance rather than on tracking how their initiatives fared.
Experts suggest that with companies incurring CSR expenses, they must put in place monitoring mechanisms to help gauge their impact. But they add a caveat: it may be too early. “Evaluating impact is premature at this stage, as impact is usually achieved over a long term," said Sudhir Singh, director-risk advisory at auditing and consultancy firm PwC India. He suggested that, at the moment, all companies can do is define outcomes and set impact targets at the time of project inception.
For most top listed companies, CSR initiatives have been part of sustainability reports for over five years now but for companies undertaking CSR for the first time there is little or no impact to assess. “Impact can truly be assessed only after a particular activity has been in place for 3-5 years. One year of implementation is too soon to judge any impact," said Neeraj Seth, director, advisory services at EY, a financial advisory firm.
Even companies that have been conducting impact assessment feel more time is needed.
ITC Ltd has also been undertaking third-party assessments, the latest carried out by KPMG. Ashesh Ambasta, executive vice-president and head, social investments at ITC Ltd, said, “The social project/initiative needs to mature to a level where it can be evaluated against base line and end line."
Those who have been conducting assessments are largely the top listed companies of the National Stock Exchange and till last year many of these companies were including social initiatives as part of their sustainability reports. However, these assessments are used for internal purposes and are not in the public domain.
For instance, car maker Maruti Suzuki Ltd, which has been conducting social initiatives even before the rules came into force on 1 April 2014, takes the line that while CSR rules do not demand impact assessment, there is merit in carrying it out.
Ranjit Singh, general manager (CSR and sustainability) at Maruti Suzuki said, “Impact assessment helps in knowing whether we are meeting CSR objectives of the company or not. Plus, we come to know the benefits society is getting from our social projects."
Dabur India Ltd believes that impact assessment is necessary to gauge and understand the success of programmes and initiatives. “Just introducing new community development programmes would not be of any use unless these programmes meet the specific needs of the community members and are also able to bring about a positive change in their lives. It’s this change that the impact assessment survey maps," said A. Sudhakar, head, global human capital and CSR at Dabur. The company has been conducting community development initiatives through its CSR arm Sundesh since 1994.
In the absence of a framework, the assessments have been far and varied. Some feel a structure is needed, which would help streamline the measurement of these social initiatives. “In coming years, the ministry of corporate affairs or the Institute of Chartered Accountants of India could elaborate more on these auditing guidelines," suggested Jatin Dhall of SEED, a CSR management firm.
But others like Adarsh Kataruka, director, Soul Ace, a CSR consultancy firm, believe whether or not the government outlines the process, companies should initiate their own processes soon.
According to him, a law or rule pertaining to CSR assessment may restrict the scope. “CSR is subjective in nature and cannot have assessments or audits like financial accounts. The government should only encourage assessment, not define parameters for it," he said.