CSR In India: Transactional Or Transformational?

Sudhir Sinha

PMG in 2015 conducted an independent study to evaluate the CSR performance of the top hundred listed companies as per market capital after Section 135 of the Companies Act was enacted in April 2014. According to the findings of the report for FY 14-15, 90 percent companies were reported to have included a standalone section on CSR, while 49 percent companies gave details regarding their CSR vision/mission/ philosophy. The report revealed that only 34 percent of companies gave details regarding amount spent on CSR, while 58 percent were found to have made disclosure on CSR areas of intervention. Only 21 percent companies shared some or the other details regarding outreach/people impacted through their CSR interventions. As regards CSR spend, according to the report, INR 5,115 Crore was spent of a total of the prescribed two percent of profits which equalled to INR 6,490 Crore.

Another CSR evaluation was conducted by NGO Box, which took a sample size of the top 250 BSE listed companies for the study in 2015. According to its findings, top ten companies by actual CSR spent together were  reported  to  have  spent INR 2783 Crores, which was approximately 50 percent of the total actual spend by companies under the study. Among sectors under Schedule VII of the Act, (a) Healthcare & WASH and (b) Education & Skills were the two leading sectors in which companies invested their maximum CSR spend of 32 and 29 percent respectively. According to its report, Maharashtra and Rajasthan with 18 and 10 percent respectively were the top two States to receive the maximum share of CSR spends. Noticeably, the eastern and north-east states which are the poorest among all, received the minimum share of the total CSR spends.

The third such CSR study of the top 100 companies on S&P BSE was conducted by Institutional Investor Advisory Services (IiAS) that published its report for FY 15; findings of which were relatively in line with the reports of KPMG and NGO Box. The report confirmed that PSUs trailed behind private sector companies in spending full implementing agencies, 43 percent of companies of them were found to have engaged external implementing agencies (NGOs) while 57 percent companies got CSR implemented through their trusts/foundations, including other related parties.

Now, while the findings of the above three evaluations of CSR in India are found to be relatively in sync with each other, these reports missed to include their analysis on various aspects of qualitative dimensions and spirit of the Act, whose intention is to bring about transformation in the social sector objectively. In fact, what is missing out in all forms of such CSR communications and documentations is the information on the aggregate impact of CSR initiatives vis-à-vis national priorities on the   reduction   of   poverty,   hunger, illiteracy and improvement in employability and access to healthcare, water and sanitation, etc. The studies mentioned above however evaluated on the transactional aspects of the Act such as how many companies complied with the Act by keeping CSR spend in the center of it along with what companies spent their CSR funds on and where (geographies), and how much of the two percent companies finally spent. These are some valid questions from an audit viewpoint which helps the government and stakeholders to keep track of businesses on their responses to the Act and commitments to CSR. They, however, do not reflect on the following moot questions which a CSR research/study must ask them to examine critically and find out the objectivity and subjectivity of CSR intent and practices of companies. Whether or not Section 135 of the Companies Act on CSR is doing well from the perspective of enabling change and  bringing  transformation  in   India policies and therefore undertake improved practices that are different from transactional policies and practices? Has the Act enabled corporate sector adequately to internalise CSR into their business strategies and participate in making India’s growth inclusive? Does the Act provide enough motivation to companies for making proactive commitments   and   then   taking  a CSR activities are envisaged to meet the country’s pressing issues, which together are critical to the inclusive growth and sustainable development. CSR, therefore, has to be uniquely planned thereby making it transformational, not transactional conscious call to aligning CSR activities with the country’s priorities in addressing some of the critical social and national issues? Does CSR in the current form and practices have potentials to make some measurable impacts on India’s global commitment to achieving Sustainable Development Goals? These are some critical but significant questions that our CSR researchers, evaluators, and media should try to highlight their analytical findings  upon against the transactional strategies.

CSR in India: Transactional in its Approach and Practices

Since the emphasis is primarily laid on meeting the ‘compliance’, CSR spends, in alignment with Schedule VII, is made a focal point and the sole criterion for companies and the government to follow under the compliance. Our approach to CSR is very transactional which means a company management is simply worried to perform CSR per the Act by putting in place a policy, a CSR committee and also by spending two percent of the profit in alignment with Schedule VII followed by publishing a report.  Although   these   transactional activities meet the minimum requirements of a company to comply with the Act, they do not necessarily look into qualitative and dynamic aspects of CSR that have great capability and potential to bring transformation in the social sector.

Traditionally, companies have been found to have adopted a piecemeal, unstructured and welfare approach to CSR. It is true that they are spending on a broad range of activities, but it is also correct that these activities if put together, have failed to make a sustained impact. It is mainly because these activities are done in isolation with welfare approach and are also planned short term without having ensured participation of people. For example, as per the reports, a significant chunk of CSR resources is spent on education. However, it is not clear whether they together have enabled the outputs and outcomes to make direct and visible impacts on the critical indicators for education such as increased and sustained enrollment, reduction in dropouts,   improved   quality of education, and teachers’ motivation and commitments, etc. Further, some companies were  found  to  have  spent their funds on improving the infrastructure of wealthy institutions, big hospitals and in partnering with large NGOs for doing some fancy projects in the area by setting up technology- based solutions for education and health. Having said so, I am not disputing over the requirements of such projects. But what I am hinting at is for companies to work cohesively under some plans so that they meet the local needs primarily while some of the CSR activities are envisaged to meet the country’s pressing issues, which together are critical to the inclusive growth and sustainable development. CSR,  therefore,  has   to   be   uniquely planned thereby making it transformational, not transactional.

Transformational CSR

The objective of making CSR mandatory through the Act is not only limited to setting aside two percent of profits; rather the Act seeks companies to ensure BHAGIDARI (participation) in social development too as responsible corporate citizens of the country. India is economically transforming, but the pace of this transformation cannot be accelerated and achieved until the social sector   is   uplifted   and   transformed.  I would therefore imagine if CSR steps into a national movement that works  to bring transformation in the social sector; CSR together with several schemes and programmes of the government meet the felt needs of people in the shortest possible timeframe of five years. CSR, therefore, should supplement and complement the efforts of several governments and NGOs to achieve the nation’s development goals. Companies must plan only those activities that are aligned with the local needs while addressing the larger development agenda of the country. Companies which have been reported to have spent  more Companies which have been reported to have spent more than 100 crores, could perhaps come together to address farmers’ suicide as one of the pressing social issues of India or undertake a massive joint project under a mission to solve the water crisis in the water-starved or stressed zones of the country than 100 crores, could perhaps come together to address farmers’ suicide as one of the pressing social issues of India or undertake a massive joint project under a mission to solve the water crisis in the water-starved or stressed zones of the country. It is like India Inc. contributed collectively to Bharat Swachcha Mission for the construction of approximately one crore toilets in just a little over a year’s time; the effort is still on to free India from open defecation in less than five years. This is what the right approach to CSR is – to bring transformation. The same should be encouraged more and applied in practices.

Required: A Strategic and Operational Shift

CSR in India should contribute and deliver permanent solutions to some of the big ticket issues of national importance such as farmers’ suicide, water crisis, elimination of extreme as well as persisting poverty and unemployment. These are the most important expectations of the present time. Companies are therefore expected to converge their CSR to national priorities while remaining committed to making sustainable impacts locally. Strategically and operationally, companies must move away  from the t ransactional method to a transformational approach to CSR. CSR, after the introduction of the Act, is expected to play the role of a game changer in nation building; not just an ordinarily looking mechanism to doing charity or philanthropy.

Sudhir K Sinha is Chief Coach – CSR, Sustainability and Human Rights and Founder member of Human Rights and Business Resource Group (HRBRG) from New Delhi NCR. He provides knowledge and mentoring on “Transformational CSR”. He can be reached at: sudhir4csr@gmail.com