The latest upgrade to India’s CSR laws targets companies with a net worth of INR 500 crore, revenues of 1000 crore or net profits of 5 crores. It states that 2% of their average profits over the last 3 years need to be spent on improving social conditions, as mandated by the Companies Act 2013.
Information like the total amount spent on CSR, the activities towards which the funds are provided, and any unspent amounts have to be disclosed by these companies. And there lies the problem: all the companies have to do is report what they spend on. If they don’t meet the targeted amount, they only need to provide reasons for not doing so.
The system seems like it was built to be exploited. It is hard to trigger a social impact or motivate companies toward CSR commitment when the only activity they are required to do is provide CSR reports. And why should reporting figures that comply with CSR rules be difficult?
Going by the results of the recent CSR mandate, it isn’t.
Uniformity: The Answer To Chaos
A major issue lies in the fact that CSR reports form part of documents like annual reports, profit and loss statements, director reports, and BRRs. There isn’t a uniform format for all companies to follow while preparing their CSR evaluation. It’s gruelling to keep track of information from various records, and besides, this sort of patchwork reporting is likely to throw up a bunch of inconsistencies.
For example, Tech Mahindra clubbed its CSR expenditure with its overhead costs, while Infosys published its CSR expenditure in their annual report.
This makes it difficult to audit and track the CSR spending of a company. The solution is creating a system that can be utilised by organisations to report their social activities. This will ensure that they’re getting the job done, and if they aren’t, it will show up in the records.
It’s easy to assess financial claims on the stock market, but what about CSR spending? The lack of impact assessment or strict verification by a third party is another way for companies to evade CSR expenditure.
For example, Infosys specified the location of its CSR undertakings, but Tech Mahindra did not. Either way, without a witness to verify their claims, it’s impossible to ascertain the activities they carried out. Stakeholders, customers, and generally anyone interested in the company’s workings have no choice but to believe what they’re being told.
To effectively implement CSR practices, the law needs to make it compulsory for companies to spend the specified amount. It has to mandate that companies hire professional staff and seek advice on CSR activities. Third-party verification is useful to see whether the company’s CSR activities are in line with its claims. It’s also of vital importance to measure the actual impact of a company’s CSR actions. That way one can effectively gauge whether the company has actually brought about any social change, or if they’re proficiency lies in filing reports.
They’re Missing The Point!
Reporting isn’t going to help the social state of the country. The law needs to build a system so that companies have no choice but to carry out CSR activities. Companies need to approach it in the way they would a project. This means periodic evaluation and assessment of CSR initiatives. A structured system is crucial to ensure that companies adhere to the rules and actively participate in corporate social responsibility.
It’ll take more than resolving a few bugs in the Companies Act to alleviate the state of India’s CSR reporting. But it’s a necessary step towards a more effective and responsible corporate social apparatus.