Companies eye socially responsible outcomes in India
The average spending on corporate social responsibility (CSR) by companies in India went up 29 basis points to 1.64 per cent last year, edging closer to the government mandate of 2 per cent.
The overall expenditure among companies in India on CSR activity registered a significant increase of 22 per cent, latest analysis by ratings agency CRISIL has revealed. The bulk of the CSR money went into education, skills development, healthcare and sanitation initiatives.
India’s Companies Act 2013 encourages corporates to spend at least 2 per cent of their average net profit of the past three years on CSR activities. In the 2016 fiscal year, the second year of this CSR mandate, 1,505 companies, or 30 per cent of the 4,887 listed on the Bombay Stock Exchange, met the criteria for mandatory spending. Of these, 77 per cent, or 1,158 companies, reported on their CSR activity, compared with 1,024 companies, or 75 per cent of the 1,300 eligible in the previous fiscal year 2015 .
These 1,158 companies also spent a lot more money compared with 2015, which led to a 29 basis points improvement in average spending to 1.64 per cent compared with 1.35 per cent in 2015, moving closer to the 2 per cent mandate.
Ashu Suyash, Managing Director and CEO, CRISIL, said: “A standout feature last fiscal was about focus shifting to CSR outcomes. This is indeed the way to go, as underlined by the ‘Effective Altruism’ movement worldwide where, instead of doing what feels right, find the best causes to work on by using empirical evidence and analysis.”
A quick survey of corporates and implementing agencies threw up some interesting pointers to this end, according to the analysis. Majority of the companies said they were open to collaboration for CSR activity, but finding the right partner, and structuring and reporting on such partnerships, were among the challenges.
In absolute terms, the total money spent rose by Rs 2,500 crore ($374mn) to Rs 8,300 crore ($1.2bn) in fiscal 2016. Another Rs 1,835 crore ($274mn) needed to be spent for the average to achieve the mandated 2 per cent. Of this, as much as Rs 5,300 crore ($790mn) – or Rs 1,175 crore ($175mn) more than fiscal 2015 – were spent on CSR activities linked to education, skills development, healthcare and sanitation, which are also the government’s priority areas.
Ramraj Pai, President, CRISIL Foundation: “This public-private complementarity is great to see because, as a percentage of total government expenditure, India spends significantly less than what other BRICS nations do. So the private sector ramping up where government spending is low is truly synergistic CSR.”
There were 133 companies that either didn’t spend a dime, or were still freezing their CSR agenda. But even that is an improvement given that 200 companies were in the same boat in fiscal 2015. Of the 1,024 companies that figured in our analysis last year, 917 continued to meet the CSR criteria in 2016. Nearly two-thirds of them increased their CSR spend, while one-third reduced. Encouragingly, 56 per cent of them spent 2 per cent or more compared with 50 per cent in fiscal 2015.
In fiscal 2015, smaller companies had spent relatively more, but in fiscal 2016, the larger ones have done well with more than half of them adhering to the 2 per cent mandate versus approximately a third previously. There were two reasons for the 22 percentage point jump in adherence by the larger companies:
- they are overcoming the challenge of large-scale interventions, which takes more time and effort
- they are using implementing agencies, mainly non-governmental organisations, for execution.
Somewhat counterintuitively, many smaller ones preferred going solo.
Smaller companies more giving, but larger ones will catch up
Going forward, larger organisations with established processes, governance systems and active boards would be more alive to the CSR task. However, presently, outcomes are quite the opposite is what the data reveals.
As the table above shows, smaller companies were relatively more enthusiastic about spending on CSR activity compared with their larger counterparts in fiscal 2015. Clearly, they are not short on altruistic, society-building motivation. This also reflects a broad-basing of CSR activity in India Inc.
For the bigger companies, the challenge is the large size of their spending mandate so they need considerable time and effort to conceptualise and design processes to maximise outcomes.
The trend will thus change by the time we revisit the numbers after the current fiscal and we expect most lagging large corporates to show traction in their CSR activity.
Regional disparities in CSR compliance across India
Other than the industrialised states such as Gujarat, Tamil Nadu and Maharashtra, where companies have performed well in terms of CSR spending, it is heartening to see companies based in West Bengal, Uttar Pradesh spending more than the national average, notes CRISIL .