2% CSR Scorecard for Year One

It’s now been over a year since Section 135 of the Companies Act 2013 came into effect and reports have been streaming in about how companies fared in their first year under the ambit of the 2% mandatory CSR law. 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. Here are the key findings of various reports, at a glance.

Facts & Figures:

1. India's top 50 listed companies that make up the benchmark Nifty index on the National Stock Exchange spent more than Rs 4,600 crore on CSR in 2014-15. This was more than the Rs 4,281 crore spent on CSR during 2013-14.
2. While about 32 of the Nifty 50 companies missed the target some companies gave more than the stipulated 2%. This helped put the aggregate spending at Rs.3989 crore or 79% of the mandated amount.
3. Top CSR spenders for 2014-15 were Reliance Industries, ONGC, Coal India, Infosys, TCS, ITC, NTPC where Reliance Industries lead with a total spend of 760.6 Cr going beyond it’s total outlay of 454.3 Cr.
4. BSE 200 companies spent Rs. 5,402 crore of the mandated Rs.7,433 crore, or 72%, in fiscal 2015.
5. A report by the Boston Consultancy Group has estimated that close to 16,000 Indian companies are expected to spend INR 16,500 Cr ($2.5Bn) annually on CSR in the coming years- up from the current INR 3,300 Cr ($500Mn).
6. The Companies Act, 2013 has unique concepts like secretarial audit and mandated CSR activities being introduced for the first time in any country across the world.
7. According to the provisions, companies do not need to carry-forward any shortfall in the mandated CSR expenditure to the next financial year.
8. Companies are required to either comply or give reasons for non-compliance. It does not involve any punitive measures though.
9. 9 of the Nifty 50 firms said they have sanctioned spending on CSR projects but the implementation has spilled over to the next financial year, explaining their reason for non- compliance. Another 4 of these companies explain that expenditure has been sanctioned towards CSR projects, however, the execution would happen over multiple years.
10. Close to INR 61 Cr of the CSR spends by India Inc in FY15 was towards the Prime Minister’s National Relief Fund and 7 companies contributed INR 47 Cr towards Swachh Bharat Kosh from among the BSE Top 100 companies.

Key conclusions and trends pertaining to the implementation of the 2% CSR Law:

1. 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.
2. Companies have used the first year to focus on long-term CSR strategies, doing research, identifying intervention areas and NGOs to be funded, as well as bringing in their clients to be part of the giving process.
3. Companies have taken a longer time to formulate their CSR policy because a lot of clarification came only about September-October of 2014.
4. Education tops the priority list for companies CSR initiatives. Other sectors being prioritized are health, environment, sanitation, drinking water, agriculture support to farmers and rural infrastructure.
5. Most of the public sector companies have opted for creating toilets in schools. State-owned firms set aside lesser amount compared to private sector firms.
6. Promoting gender equality, measures for reducing social and economic inequalities were also among the popular CSR projects were significant funds were spent.
7. Big companies that already have a long history with implementing CSR initiatives, have now stepped up their level of engagement and improved the structure to channelise the funds in a more productive manner.
8. Companies are working on CSR programs that are closely linked to their business, and the geographies they operate in.
9. Delay in formulating CSR policies has been cited as a reason for non-compliance by several firms.
10. While Policymakers argue that such a law encourages more companies to pursue acts of philanthropy and inclusiveness - some corporate leaders have likened the mandated 2 per cent to a tax, which companies now have to pay additionally.