CSR Awareness in India Raised by Legal Mandate

By Roy Maurer Dec 17, 2014
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Nearly 9 out of 10 companies doing business in India said they’ve been affected by a recent government mandate to spend on corporate social responsibility (CSR).

Eighty-six percent of respondents from across industry sectors said Section 135 of the Companies Act 2013, which mandates corporate social responsibility spending, has impacted their operations since going into effect April 1, 2014. And 81 percent of Indian companies reported that CSR is an important component for business strategy and 75 percent said it has become more important at their company over the past two years, according to a survey conducted by HR consulting firm Mercer.

“Indian organizations recognize the significant role that CSR and sustainability plays not only in addressing social and environmental issues, but also its importance to a range of business factors such as value creation, effectively managing the triple bottom line and employee engagement,” Cindy Arkin, Mercer Regional CSR head, said in a statement.

The Companies Act was passed in August 2013 and has imposed significant changes for both India-based companies and foreign companies operating within the country. The law’s CSR requirement has made India the first country in the world to mandate that qualifying companies contribute at least 2 percent of their average net profits from the preceding three years to CSR initiatives.

Companies are subject to the CSR requirement if they have, for any financial year, in India:

  • A net worth of at least $80 million.
  • A turnover of at least $160 million.
  • Net profits of at least $800,000.

Companies that meet any of these thresholds are required by the law to develop a CSR strategy, set up a policy, select an implementation partner, develop a project plan and report their CSR activities to the government. The report needs to include a brief outline of the CSR policy, the composition of the internal CSR committee, the average net profit for the last three financial years and the CSR expenditure. If a company is unable to spend the minimum required on its CSR initiatives, the reasons for not doing so must be included in the report.

Mercer surveyed only 40 organizations, but the results show the growing awareness around CSR activities. The Indian Institute of Corporate Affairs estimates that 6,000 Indian and multinational companies fall under the new regulation. It projects that CSR spending in India could rise to over $3 billion annually, triple the current rate.

“Large companies are utilizing the opportunity to formalize their programs, identify a few key focus areas and mobilize their resources, said Sharad Verma, global head of human resources for Polaris Financial Technology based in Chennai. “Children’s education, female-child empowerment and investing in children’s sports are popular themes. Many corporates have adopted villages and schools in economically challenged areas,” he said. Verma said that many small and midsize companies are also taking the mandate positively and are using the opportunity for corporate branding and employee engagement efforts.

“With dedicated CSR teams in place and companies stating that employee volunteering will be involved in their corporate citizenship projects, India is surely striding in the right direction down the sustainability path,” said Mercer India business leader Shanthi Naresh. But with many companies undertaking CSR initiatives for the first time, there are challenges.

The survey revealed that:

  • 73 percent of respondents have a CSR policy.
  • 81 percent consider education the top area for CSR spending in India, followed by community-based development (64 percent) and environmental sustainability within the company (61 percent).
  • 83 percent indicated that CSR was very important or important as a means of value creation, and 73 percent indicated the same for brand and reputation management.
  • 69 percent rated CSR as very important or important as a tool for employee engagement.
  • 44 percent reported already having a core team dedicated to CSR.
  • 58 percent said they have an annual budget for CSR.
  • 17 percent said they are undertaking CSR activities without a policy or guidelines. All of these respondents plan to develop a formal policy within the next two years.
  • Responsibility for CSR typically falls to HR, both in India and globally. In India, however, a significantly higher number of companies hold HR responsible for CSR (90 percent), compared to globally (69 percent).
  • The majority of companies conducted their CSR initiatives by partnering with a local, independent nonprofit organization (78 percent).
  • Only about one-third of Indian organizations stated that they issue an integrated annual report on their CSR activities; in comparison, almost half the participating companies worldwide stated that they provide an integrated annual report on CSR.

Roy Maurer is an online editor/manager for SHRM.

Follow him @SHRMRoy

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