Monday, 18 February 2013

By Choosing Sustainability over Philanthropy, Many Indian Companies are Already Investing More Than 2% of their CSR

MUMBAI:  India Inc has responded with mixed but mainly negative reactions to the CSR provision since its inclusion in the New Companies Bill as far as 2008. Many highly recognizable names in business see it as a questionable government’s intrusion in private philanthropic matters, objecting that what a company spend on “community welfare, education, health, development and environmental activism” should be left to the discretion of each company’ board.  Others claim no relationship should be made between profits and CSR and that each spending should be done on an ad hoc basis. What is sadly missing from the debate is the fact that by choosing sustainability over philanthropy, many Indian Companies are already investing more than 2% on their CSR activities, and they are failing to see the CSR clause as a tremendous opportunity in terms of cost-cutting measures, improvement in efficiency and, more importantly as a tremendous platform for reputational gain.
The Bill, now set for Rajya Sabha’s approval, includes crucial provisions making it  mandatory for those companies that have reported profits of Rs 5 crore (Rs 50 million) or more in last three years- to spend at least two per cent of their average net profit on CSR activities. Penalties will be imposed on Companies failing to meet the obligation and not disclosing reasons for it.
Even if the bill give broad guidance as to the definition of what constitutes “CSR Activities”, there is no specific detail the intended focus or target of a company’s CSR expenditure.  Schedule VII of the Bill lists a variety of possible examples of CSR spending, ranging from a very philanthropic focused ‘eradicating extreme hunger and poverty’ to ‘promotion of education’ to a more embedded and strategic ‘ensuring environmental sustainability’.  Such lack of clarity can be the key separating the company truly committed to a more embedded notion of CSR from another merely compliying with the mandate and with no clear strategy of harnessing the benefits of CSR seen as a cost effective investment rather than a mere liability imposed by the government.
The major advantage of the approved bill is the preservation of each company’s autonomy in the selection of its area of CSR spending. Currently the majority of Indian companies prefer to adopt a very basic approach to csr tending more towards a philanthropic exercise. Such act usually entails the establishment of a charitable foundation mostly functioning at at arm’s length from the parent company and disbursing funds directly in the communities in which the company operates in a very ad hoc basis without any strategic aim such as involvement of employees, or aligning the company with a particular social cause pertinent to its business sector.
A few savvy companies may decide to adopt a more westernized model of CSR leaning towards sustainability more than philanthropy.  Such companies would thus use the 2% mandatory spending to minimize the negative externalities, beyond the legal compliance of environmental and social law, such as aim for carbon neutrality in their business operation, or to or they could opt to maximise positive externalities beyond the mere job creation overly claimed by the CSR novices by administering  vocational training  or providing workers with more comprehensive benefits.
From our experience many companies in India are already investing significant amount of money in cost saving measures which can be considered embedded CSR activities aimed at reducing the negative impact of business and they are unaware of doing so, having remained stuck in a philanthropic conception of CSR.
IT companies furthering  technology  education may strategically be thinking about their workforce of tomorrow,  a mining or a chemical company can be overtaking environmental initiatives to save water and energy and produce their products in a more efficient and environmentally conscious way.
 Cristiana Peruzzo is Head of CSR at Innovaid Advisory Services in Mumbai, India