A simple, One Additional Line in financial reporting that demonstrates a company’s corporate social responsibility contribution, can radically change the way businesses operate.
According to Tomo Suzuki, Professor of Accounting and Sustainability Management at Saïd Business School, University of Oxford, this line appears on a company’s Profit and Loss Account under expenses, as an independent item which reads ‘CSR Expenditure’. It discloses the amount of money being given to corporate social responsibility. The disclosure has very little cost and can promote a positive sense of competition between companies to do more around corporate social responsibility.
Financial criteria
Companies that meet certain financial criteria, such as a net worth, turnover or net profit of at least ₹500 crore, ₹1,000 crore and ₹5 crore, respectively, have to comply with One Additional Line. They must spend at least two per cent of the average net profits made during the previous three financial years on CSR, and if they cannot pay, they must explain the reasons in their financial reporting.
The concept, which was designed by Professor Suzuki, has already been passed in India.
16,000 companies
Around 16,000 companies came under this scheme in India and billions of dollars have already been generated in its first year ending March 31, 2015. A great deal more is expected to be generated in the future for socially disadvantaged people. The companies which spend appropriate CSR expenditure are recognised by the market, which raises their reputation, opportunities and capital.
Professor Suzuki added, “The advantage of the One Additional Line is that once a country implements the scheme, and starts to attract funds, other competing economies may choose to follow the same to compete internationally. I am currently in consultation with representatives in Brazil, China, Thailand, Vietnam and other countries about the scheme and how it could radically increase corporate social responsibility, while enhancing corporate reputation and international finance opportunities.”
Professor Suzuki’s recommendations for the line were based on his paper ‘Institutional Mechanism Design of Corporate Socio-Environmental Data for Sustainable Growth in Developing Countries - Theory and Practice (Tomo Suzuki, 2013)’ and was tested through research, experimental accounting and analysis of the political economy between Government and business.
The research
Research was done on four companies, two from India which included the additional line in their financial reporting and two from China, which didn’t have the line. The results showed that investors favoured companies in India more, even though their profits were less due to additional CSR expenditure.
The line is also a key for the Indian government to further develop data systems which can be utilised to allocate appropriate resources to education, sanitation and healthcare and help achieve India’s sustainable growth.
Professor Suzuki and Geetnjali Gaur have already submitted a paper to the Indian Government on this subject titled ‘The Further Development of India’s CSR Policy: Review and Proposal from the Institutional Mechanism Design Point of View.’