A parliamentary panel’s recommendation that penalties be levied on companies that failed to spend the mandatory 2 per cent of their net profit on CSR activities has raised, if only obliquely, the possibility of substantial non-compliance.
But, how big is this problem? An analysis of the 2014-15 annual reports of the 50 Nifty companies reveals a mixed bag. Yes, only 15 companies – or fewer than a third – have spent the mandated amount on CSR.
But the overall figures on CSR suggest that the shortfall is not a big as it may appear on the face of it. Together, Nifty companies were required to spend ₹5,000-odd crore in 2014-15, of which they have spent a little over ₹4,000 crore. (For this analysis, three public sector banks have been excluded as they are not required to comply with the CSR norms.)
The big picture A healthy mix of good and bad spenders has limited the overall shortfall for Nifty companies to about a fifth. The big picture has been redeemed somewhat by the fact that a few companies have spent more than the mandated amount and some others were short of this by a slim margin.
Of the 50, 13 Nifty companies grossly fell short, spending less than 50 per cent of the mandated amount. Idea Cellular, for instance, spent nothing and others such as Hero MotoCorp and HCL Technologies spent less than a tenth of what was required.
At the same time, many others took a bigger leap. Reliance Industries, for instance, has spent about ₹760 crore, far higher than the mandated ₹532 crore in 2014-15. Loss-making companies, such as Tata Motors and Vedanta, that were not required to spend, have paid out for CSR activities.
ONGC was to spend ₹660 crore in 2014-15, which is about 12 per cent of the entire spending required by Nifty companies. It fulfilled about three-fourths of its requirement. So has NTPC, pegged as the next biggest spender. ICICI Bank, Infosys, Axis Bank, TCS and L&T were some of the other heavyweights that had a small shortfall.
According to market players, despite the shortfall, the objectives of the new norms have been achieved to a large extent. They see the overall story as less about non-compliance and more about a corporate sector that is warming up to or slowly grappling with the demands of the CSR regulations.
“The main reason for bringing CSR norms under the Companies Act was to ensure better governance. The requirements of having a public stated policy, board level committee, annual reporting — all ensure that there is better governance on CSR,” says Santhosh Jayaram, Director, Climate Change and Sustainability at KPMG in India.
Reasons galore Currently, the penalty can be imposed only for non-disclosure of CSR as per the Companies Act 2013. Companies not meeting their target have to state reasons for the same. The companies that fell short have laid out various reasons for doing so. Being the initial year, most companies have stated that they are still in the process of evaluating various CSR activities.
GAIL mentioned that nearly 23 per cent of the budget was committed towards toilet construction as a part of Swachh Bharat Swachh Vidyalaya which started only in January-February 2015. For PowerGrid, majority of the projects were of infrastructure development in rural areas, which involve long implementation period.
“Being the first year, companies have to put the governance structures in place. The majority (which did not spend the 2 per cent) have indicated that they will be striving to meet the threshold. Some companies have even gone further and stated that they will spend the deficit of last year during the next year,” says Jayaram.