CSR Clause in the
Four Years After
Clause 135 of the
Indian Companies Act, 2013, or the CSR Clause came into effect from
April 1, 2014. The practices have been studied by researchers and think
hence, this piece explores the impact and practice of the CSR Clause
based on various analysis reports available in the public domain, from
conversations with NGOs and from the experience of Tatas, a corporate
group that has been practising CSR well before it was legislated (where
the author led the sustainability function till August 2017).
CSR was always understood as community development or corporate
philanthropy or corporate initiatives in the community and the CSR
Clause has merely codified this. This is different from the global
understanding of CSR, which is more akin to terms like sustainability
and triple bottom line.
Fundamentally, CSR was, and continues to be about social and human
development. Therefore, in terms of purpose, CSR is similar to the work
that NGOs do. Arguably, CSR approaches do not reflect state-of-the-art
in terms of development thinking, perhaps because development is not the
core competence of companies.
what significantly differentiates CSR from NGO work is that it is driven
by a company’s thinking, priorities and worldview. While companies do
want their CSR activities to positively impact communities, most look
for a ‘business benefit’. This term ‘business benefit’ needs to be
better understood. Companies do not expect their CSR activities to
generate profits. However, they do look for benefits such as ‘the
community’s license to operate’ (critical for manufacturing companies
who focus on communities and the environment around their plants to
mitigate the negative impacts that is inherent in manufacturing) and
deepening employee engagement (which enables them to attract and retain
talent as increasingly, employees want to work with companies that
Government’s thinking behind the CSR Clause
the government to introduce Clause 135 into the Companies Act? The
stated thinking was that since companies in post-liberalised India were
engines of growth, they had a responsibility to contribute to inclusive
development as they had certain abilities, skills and competencies –
organisation and management, result-orientation, efficiency focus to
name a few – that would enhance the quality of social development
initiatives which were hitherto the domain of government and NGOs.
however, point out that this clause was to defray the criticism that the
government was trying to push a neo-liberal agenda and wanted to project
themselves as pro-poor rather than pro-business.
Lessons from Practice
does the practice tell us? These are discussed below, based on reports
from 3 principal sources - CSR Tracker published by CII’s Centre for
Excellence in Sustainable Development, KPMG’s report that analyses CSR
performance of the top 100 listed companies and the reports of the civil
suggest that compliance with the provisions of the clause and rules has
been steadily improving. According to various reports, procedures like
the formation of the CSR Committee with at least 1 independent director,
at least 3 board members, the formulation of a CSR policy and its
availability on the company website and publicly available CSR reports
were complied with by 95-99% of the companies.
spending has shown increase and with CII-CESD’s report for 2016-17 – CSR
Tracker 2017 – showing 92% spends and KPMG’s report of top 100 listed
companies showing 97% spend in the same year. In fact, the KPMG report
indicates that 22 of the top 100 companies spent more than the 2% (twice
as much as in the previous years). Interestingly, contributions to the
Prime Minister’s Relief Fund as a percentage of total CSR spends, very
small to begin, have been steadily declining over the years, suggesting
that it is a last resort for most companies.
and sectors of spend
analysis suggests that CSR spends were concentrated in a few geographies
and sectors. Five Indian states received from 60% to 70% of the total
spends and these were not necessarily the ones that were most
underdeveloped - a criticism of the local area preference of Clause 135.
The KPMG report observed that 5 states with 15% of underdeveloped
districts received 70% of CSR funds while 6 states with 60% of
underdeveloped districts received only 15% of CSR funds.
In terms of
sectors too, there was a definite preference. Three sectors – health
(including water and sanitation), education (including skills) and rural
development attracted 70% of CSR funds. This is not surprising in
itself, given India’s poor performance in these sectors but when this is
read along with an observation in Corporate Watch’s report that a
negligible number of companies disclosed that they had undertaken a
community needs assessment before launching their CSR interventions, it
may well suggest that CSR tended to be driven top-down rather than the
more logical bottom-up.
not enough data on the actual activities done as a part of CSR but
indications are that many of them are pretty routine e.g. school
uniforms, scholarships and skilling under education, mobile health
camps, building toilets and blood donations camps under health and so
on. Companies have traditionally preferred to build physical structures
as these are, quite literally, concrete but also because, as the cynics
would say, they can brand it!
Beneficiaries not defined or counted
benefits from CSR? Interestingly, the mandated reporting format neither
asks for numbers or profile of those who benefit. Data suggests that
more and more companies are disclosing the numbers, in some cases even
project-wise, which is of course useful. But this is in an aggregated
way and not by gender, ethnicity or disability which many consider the 3
markers of social exclusion and hence poverty. In the absence of this,
it is very difficult to make even preliminary assessments as to who
benefits from CSR.
Mode of implementation
Rules have indicated several ways that companies can implement their CSR
activities – directly though their own trusts / foundations, in
partnership with other companies and through implementing partners. The
KPMG report found that 91 of the top 100 companies preferred working
through NGOs or a combination of its own trusts / foundation and NGOs.
The CII CESD report, which covered a larger number of companies,
indicated that 53% of the 700 or so companies that disclosed this data
also preferred these two routes. Thus, NGOs are a key element of the
mix. This also suggests that the fear that all companies will set their
own foundations is not supported by evidence, and this is logical
because an implementing foundation is viable only if the CSR spend is
significant. Most large and old companies like the Tata group set up
their own implementing foundations largely because in those days,
grass-root NGOs were few and far between.
Opportunities for Improvement
suggested modifications to the CSR Clause are given below:
• CSR must
be seen in the larger context of business in society.
• The local
area preference suggestion in Clause CSR sometimes inhibits companies
from supporting work beyond their ‘backyards’ and hence should be de-emphasised.
reporting format should be reviewed to include items such as population
• The 5%
limit on administrative expenses must be reviewed and clarified so that
this is not used to restrict NGO expenditures to unreasonable limits.
There is no
doubt that Clause 135 has given company employees and the board an
opportunity to reflect on the role of the company beyond making profits
and explore how these profits can be used to benefit society. The track
record of the past few years suggests that it has both good parts and
opportunities for improvement and the latter need to be urgently
addressed. Financially, there is little doubt that CSR funds cannot
solve India’s development challenges. Estimates suggest that CSR funds
will amount to only 2-5% of the government’s development expenditure.
CSR’s biggest contribution perhaps is to influence and shift the outlook
of the company from merely thinking ‘how much profits’ to thinking on
‘how its profits can be used for the benefit of the society and the
This article has been adapted from an essay written by the author for a
conference organised in June 2018 by the Duke Human Rights Centre at
Keenan Institute for Ethics, Duke University, USA entitled Four Years
On: Taking Stock of India’s Mandatory Corporate Social Responsibility
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