The Companies Act 2013, which took effect from April this year, requires large and profitable companies[1] to spend 2 per cent of average net profits during the three immediately preceding financial years in pursuit of their corporate social responsibility (CSR) policy. While the act does not make spending of the 2 per cent mandatory, it does require companies either to report spending or to explain their failure to spend. How are companies and NGOs responding?

The act makes company boards responsible for compliance, taking CSR discussions right into the boardroom. The CSR committee (comprising board members) must recommend a CSR policy, indicating activities to be undertaken and expenditure to be incurred, and monitor the policy. Having approved the CSR policy, the board must ensure it is made public; that agreed activities[2] are undertaken; and that spending is reported or failure to spend explained – an expend or explain approach.

The act encourages companies to work with lean CSR teams and maximize funds spent on projects by allowing them to collaborate among themselves (provided they can separately track and report company spending). CSR spending must be for poor and disadvantaged communities, not only for the benefit of employees and their families. It must be measurable in rupees. Advocacy and human rights spending is not included – these are causes that businesses generally do not support.

How are companies responding?
Based on financial information for the past three years, 16,358 companies would be required to spend US $2.5 billion to $3 billion in the current financial year, while a 2008 study of 1,000 of the largest Indian companies by Karmayog.org found that 49 per cent did no CSR. It therefore seems that for nearly 40-50 per cent of the companies, the next couple of years will involve learning CSR from scratch. Some are likely to make a donation to the Prime Minister’s Fund or other central government funds or contribute to well-known NGOs.

But a couple of hundred companies that are already doing CSR are working on aligning their current programmes with the requirements of the act. Multinational corporations that have been implementing CSR under global initiatives are engaging leading law firms to help them understand the implications. The remaining midsize to large companies will be much sought after by individual consultants and firms seeking to advise them.

Leading industry associations such as the Confederation of Indian Industry and FICCI (Federation of Indian Chambers of Commerce and Industry) have been organizing seminars and workshops, while the Department of Public Enterprises has been running workshops for CSR managers. Several task forces have been set up by industry bodies for creating matchmaking portals, documenting case studies and organizing events to bring NGOs and corporate CSR face to face. The Indian Institute of Corporate Affairs has been organizing outreach programmes for companies and NGOs, and has launched a CSR certification course.

How are NGOs responding?
Out of about 2 million NGOs in India, fewer than 5,000 have been attending workshops and conferences, responding to forms and surveys, etc. Of these, about 3,000 have been seriously engaging foundations, companies, high net worth individuals and India’s decade-old online philanthropy marketplaces. These NGOs are taking concrete steps to engage companies: understanding requirements of the new act, getting validated by organizations such as the Credibility Alliance and GuideStar India; participating in CSR events; strengthening their fundraising team, and so on. There is some nervousness about how to access CSR funds. While the CSR kitty is not trivial, it is likely that the incremental flow will be only about US $1.5 billion to $2 billion, almost the same as the US $1.9 billion received as foreign contributions by 13,193 NGOs during the year ended March 2012. Many government programmes implemented through NGOs have bigger budgets.

Challenges and opportunities
It would be a pity if companies overlooked the existing knowledge and infrastructure created by foundations and philanthropic intermediaries and started reinventing the wheel. Companies and NGOs need to learn about one another and build trust.

The act will bring greater transparency in corporate giving. By 2020, CSR is likely to be more evolved and generate more information to inform giving. The work of NGOs will gain more visibility and market forces will drive greater efficiency and effectiveness. In a few years, CSR rules could move towards giving greater flexibility and shift the accent on reporting from ‘spending’ to impact and outcomes.

1 Companies having a net worth of Rs 5 billion or more or a turnover of Rs 10 billion or more or a net profit of Rs 50 million or more. (Rs 60 = approx US $1.)
2 As per Schedule VII of the Companies Act 2013.

Pushpa Aman Singh is CEO of GuideStar India. Email pushpa@guidestarindia.org