Don’t tinker with CSR

Having imposed a mandatory quota for Corporate Social Responsibility on private enterprises only last year, our policymakers seem to be getting unduly impatient. In February, even before the first set of corporate disclosures on CSR were out, a high-level committee headed by former home secretary Anil Baijal was hastily constituted to review the framework for corporate CSR. The committee submitted its report in September and mostly endorsed the existing law. It suggested that the Centre give companies two to three years time to get their CSR initiatives up and running. Last week, a new parliamentary panel again criticised companies for falling short of the quota and not targeting the “poorest of the poor” in their CSR work. It also chastised public sector undertakings for not leveraging their prior experience to meet the quota. It went on to recommend that the CSR law be tightened so that companies can be penalised for not spending the required sums on CSR the same year. This would be a retrograde step if implemented.

By making it a statutory obligation and mandating private enterprises (of a certain size) to spend 2 per cent of their average net profits over the last three years on it, India has adopted a unique position on CSR. The world over, CSR is a voluntary activity. The country’s leading companies that have failed to spend the required sums this year, are not resisting CSR, but have faced challenges in meeting the yearly quota. Some firms have invested in long-gestation CSR projects of 3-5 years, where outlays are not uniform each year. Others have expressed a desire to spend on sustainable initiatives that they are able to vet carefully. It is after taking stock of such inputs that the Baijal committee asked the Centre to stay its hand, and give companies “learning time”. At present, corporate boardrooms have the responsibility of overseeing CSR budgets and explaining any shortfall to public shareholders, a sufficient deterrent to non-compliance. The corporate affairs ministry can, if needed, open for public scrutiny the detailed filings that companies make on the nature and extent of their CSR activity. The demand that corporate CSR must alleviate the suffering of the “poorest of the poor” is noble but somewhat ambiguous, in the absence of a clear definition. Having provided a shortlist of activities that qualify, the Centre cannot suddenly shift the goalposts.

Finally, pointing fingers at PSUs for falling short of their quota is also unfair. The CSR obligations imposed on PSUs by the department of public enterprises are already far more stringent than those contained in the Companies Act. In any case, with these firms required to chip in to assist virtually every pet scheme of the Centre, from opening Jan Dhan Yojana accounts to providing internet connections in the rural hinterland, they are already shouldering more than their fair share of CSR.