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The business of business is not limited to business alone

Mar 30, 2017

The Companies Act 2013 set the CSR ball rolling and made India Inc realize that charity must begin at home, and not just literally. But even as India Inc loosens its purse strings, there seems to be a long way to go.

New Delhi: “The business of business is business.” Friedman’s theory long remained an aphorism of sorts in the capitalist world. Though not quite in the corporate quarters of a land where Gandhi’s socio-economic policy of trusteeship had taken roots much earlier. The enactment of Section 135 of the Companies Act2013, made Indiathe first country in the world to include provisions on corporate social responsibility (CSR)in the Company Law. The mandate required corporates to spend atleast 2% of their average net profit (earned over the last three years) towards various social causes, besides compulsorilyreporting the same. Till date India remains the only country to have such a mandate. Corporates in rest of the world still exercise voluntary discretion.

India’s progress has been slow yet steady. When the legislation came into effect, experts estimated nearly Rs200 billion in capital to be generated annually through the money spent by 16,000 odd companies on CSR.

According to Bain& Company’s‘India Philanthropy Report 2017’, companies and individuals contributing around Rs 70,000 crore towards philanthropy in 2016, as against Rs 23,000 crore in the previous year.

Anotherstudy of 920 companies*by market monitor Prime Database reveals that India Inc spent Rs 8,345 crore as part of their CSR obligation in 2015-16, a 28% increase over Rs 6,526 crore spent in the previous year.The unspent amount for the year stood high at Rs 1,984 crore! A whopping figure indeed, though far lesser than the unspent corpus of 2014-15 --Rs 2,583 crore. A bright scenario or bleak;Is the glass half full or half empty?It is a classic case open to debate and perception.

Bridging the Welfare Gap

K. Jawaharlal, Head Projects, Confederation of Indian Industry (CII) Foundation, finds a discerning trend in India’s CSR journey: “No government has introduced a legislation as we have in India and the rising figures are indeed very encouraging. Earlier, CSR was largely a peripheral activity. Now it is part of a company’s DNA. At the same time, we must acknowledge that CSR can only supplement the government’s efforts; it can fill certain gaps. More than the money, it is the impact that the corporates can create.”  As part of the Foundation which undertakes high impact projects for the upliftment of the marginalized through CSR funding, Jawaharlal has his finger placed firmly on the pulse of the industry.

Quite so. While CSR pool may be no match for the government’s corpus monetarily - in FY 2015 alone, more than Rs 2.1 trillion wasallocated to flagship programmes targeting employment,elementary education, nutrition and food security – the corporate intervention certainly can be more focused and innovative. But even as the government remains the largest contributor of funds to the development sector (a corpus that has increased from Rs1,50,000 crore to Rs 2,20,000 crore in last five years), its share in total funding has been declining steadily.

Bain’s report points out that ‘private contributions primarily accounted for the Rs70,000 crore five-year growth. Private donations made up 32% of total contributions to the development sector in 2016, up from a mere 15% in 2011.’

Besides, there is a stellar case for collaboration here. Recently, the Ministry of Railways invited the industry to create innovative solutions in water management and renewable energy through CSR. With 8,000 railway stations sporting a seven billion footfall, the opportunity is enormous to say the least. Elsewhere, the Kerala CBSE School Management Association, a body consisting of 1,360 unaided CBSE schools,too has asked HRD ministry to permit them to collect donations from corporate for self-sustenance. The will to walk hand in hand to achieve welfare goals is more than apparent.And there is plenty of scope too – be it pooling CSR funds to drive big projects, collaborating to wrestle with gargantuan problems or driving advocacy.

Vijay Ganapathy, Partner, Thinkthrough Consulting(TTC), a professional services firm providing advisory support to organizations working on social development initiatives, is on the same page: “The thought of creating a parallel structure in this context is certainly not sustainable. The companies need to walk together with the government. They should look at creating innovative successful models that can be replicated and scaled up. They must focus on a cause and show that it is possible to achieve success.”

Business Case for CSR

In a seminal article published in ‘Harvard Business Review’ nearly a decade back, Michael Porter and Mark Kramerproposed a fundamentally new way to look at the relationship between business and society that does not treat corporate growth and social welfare as a zero-sum game. They saw CSR as a potent source of innovation and competitive advantage. “Perceiving social responsibility as an opportunity rather than as damage control or a PR campaign requires dramatically different thinking—a mind-set that will become increasingly important to competitive success,” they contended.

CSR in India too has been steadily moving from the general philanthropic space that it once occupied to a strategic one. For conglomerates, such as the Tata, it is an imperative. “Business responsibility for top performers is more than compliance. It’s a strategy,” adds Rana. Having bagged four positions in the top ten list in the IIM(U) study - Tata is certainly a case in point. The group engages with more than 800 NGOs, spending over $200 million every year on CSR initiatives. Besides 66% equity of the principal investor holding company is vested with private philanthropic trusts. The group works across a wide spectrum of issues – ranging from environmental sustainability to revival of traditional tribal sports and musical instruments like Banam, Tuhila and Mandar.

Bharti Foundation, the philanthropic arm of Bharti Enterprises, presents another noteworthy example. Its government school interventions have reached out to over 85,000 students across 1,292 government schools in eight states. “To ensure sustainability and impact at scale, the knowledge accrued over the years is being systematically shared through our government school interventions - the Satya Bharti Quality Support Program and the Satya Bharti Learning Centres Program. We operate with the belief that government school teachers and children across the country possess the potential and capacity to transform their schools into centres of excellence,” shares Vijay Chadda, CEO, Bharti Foundation.

As Good As It Gets

‘Gearing up for Responsible Growth – India’s Top Companies for Sustainability and CSR 2016’, a recent report by Indian Institute of Management (Udaipur) etal, looked at 217 companies and found the companies chose to have unspent amount in the year in the absence of qualifying projects rather than disbursing the same as donations or in various government funds.“Only 69% of committed spend was realized…and just 32% of companies hit the mandated 2% mark,” shares Namrata Rana, Director at Delhi-based customer experience company Futurescape and co-author of the report.

The gaps don’t go unaccounted for as compliance is a matter taken much seriously. Recently, the Registrar of Companies (RoC) served warning to about 100 companies over non-disclosure or improper disclosure of their CSR spending. Reportedly, the consequences of failing to provide adequate details are dire. The rules are strict and just signing off a cheque to support a cause isn’t enough anymore. The mandate requires the companies to adopt a project/ programme mode as one-off events such as marathons/ awards/ charitable contributionetc do not qualify as CSR any more.The Ministry of Corporate Affairs (MCA) too hasreportedly condemned companies for failing to meet the 2% mandate. Rejecting their reasons for underspending, the Ministry has shown them an avenue to meet their targets - the Prime Minister’s Relief Fund.

Interestingly, the Prime Database study found the Prime Minister’s National Relief Fund along with other funds set up by the central and the state governments to be the biggest gainer. The contribution from India Inc jumped 418%- from Rs 167 crore in 2014-15 to Rs 868.7 crore in 2015-16. “Writing a cheque to the relief fund is essentially taking the easy way out. And also an efficient way of doing it. It is something we can term as passive CSR. Active CSR requires creating a bandwidthwhich is not easy,” says Pranav Haldea, MD, Prime Database.

The Challenges

It is not difficult to fathom why several companies are failing to meet the mandated CSR spend. “Currently a lot of companies find it challenging to identify the right cause to invest in; find the right partners to work with; designing an implementation strategy...They do not even have CSR professionals. The profile is usually delegated to someone working in the HR or marketing department. Maturity in the domain will come in another couple of years,” explains Ganapathy of TTC.

That quite explains the launch of academic programs to cover this gap. Recently, the Indian School of Business (ISB) launched an executive education programme for CSR professionals,directed at companies that look at sustainability as a competitive advantage.

“True CSR fosters innovative entrepreneurial ideas that support sustainable developmentopportunities. Although, the Indian CSR mandate and the associated financial expendituremay seem like an unwanted hindrance to a percentage of companies affected,it aims at providing long-term solutions to pressing challenges.An investment in sustainability can no longer be viewed as a privilege, only capable of being implemented following economic stability; rather, as a means of achieving stability and maintaining it long-term. With the environmental resources upon which all life depends declining at alarmingrates, there is no time to wait,” says Prof.Dr. René Schmidpeter, Director, Centre for Advanced Sustainable Management, Cologne Business School, Germany.

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