It has been over a year since India instituted the world’s first corporate social responsibility (CSR) law in an effort to bring in the private sector to share the cost of addressing social issues. The new law makes it mandatory for companies of a certain size to allocate 2 per cent of their average net profit over three years for development programs. We asked Noshir Dadrawala to share his view on what this legislation means for CSR and philanthropy in India, lessons and challenges so far, and the role to be played by various actors and infrastructure organizations. Dadrawala is the chief executive of the Centre for Advancement of Philanthropy (CAP), a support organization that seeks to create an enabling environment for the growth and development of philanthropy within and for India, for both donor and recipient organizations.
WINGS: How was the scenario of corporate giving in India before the new CSR law?
Noshir Dadrawala: This is not a new concept in India. Some of the older companies in India like Tata, Godrej, Birla, Bajaj and Mahindra have been giving for decades – some of them for more than a century. These companies established their foundations long before the term CSR was coined. They were driven more by the philosophy of “trusteeship of wealth” expounded by Mahatma Ghandhi. Later this evolved to corporate philanthropy which was often referred to as “chequebook philanthropy” – this was often reactive (in response to a request for funding or a natural disaster) rather than proactive, strategic and sustainable. Later some companies bought into the idea of “corporate responsibility” and returning to society what one takes from society. Of course there were also a large number of companies who mistook staff welfare and development for CSR. Some companies gave as part of their PR strategy.
WINGS: Is India’s step to a unique mandate on corporate social responsibility promising?
ND: It’s too early to arrive at any conclusion. However at the end of year one, only 25% of the estimated funds seems to have been spent on CSR. This is because the law emphasises on CSR disclosure and not on spending. A company has a clear option under law not to spend even a rupee on CSR and yet not be penalised as long as it discloses in its annual report and website that it has been unable to do CSR and provide the reasons why. The Ministry of Corporate Affairs calls this a “show or shame” policy – show that the corporate is socially responsible or shame that it did not. But for many companies this is their first stab at CSR and given time they are likely to do more.
WINGS: The law has been effective for a year now, are there any lessons or particular challenges from these initial stages?
ND: There are about 16,000 companies that fall under the category that requires mandatory CSR spend. The key challenges revolve around aligning CSR to the company’s business interest. Also, the law does not factor in employee engagement. The law has reduced CSR to simple arithmetic – calculate 2% of the company’s net profit over a block of 3 fiscal years and spend it on projects and programs outlined under Schedule VII of the Indian Companies Act. It underplays corporate sustainability and corporate shared value. Little wonder some companies view this as an additional “charity tax” on companies. Furthermore, as of the moment, there is no provision under the law for CSR audit and hence the onus of audit will fall on the company’s statutory finance auditor.
WINGS: The law was a unique and innovative way to encourage social good and corporate giving, is there more the government, the philanthropic sector, and civil society could do?
ND: Yes, of course! To begin with there is a need to sensitize first time practitioners and build awareness as to why CSR is important and what value it brings to the company, be it in terms of enhanced brand equity or attracting and retaining quality human resources – employees, customers and investors. Implementing agencies and program partners (NGOs) also need to demonstrate a high degree of transparency, accountability, professionalism and performance.
WINGS: What’s the role of infrastructure organizations in helping companies implement CSR programs?
ND: One of the key roles such organizations can play lies in strategic planning, gathering data, documenting the work and measuring impact. Companies have little understanding and knowledge of social and developmental issues. Companies need to think and plan strategically in terms of addressing deep and vexatious societal issues. The law allows pooling of resources in order to enhance effectiveness. But, all this requires expertise and experience at a grassroots level. A vast majority of companies are SME (small and medium-sized enterprises) with very small CSR budgets. Many of them are serious about CSR but just don’t know how to go about it.
Image: Centre for Advancement of Philanthropy. More WINGS interviews here.