Sustainability is a business based on the philosophy of triple bottom line, encouraging companies to be more aware of their economic, social and environmental impact on the society.
The society piece is generally referred to as CSR in common language. Corporate Social Responsibility (CSR) assumes significance as it permits companies to engage in projects or programs related to social welfare and improvement enlisted under the terms of Companies Act, 2013. There is an element of flexibility in company activities by allowing them to select their preferred CSR engagements that are in agreement with the overall CSR policy of the company.
The Ministry of Corporate Affairs has defined guidelines for corporates. It says, “Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.” The eligible corporates are supposed to spend 2% of the average of three years’ PAT.
Having understood the concept, the very purpose of CSR is to drive change that is sustainable in nature. As a CSR professional, when I say this, I mean not to just cover up the 2% mandate that I have in hand for a specific financial year but I also mean having relevant projects and avenues in my hand so as to take them forward for years to come and have a larger impact. The long-term impact is where most corporates have come up short. A large proportion of corporates continue to do CSR to fulfill the 2% obligation.
The bigger question is that should CSR be seen as an obligation or a liability or should we look at it as our responsibility towards the society and the environment? Working in a corporate set up, one understands the importance of sustainability and CSR. The beautifully woven concept of sustainability is a win-win situation for all, if taken in its true spirit.
Some people are of the view that the government’s claim of the country growing at an average rate of 7.2% and being one of the most development-oriented economies in the world is not true. Also, they feel that spendings on Corporate Social Responsibility (CSR) during 2016-17 are a reflection of the fact that the corporate world is not doing well, quoting data from the Ministry of Corporate Affairs website.
To me, this may just convey half-truths. The claims do not stand true from where I see.
In a recent report published in the Economic Times, renowned consultancy KPMG suggests that compliance with Corporate Social Responsibility (CSR) regulations continues to be robust while expenditure on such activities too shows an increase. The consultancy has been tracking CSR spending by top 100 listed corporates since 2014. It’s latest survey finds that a sizeable number of companies spend more than the prescribed 2% amount.
The data clearly shows that the spending across top 100 companies continues to increase. However, the Ministry of Corporate Affairs site lists data for 2014-15 and 2015-16 only. Secondly, in 2014-15 the data is for 7,334 companies however in 2015-16 the data is for 5097 companies which mean that 2237 companies did not file the data. It’s a large number and can completely change the calculations. Therefore, to my mind, it would be incorrect to compare the data and arrive at an inference that the corporate world has not done well throughout the year.
As we all know, India was the 10th largest country by GDP in USD terms in 2014. Today, it is the 5th largest country by GDP in USD terms in 2018. This means we have moved 5 spots in 4 years which is the fastest ever in the history. Below is the table that shows fastest growing economies in the world and India has shown a consistent growth rate.
To further make the picture clearer for myself, I selected a handful of 42 companies out of the top 200 based upon their market capitalization listed at the BSE. These are a mix of both public sector (7) and private sector companies (35), under 12 respective sectors. Analysis of these companies has been done over the year on year revenues and PAT followed by their CSR spends, starting from 2014 until 2017. And we must keep one thing in mind that most of these companies would be contributing to the majority of the country’s CSR spends.
The research clearly shows the following:
- Out of the 42 companies, 24 companies have an increased revenue as well as CSR spend. Similar to this, 22 companies have an increased PAT as well as CSR spend which is approximately more than 57 % of the total number. These numbers state that there is neither any sensitivity in the corporate world nor is it affecting the CSR expenses.
- The survey shows a decline of CSR spends in 11 companies while the revenues have been on a high. The trend is almost the same (10) in terms of the PAT as well. This concludes to just 26% of the total companies. It is evident that the reason is not the business but something else.
But honestly, CSR and sustainability has to be viewed through a different lens. Corporates need to take it as their responsibility and an investment rather than a mere obligation to spend. If the attitude changes, it will benefit the entire country and the world.
The picture above also illustrates the fact that CSR spending in top 10 companies of the country is not dipping. We need to continue to be positive and believe in the cause of CSR and sustainability.