India's CSR journey must alter course to cater to pandemic-ridden society

Corporate Social Responsibility, CSR, in short, has been a buzzword for years. India is among the few countries in the world, where doing social good is a matter of compliance and not merely dependent on the goodness of corporate leaders. CSR has taken multiple shapes and forms in the last decade but let us first understand the CSR journey in India to suggest what direction it could and should take in the future.

To begin with, one needs to know that CSR is a very Indian phenomenon. Countries across the globe do not have mandated social spending, and even those who encourage social spending, do it in the form of incentives rather than in the form of penalties. Companies spend on social causes to mitigate their impact on society rather than because of a government mandate.

Indian companies too started out with that noble purpose. Before the 1990s, India saw the rise of a number of home-grown brands such as the Bajajs, Tatas, Reliance and Adani etc. These companies, especially, the stalwarts such as the Tatas engaged more in nation-building rather than profiteering.

Much has been written and spoken about this phenomenon and the Tatas, consistently rank amongst the highest social spenders in the country. They have also been pegged as the most employee-friendly company in the country. Similarly, other Indian corporate giants have been known for their benevolence and charitable engagements for many years. This, was the background to the social spending movement by India’s corporates.

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When India opened up its economy in the 1990s, there was increasing debate about the role of the government as a mediator or a facilitator in the market. Amongst the various roles the government chose to play, one role was that as a protector of the poor. It was the time when India was still considered to be the poster child of poverty. Hence, efforts were more targeted at reducing poverty rather than focus on environmental issues and human rights, as is the case today.

Companies continued to spend on social good out of their personal interest and goodness of heart rather than due to any mandate.

The Shift

In 2014, there was a dramatic change in the approach of the companies towards CSR after amendments were made to Section 135 of the Companies Act. This amendment mandated that companies needed to spend 2% of the net profit of the previous three years if – (i) their net worth was ₹500 crores, (ii) if they had a turnover of ₹1,000 crores or (iii) if they registered a net profit of ₹5 crores.

The Amendment further mandated that activities must be in programme mode and cannot be spent on business activities, advertisements and cannot involve more than 5% on training of personnel. On top of that, companies had to face stringent redressal norms such as fines and imprisonment if they were found defaulting on the above rules, a further amendment introduced in 2019.

The think-tanks of the country came out with lists of pros and cons of such a move. Some said the Amendment was progressive, while others reasoned that this would demotivate companies to spend on social good and make them stick to the bare minimum. Yet, figures show us that this rule seems to have some modicum of success, with the maximum investments being made in areas of education, health and community development, as early as in 2014.

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The figures in CSR spending have also seen a record jump from ₹6,552 crores in 2014 to  ₹11,867 crores in 2018-19. In the years 2018-19, CSR budgets went largely to tackle hunger, poverty reduction, education and skilling as well as addressing gender and inequality issues.

Companies on the CSR route

The companies that have taken the CSR mandate seriously include companies such as the Reliance Industries Limited, TATA Consultancy Services, HDFC Bank, Infosys and public sector undertakings such as ONGC and BHEL. In 2020, Infosys, TATA Chemicals and Mahindra and Mahindra found pride of place at the top of the CSR charts, along with ITC and the Vedanta group.

The methodology has also been varied, with a few setting up foundations of their own such as the Reliance Foundation and the Infosys Foundation, while others such as Accenture and TCS support established non-governmental organisations.

It has been found that about 60% of CSR funding till date uses approach 1, while the remaining 40% use approach 2. The second approach also comes at an opportune time, since most Indian NGOs today face huge shortage in funds due to India’s emerging face as a rapidly developing nation, which is open to provide support to other countries that are not doing as well.

India today, no longer features in the world’s roster of ‘poor’ countries’ and hence, NGOs find it difficult to raise foreign funds easily and are short-strapped for funds. This is further complicated with the stringent Foreign Contributions’ Regulatory Act (FCRA) that has tightened regulations on foreign funding being pumped into India.

With some of the globe’s richest people living in India today and with India’s emerging status as a global leader in business and trade, it is difficult to ask for foreign funds to address local issues of development. Hence, CSR funds have been used to try and bridge this gap.

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Responsible business vs business expenses

The major difference between the CSR models of India and other countries across the globe lies in the concept called ‘responsible business’. Responsible businesses are ones that invest time and energy in taking active care of their immediate stakeholders. These include offering better policies for their suppliers, distributors, farmers they engage with, producers they work with, having better HR policies and better environmental/ greener practices and overall, a better impact as a business.

In India, most of these would fall under ‘business expenses’ and would not be considered under the CSR bracket. In responsible businesses, the actions depend more on the initiative taken by the company rather than on any external compliance issue. There are, of course, pros and cons to both and the general thought, is that the Indian market may not be mature enough to depend on businesses taking their own initiative. And, hence they need compliances and the fear of retribution to take up CSR seriously.

As mentioned earlier, most CSR spending in the last five years have gone to education, health, skilling and community building with a specific focus on gender issues. Over the past five years, we have also seen an increased focus on climate change, environmental issues and the like. But it is to be remembered that considering the fact that companies are the ones mostly causing environmental degradation, hence CSR may not be the right answer for them.

As a result, CSR funds on environmental issues remain restricted to environmental education at a primary level, beach-clean ups and the like, rather than asking key systemic questions. Here is where CSR differs from responsible businesses in terms of impact.

The role of CSR in the pandemic

Over the past one year, we have seen the impact of a pandemic which has virtually brought the world to its knees. At the outset, the government announced that spending to combat COVID would be considered as a CSR expense and hence, companies rolled out first few items on the checklist, including provision of masks, sanitizers etc.

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Civil society movements brought focus on the plight of labourers and the need for basics such as food and clothing for the same. With time, companies have started focusing on free vaccinations and health drives, testing, food and nutrition as well as maternal care for the needy, who were affected most by the pandemic.

Yet, the most critical need of the hour is to look at the needs during a pandemic from the lens of responsibility. It is not adequate to simply give and forget anymore. There are critical areas of development that need to be covered. Most companies, have come forward and have decided to take the onus of vaccinating employees and their immediate family members. Considering that vaccination is already subsidised in India, this priority seems to be well taken care of.

Shouldering responsibility

Areas of concern remain however. For most people, jobs have become scare with unemployment becoming rampant and there has been a more sinister significant rise in contract employment. Such developments are subversive and increase the level of fear and insecurity among the masses.

People have lost jobs with the unemployment rate hitting almost 9% in India in 2020, over 1.6 billion children across the globe have been impacted in areas of education and health, even as mental health and gender issues have taken a backseat.

In such times, shouldering the responsibility of one’s labour force, from contract workers to salaried employees and the immediate community around them would be the first few critical steps. Considering the large number of individuals employed by the unorganised sector in India, companies need to remember that in the last mile, they interact with one form of the unorganised sector or the other. Ensuring last mile service and benefit during uncertain times, ensuring digital support and help for education and health needs and creating resilient communities which can withstand such shocks are the need of the hour.

India today needs income security, food security and the security of a roof over people’s heads. Provisions of these basics along with investment in education and market-based skilling for the future generation may be other steps, companies could take to fulfil their CSR for the future.

It may also be time to face our hypocrisy when it comes to climate action. We still use the recycle sign at random and yet companies take very little cognisance of where their products actually go at their end-of-life stage. We talk about the need to conserve water and yet the message of water conservation is given to children who barely have access to drinking water.

Instead, there is a need to focus on infrastructural development for rainwater harvesting, better irrigation facilities and lesser usage/ better treatment of water at the industrial levels. Such systemic changes are, therefore, the need of the hour.

India may not be mature enough to embark on the path to creating responsible businesses. Yet, the market demands and the needs that a pandemic have brought forth are clear – we do not have time to think and plan – we need to start doing – and the deadline was yesterday!

The writer is Assistant Professor, Strategy & Sustainability & Co-Chair, TAPMI Centre for Inclusive Growth & Competitiveness T A Pai Management Institute, Manipal, Karnataka