Strengthening CSR framework is a profitable idea

Since the establishment of the Corporate Social Responsibility (CSR) regime in India under Section 135 of the Companies Act 2013, CSR spending in India has increased from ₹10,065 crore in 2014-15 to ₹24,865 crore in 2020-21. But there is no data to verify whether this increase is commensurate with the increase in profits for Indian and foreign (having a registered branch in India) companies. Further, there were 2,926 companies with zero spending on CSR in 2020-21, while companies spending less than the prescribed limit of 2% increased from 3,078 in 2015-16 to 3,290 in 2020-21. The number of companies participating in CSR also declined – from 25,103 in FY19 to 17,007 in FY21.

If a company spends more than the minimum amount of 2% as prescribed, then the excess amount can be adjusted against the expenditure in the next three financial years. The latter provision in the Act dilutes the former provision as the 2% requirement is only a minimum requirement. Ideally, companies should be encouraged to spend more than this. In addition, many private companies have registered their own foundations/trusts to which they transfer the statutory CSR budget for use. It is not clear whether this is allowed under the Companies Act/CSR Rules.

geographic bias

The first provision of section 135(5) of the Act is that the company should give preference to the local areas/areas around it where it operates. This is logical. However, a report by Ashoka University’s Center for Social Impact and Philanthropy states that 54% of CSR companies are concentrated in Maharashtra, Tamil Nadu, Karnataka and Gujarat (recipients of the largest CSR spenders), while populous Uttar Pradesh and Central The state gets very little. A high level committee observed in 2018 that the emphasis on ‘local area’ in the Act is merely prescriptive and balance has to be maintained. Unfortunately, this ambiguity in the absence of clear percentages for local expenses has left much of the discretion of the boards of these companies. face to face Other area spends.

Item (iv) of Schedule VII of the Act deals with wider environmental issues to create a countervailing effect. However, an analysis of CSR spending (2014-18) shows that most of the CSR spending is in education (37%) and health and sanitation (29%), while only 9% is spent on the environment in the form of extraction industries such as mining. it was done. In many states harmful to the environment.

Under the current regulation, monitoring is done by a board-led, disclosure-based mechanism, in which companies annually report their CSR spending to the Ministry of Corporate Affairs (MCA) by filing annual reports. It is not known whether these reports have been reviewed and companies have been employed. A major issue with this design is that it focuses on production rather than quality of expenditure and its impact. The Standing Committee on Finance had also observed that information on CSR spending by companies is inadequate and difficult to access.

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According to the ‘Technical Guide on Accounting’ issued by the Institute of Chartered Accountants of India, a company is required to mention only its CSR expenses, non-expenses, under-expenditure and over-expenditure in the ‘Notes to Accounts’. Additionally, an auditor can only examine the statement of expense and question the board as much as possible about its authenticity. However, it is not mandatory for the auditor to qualify the accounts for non-compliance or inadequate CSR performance in the audit report, a feature that can be helpful in ensuring its compliance.

a path to follow

There is a need to create a national level platform centralized by MCA where all states can list their potential CSR-acceptable projects so that companies can assess which of their CSR funds will be most impactful across India, of course, regions Preferential treatment for where they work. Invest India’s ‘Corporate Social Responsibility Projects Repository’ on the India Investment Grid (IIG) can serve as a guide for such efforts. This model will be very useful for supporting eligible projects in 112 aspirational districts and projects identified by MPs under the Sansad Adarsh ​​Gram Yojana of the government.

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Companies need to prioritize environmental restoration in the area where they operate, setting aside at least 25% for environmental regeneration.

All CSR projects should be selected and implemented with active participation of communities, district administration and public representatives.

The recommendations of the High Level Committee should be incorporated in the existing CSR framework in 2018 to improve the existing monitoring and evaluation system. These include strengthening the reporting mechanism with enhanced disclosures related to the selection of projects, locations, implementing agencies etc.; Bringing CSR under the purview of statutory financial audits, and mandatory independent third-party impact assessment audits, with a statement of CSR expenditure included in a company’s financial statement. Since the government itself has launched separate schemes for sanitation, water supply and education (listed in Schedule VII), steps are necessary to prevent duplication and fraud.

CSR non-expenses, under-expenses, and over-expenses must be qualified by the auditor in the audit report of the accounts, not just as a note to the accounts.

More direct monitoring of CSR spending by companies through respective ministries (for PSUs) and other industry associations (for non-PSUs) instead of hosting all information on Ministry’s website only, MCA and concerned departments and need to be supervised. ,

Amar Patnaik is a Member of Parliament, Rajya Sabha from Odisha and a former Comptroller and Auditor General (CAG) bureaucrat of India. he is also a lawyer