How serious is the problem of non-compliance of the CSR provisions?

The Ministry of Corporate Affairs is taking a fresh look at provisions under corporate social responsibility (CSR). It recently set up a high-level committee (HLC) to review the existing norms. An 11-

member committee has been asked to set out a ‘roadmap for a coherent policy’ on CSR.

A member of the HLC noted that the date of the first meeting will be significant, as the committee is required to submit its report within three months of the same. The terms of reference, circulated to the members, include recommending guidelines for the enforcement of CSR provisions, suggesting measures for adequate monitoring and evaluation of CSR by companies, recommending financial, social and performance audit for CSR and analysing outcomes of CSR activities and programmes.

Time for review

Given that the CSR norms came into place only in 2014, the central government’s review is taking place on the cusp of the fifth year of these norms. The first HLC, set up in 2015, had recommended a review after three years, contributing to the timeline of this review.  But is it too soon to assess the impact of provisions?

For any policy or initiative to be evaluated for success or measures, it should ideally have been in practice for a minimum of five years, noted Richa Bajpai and Abhishek Humbad, founders and chief executive officers of Goodera, a CSR management platform. “Review of the norms should focus more on removing the loopholes which were being exploited till date,” said Bajpai.

Kalpana Unadkat, corporate partner at law firm Khaitan & Co, noted that the impact of any CSR policy on society will be seen only after five years. “We need to have patience,” she adds.

Compliance issues

In August, the Corporate Affairs Ministry, in response to a question in the Rajya Sabha, said that it had sent preliminary notices to 272 companies for the enforcement of CSR provisions. So, how serious is the problem of non-compliance of the CSR norms?

Experts were of the opinion that rather than a problem of non-compliance, various challenges related to the norms contributed to companies' failure to comply. “Initially there was a lot of confusion in relation to the compliance norms,” Unadkat said, adding that, “now, the rules are clearer.”

However, several practical issues can crop up at the time of compliance, said Niraj Seth, associate partner, advisory services at EY India. “Sometimes (companies) find it challenging to select an implementing partner (NGO) with at least three years of relevant work experience. There should be a way to map degrees of non-compliance,” he added.

Bajpai and Humbad said that the inability of spending the full CSR funds needed addressing. “In one of our recent study, we found out that companies that are facing non-compliance issues are mostly struggling to find the right causes to invest in or align with the right NGO partners,” said Bajpai.

Changes needed

Experts outlined some of the areas that needed further focus. Bajpai and Humbad highlighted several issues, including mandating CSR funding to least developed districts and removing the 5 per cent cap on administrative cost.

According to them, capacity building of NGOs is critical for the growth of this sector and to bring in more accountability and better talent. Additionally, impact measurement of the projects could be made mandatory. Companies should be asked to report on the quantitative and qualitative impact of their programmes, they added.
Seth pointed to the issue of incubation centres that find mention in the list of activities for CSR spends under Schedule VII of the 2013 law. “The ambit of setting up of incubation centres needs to be expanded. Having these centres in organisations, not just in academic institutions, will give a fillip to the development of new ideas. Often, organisations with proven innovative ideas struggle to raise funds for scaling up their work,” he added.

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