Corporate social responsibility (CSR) spends by companies have touched Rs 50,000 crore in the four financial fiscals to 2018, the unspent amount is higher at Rs 60,000 crore during the same period underlining the need
to improve the framework, says a report.
The Companies Act, 2013 makes it mandatory for businesses with Rs 500 crore in annual revenues to set aside 2 percent of their profit for social good or affirmative action.
The cumulative spending from FY15-FY18 has topped Rs 50,000 crore, and includes Rs 34,000 crore by listed entities, accroding to a Crisil report Thursday.
"As spending reaches meaningful proportions, there is a need to improve the quality and the impact of all that spends on the ground," the report said.
The report noted that capping the total CSR spend at 5 percent of the total money set aside for CSR needs to be relooked as firms have singled this out as a factor holding them back from enhancing their own in-house CSR capacities.
"Implementation entails multiple costs such as salaries of dedicated CSR staff, administrative overheads, establishment expenses, communication expenses, professional fees, statutory filing and related consultancy etc, which are difficult to keep within the 5 percent limit," it explained.
There is also a case for ensuring robust due diligence before appointing an NGO/voluntary organisation partner, it said, adding governance and impact achieved are two areas which need assessment.
An independent third-party evaluation like grading of the NGOs/implementing agencies should be considered to gauge a potential partners ability to drive the desired social impact, it said.
Under the Companies Act, a company is required to spend 2 per cent of its average net profit of the preceding three years on CSR if it had in any of those years net worth of Rs 500 crore or more, turnover/revenue of Rs 1,000 crore or more, or net profit of Rs 5 crore or more.
The report said a third of the 1,913 listed companies which qualify for CSR spends did not spend the money due to multiple reasons.
As much as 341 said they were unable to spend because of reasons like a delay in identifying projects, setting up the requisite inhouse expertise, 45 did not report CSR activity, annual reports for fiscal 2018 were not available
for 118, and 163 said they were not required to spend either because they did not meet the criteria or were loss-making.
An additional Rs 2,380 crore would have been spent last fiscal had all the listed companies spent the stipulated 2 percent of profit, it said, adding the total unspent amount is Rs 60,000 crore over the last four years.
The report also flagged the possibility of a shrinkage in spends due to the recent amendments, under which a CSR would now be based on financials of the "immediately preceding financial year" rather than the earlier stipulation of "any of the three preceding financial years".
Education and skill development, followed by healthcare and sanitation topped the areas where the spending had taken place,while national heritage protection and promotion of sports emerged as two areas with faster growth.
Nearly half of the spending companies based on the registered offices were from Maharashtra, followed by the National Capital region.
First Published: Feb 28, 2019 5:42 PM IST
