India has emerged as one of the leading nations to make CSR mandatory by the passage of the Companies Act, 2013 and the CSR (Policy) Rules (the Act) from 1 April 2014. This requirement can be seen as an explicit call to businesses from the government to partner in solving India’s complex development issues.

As per the Act, companies with either:

• a net worth of INR500 crore (cr.) or more,
• or a turnover of INR1000 cr. or more,
• or a net profit of INR5 cr. or more

in a given financial year must spend 2 per cent of their net profits on CSR programmes.

In addition the Act, mandates eligible companies to: formulate CSR policy, formulate a CSR committee of the board, and disclose CSR related details in the director’s report. Moreover, companies that are not able to spend the prescribed 2 per cent CSR spends are required to specify the reason(s) for the same.

KPMG in India has been conducting research on the CSR reporting of the top 100 listed companies as per market capital on the India’s National Stock Exchange (N100) since 2015 (the first year of mandatory CSR reporting). The report titled “India’s CSR Reporting Survey 2017” presents a comparative analysis of the N100 companies reporting in the last three years across the areas of CSR policy, CSR committee and disclosure of CSR in the director’s report, CSR project management and others(incl. reporting on the UN SDGs).

Based on KPMG’s past research findings:

• Before, and in 2015 companies were investing in systems and processes for effective reporting,
• In 2016 the availability of information and governance mechanism of CSR projects improved,
• In 2017, the number of compliant companies in aspects of CSR policy and CSR committee compared to the previous years are overall very encouraging, however there is still place for improvement in aspects related to CSR disclosure, particularly on the CSR project expenses and details of its administrative expenses.                           

The below table summarizes the level of compliance of the N100 Indian companies against the requirements of the Companies Act 2013:

CSR Policy

In terms of mandatory requirements as of September 30, 2017, 98 companies have a CSR policy in the public domain as , two companies still don’t have CSR Policy in public domain for the third year in a row. And 92 companies have disclosed their mode of implementation in the CSR Policy. However only 69 companies are disclosing information on the treatment of financial surplus arising out of the CSR programs, as the act requires companies not to take this surplus as part of their business profit.

Picture 1: Number of companies disclosing on treatment of surplus arising from CSR projects (2014-2017)
Source: KPMG in India

CSR Committee

So far 98 companies have a CSR committee, out of those 90 companies have a standalone CSR committee for the year 2016-17 as compared to 80 companies during 2014-15. However, two companies have failed to disclose CSR committee details for the second year in a row.

Out of the total companies disclosing composition of CSR Committee, 38 companies have 3 members, and 60 companies have 4 or more members in CSR Committee. It is also very interesting to note that 45 companies have an independent director as the chairman of CSR Committee.

Picture 2: Chairman of CSR committee
Source: KPMG in India

CSR Project Management

Out of the 100 companies analyzed 95 of them are eligible to comply with the requirements of the prescribed 2 per cent CSR expenditure. It is noteworthy to mention that the five companies that are not required to spend, have spent towards CSR, of which 4 are doing so for the last 3 successive years.

Picture 3: The prescribed amount expenditure
Source: KPMG in India

Reason for not spending the 2 percent CSR amount

In 2016-17, 37 companies have spent less than prescribed CSR amount towards CSR, and thus, were required to provide an explanation or reason for not spending amount. 36 companies have provided explanation. The below chart describes the different reasons given by Indian firms for not  spending the 2 percent CSR amount.

Complete implementation with support of external implementing agencies is reported by 34 companies against 19 during previous year, 57 companies have implemented their CSR projects through a combination of direct implementation with own foundation or implementing partners. 967 projects were executed through implementing agencies with expenditure to the tune of INR3014 cr. Total six states which houses almost 60 percent backward districts of India have received only 15 per cent CSR fund, whereas five states with 15 percent concentration of backward districts have received 70 percent or more of CSR funds.

Picture 4: Reasons for not spending the CSR amount
Source: KPMG in India

CSR Expenditure by type of companies

The Energy and Power sector followed by Banking and Financial Services & IT consulting and software sectors have the highest prescribed CSR expenditure during the current year. Service sector companies have seen the highest increase (168 percent) in their prescribed 2 percent amount during current year, followed by Telecom (164 percent), Pharmaceuticals (158 percent) and IT Consulting & Software (153 percent).

Picture 5: CSR Spend by the Type and the nature of the Industry
Source: KPMG in India

CSR and SDGs

The Companies Act, 2013 sets a broad framework and gives direction for better sustainable future and SDGs set tangible well defined targets to measure the outcome of activities.

Health and Education continues to receive more attraction from companies with 56 percent of the projects and expenditure, which is linked to 5 SDG Goals, Over 1300 projects to the tune of almost INR5000cr, were spent through a combination of direct own foundation and partner organization. And Only 20 per cent companies have aligned their CSR projects towards SDGs and have made disclosure regarding same in their Annual Reports.

Overall some progress have been made compared to previous years, however Indian firms have still some space to improve in terms of disclosing information regarding how do they manage the administrative expenses, surplus and reporting on reporting separately on direct project expenses and overhead.

 

 

Reference: KPMG: India’s CSR reporting survey 2017 
Photo Credit: Annie Spratt