India Inc. Opposes Mandatory CSR

The debate about mandatory CSR in India has been ongoing since August last year. Mandatory reporting was fiercely opposed by India Inc when the announcement was made. This resulted in a government back-pedaling on their stance a little. With the change in Corporate Affairs Ministers, mandatory CSR is back in talks. Current minister Mr. Deora has announced that 2% of all profits should be allocated towards CSR in India. This decision is again being wildly contested by India Inc.

The Companies Bill 2009, which is likely to be tabled in the forthcoming budget session, has proposed that companies will have to earmark 2% of their average net profits during the preceding three years for CSR spending or disclose to their shareholders if they fail to do so.

"My personal view is that it should be made mandatory," Deora said recently. As public sector enterprises are required to spend 5% of their net profit on CSR. The government is keen to make it mandatory for the private sector to spend on CSR. After much deliberation the target of 2% has been set and the bill may be brought up in Parliament in the forthcoming budget session for approval.

A similar bill was last proposed in 2008 and that fell through during the Satyam scam. The scam also exposed several loopholes in corporate governance that needed stricter measures to control. The new bill will protect the rights of minority shareholders, bring about responsible self-regulation with adequate disclosure and accountability, and lessen government control over internal corporate processes.

Mandatory reporting could be the push that is needed towards ensuring that CSR becomes main-stream in Indian business. However as I said in my last post and I reiterate here:

"There are many arguments against the mandatory introduction of CSR. First, many companies in India, even small business do incorporate aspects of CSR into their corporate policy. Indian business traditionally has favoured a charity-based CSR model which is now extending towards stakeholder engagement in terms of environmental awareness, improvement in work conditions etc. Second, a mandatory report could lead to increased incidences of green-washing, pseudo-CSR distracting from those enterprises that really are doing something noteworthy thereby unfairly leveling the playing field. Third, CSR functions as a built-in, self-regulating mechanism whereby businesses would monitor and ensure its adherence to law, ethical standards and international norms. Finally, the compulsion can force many companies to look at CSR as an add-on to 'business as usual' and not as a different way of doing business.

Shifting India Inc. away from charity-based CSR activities towards a more holistic model should be the Government's responsibility; not insisting on mandatory CSR. CSR without proper reporting tools like GRI etc and methods like LCA, input/output modelling is a pointless exercise. It would be more appreciable if the Government could provide support to those companies that do want to report CSR activities and help them to create well-rounded initiatives. The current approach appears to be a method to weed out unethical companies which is not the purpose of CSR - that is what the law is there for."