Corporate Social Responsibility in Times of Covid-19

Corporate Social Responsibility in Times of Covid-19

Introduction

CSR is a self-regulating business model that helps a company to be socially accountable to itself, its stakeholders and the public. By practicing corporate social responsibility companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social and environmental.

As important as CSR is for the community, it is equally valuable for a company.CSR has become a common practice across industries. There are 4 types of corporate responsibility one’s business can practice i.e.:

1. Environmental efforts

2. Philanthropy

3. Ethical labor practices

4. Volunteering

The companies must refocus their CSR activities on fundamental goals and provide a systematic process for bringing coherence and discipline to CSR strategies.

CSR is more than just a tool for exceptional public relations or a strategy to outsmart competition. Companies believe that by showing customers that they stand for something, they establish that their business exists for reasons that are bigger than ‘making profits’.

Evaluation of CSR in India:

India has a long, rich history of close business involvement in social causes for national development.

In the initial years, there was little documentation of social-responsibility initiatives. After Independence, JRD Tata who always laid a great deal of emphasis to go beyond conducting themselves as honest citizens pointed out that there were many ways in which industrial and business enterprises can contribute to public welfare beyond the scope of their normal activities.

Since then, there has been a growing realization towards contribution to social activities globally with a desire to improve the immediate environment.

The last decade of the 20th century witnessed a swing away from charity and traditional philanthropy towards more direct engagement of business in mainstream development and concern for disadvantaged groups in the society. This has been driven both internally by corporate will and externally by increased governmental and public expectations.

An ideal CSR has both ethical and philosophical dimensions, particularly in India where there exists a wide gap between sections of people in terms of income and standards.

CSR trends in India

India is the first country in the world to make CSR mandatory, following an amendment to the Companies Act, 2012 in April 2014. Since then, CSR spending by corporate India has increased significantly.

The Prime Minister’s Relief Fund saw an increase of 139 per cent in CSR contribution over last one year (2019-20). The education sector received the maximum funding (38 per cent of the total), followed by hunger, poverty and healthcare (25 per cent), environmental sustainability (12 per cent) and rural development (11 per cent).

Programmes such as technology incubators, sports, armed forces, inequality-reduction saw negligible spends. (Associates, 2020)

CSR in times of COVID-19

COVID-19 has been considered a global pandemic by the World Health Organization (WHO). The contagious disease tremendously disrupted socio-economic circumstances of the planet.

The Government of India and state governments announced lockdowns throughout the country in March 2020 in order to promote social distancing, which basically directed the public to maintain distance both socially and physically.

Here comes the importance of CSR, which played a crucial role in the times of this pandemic, when people are trying their level best to get through the challenging times.

According to Section 135 of Companies (CSR) Rules, 2014 and Schedule VII of Companies Act 2013:

Every company with a net worth of Rs 500 crore or more or turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more during the immediate preceding financial year, must have a CSR committee and spend at least 2 per cent of average net profits earned during three immediate preceding financial years to CSR activities.

Having regard to various judicial interpretation of Sec 124A our authorities have many times continuously, repeatedly and knowingly increased the ambit of Sec 124A for their personal gains to include any kind of dissent and criticism, some of the latest examples are Misuse of sedition law in farmers protest where some of senior journalist and MP were charged with sedition, a 22 year old activist also charged with Sedition for allegedly making a toolkit, framing of sedition charges against a mother in Bengaluru when her minor daughter attended anti CAA protests.

In the present era of COVID-19, the Government of India is inspiring companies to provide social support. According to a March 23, 2020 Ministry of Corporate Affairs circular, all expenditures incurred on activities related to COVID-19 would be added as permissible avenues for CSR expenditure.

Funds may be spent for various activities related to COVID-19, under the following items of Schedule VII:

• Eradicating hunger

• Poverty

• Malnutrition

• Promoting healthcare, including preventive healthcare

• Sanitation, including contribution to the Swachh Bharat Kosh set up by the Centre for promoting sanitation and making available safe drinking water

• Disaster management, including relief, rehabilitation and reconstruction activities

The response to the government’s call to support COVID-19 efforts has been overwhelming. Crores have been donated to various government funds

Companies’ contribution in Covid times:

• The table below shows the contributions made by various companies in the BFSI sector in India in the COVID-19 times :

Amendment in CSR Norms:

On 26 August’20, the Government amended the CSR norms to include research and development (R&D) spending on new vaccines, drugs, medical devices related to COVID-19. “Any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22 and 2022-23 subject to the conditions,” said the gazette notification .

These conditions are “such research and development activities shall be carried out in collaboration with any of the institutes or organizations mentioned in item (ix) of Schedule VII to the Act. And, details of such activity shall be disclosed separately in the Annual Report on CSR included in the Board’s Report”, according to the corporate affairs ministry notification .

While the relaxation is applicable for three years till 2022-23, it comes with the caveat that such R&D activity must be carried out in collaboration with specified public institutions. This step is expected to enhance manifold the flow of funds towards the COVID-19 vaccine and drug development considering the huge sum of funds at stake for the relief efforts, corporate are struggling not just in finding a reliable implementing partner but also in figuring out a way to monitor and track the use of the donated funds and assessing their impact.

Such activities were ethically and morally correct, but the companies broadly interpreted the circular in a way that would reap indirect benefits to their operations or simply contribute to the existing fund.

FAILURE OF CSR

Although, CSR is proved to be fruitful yet we cannot say that it has achieved its objects in totality. One of the major reasons for this is the lack of effective enforcement of these provisions. Simply mandating them will not be helpful. One of the major stumbling blocks is finding credible projects that these companies can support under the amit of their CSR requirements.

According to the same report more than 52 out of the country’s 100 largest companies failed to spend the required 2% on CSR activities.

State owned ONGC, IT giants like Tata Consultancy Services and Infosys, lenders like ICIC Bank, Axis Bank, HDFC Bank, Telcom major Bharti Airtel are amongst the top business tycoons that have not complied with 2% rule of CSR LAW. According to Media DNA money, companies like Bharti Airtel (22%), Idea (33%), Hindustan Zinc (37%), BHEL(41.8%) and Cairn India(48%) have spent less than half of what they were mandated to spend as earmarked for CSR during financial year 2015-16. It said that about Rs 13,828 crore was spent by over 19,000 companies during FY16, in the subsequent year, only Rs 4,719 crore was spent by 6,286 companies. Over 9,200 eligible companies did not spend a single penny on CSR during FY16 as compared to 346 firms in FY17. The CRISIL and Prime Database analyses show that only a little more than half of the companies (57%) have complied with the 2% stipulation.

The government had warranted prosecution proceedings against 284 companies and sent 5832 notices to company for not having fulfilled the mandatory CSR expenditure rules.

PLENTY WAYS OF DODGING RESPONSIBILITY

Companies in our country have found ways and means to dodge their responsibility and avoid disbursement of their funds towards CSR activities. To avoid paying towards CSR many companies across industries have convoluted sustainability with their business strategy. They have strategically formulated ways that combine sustainability, their social obligation with their business ideas. The idea behind this is not to accelerate the growth of the society but to simply increase their profit margins. Hindustan Unilever (HUL) was seen following the same strategy to deceive the customers. They spent a lot of money in the underdeveloped rural areas to create awareness amongst them about sanitation and the need of good hygiene. At face value this activity done by them would constitute to be an act that complied with the CSR laws but in reality, it’s a façade. The CSR rules of the Companies Act, 2013 would not take such activities under the purview of CSR. The society outreach activities by HUL were considered to be activities undertaken in their normal course of business and not as CSR activities. It was more of a marketing statergy. The sole driving force behind such activities was profit making. This was because HUL derived direct monetary benefit from such an activity. By creating awareness amongst the targeted consumers, they were indirectly increasing the demand of the products they primarily dealt with – toiletries and detergents. All such expenses would be counted as business promotion expenditure. They would not amount to CSR expense. While considering the case of HUL, it was also decided that the CSR activities undertaken by a department within the company would not qualify as CSR activity under the Companies Act. Moreover, the new act has made it imperative for the companies to spin off the CSR activities carried out by them, internally into a separate distinct entity registered as a trust or a society or a not for profit company. CSR does not allow shared value propositions. Activities that benefit the employees of the company along with their families cannot be considered as CSR activities in accordance of Section 135 of the Act. Activities like marathons, T.V sponsorship programs, charitable contribution, advertisements would not be qualified as a CSR expenditure. The Finance Act, 2014 provides that any expenditure incurred by a company towards its CSR initiatives mentioned in Article 135 of Companies Act, 2013 shall not be deemed as expenditure incurred in the normal course of their business.

Most companies spend the required CSR amount on NGO’s that they have been associated with. However, this spending has not been transformational, as they do not spend the stipulated amount. This under spending could also mean that they do not make enough efforts to locate worthy projects or try to nurture grassroots level NGOs. In addition to this, most companies that are in dire need to meet with the CSR requirement choose NGOs without exercising proper diligence. This lure of money leads them to unethical practices. CBI had very recently filed a complaint against an NGO, Advantage India, based in Delhi for misusing the CSR funds given to them by a company. Mumbai police had very recently uncovered CSR funding scam wherein the accused had forged the documents of Hexaware Technologies and approached various NGOs and charitable funds across the country with a proposal to provide them CSR funds worth over 100 crores. Such malpractices defeat the whole purpose of incorporating and mandating the CSR provision.

Companies in India in order to avoid paying money for CSR activities, follow poor disclosure standards when it comes to revealing the details of their spending on the CSR initiatives. This was confirmed by a report made by the Institutional Investor Advisory Services. According to the report, 51 companies listed on the Bombay Stock Exchange’s Sensex defaulted under this category. The report says that in order to spend less than what is required on CSR initiatives, the companies are not very forthcoming when it comes to sharing the details of their CSR spending. For example, Bajaj Auto followed the same strategy. It did not only conceal the amount spent on CSR activities but also did not mention whether the amount unspent in the given financial year was carried forward in the next year. The Companies (Amendment) Bill 2019 introduced a few rules to tighten the CSR laws of the country. The proposed Amendment required the companies to transfer the unused funds meant for CSR activities in a specific year towards a fund set up by the government. The fund is set up for a better and an efficient utilization of resources for public welfare. The main aim of the amendment was to increase accountability and make the entire procedure more transparent.

In 2017-2018, the mandatory CSR expenditure under Section 135 of The Companies Act was rupees 10,000 crore, according to the PRIME Data Groups Analysis of 1627 NSE listed companies. The companies did not meet such a requirement.

To dodge CSR laws, most companies advance money towards any major project started or a scheme implemented by the political party in power. These funds are made available for the extra budgetary spending of the government. The underlying motive behind this to make sure that the government provides these companies a protective shelter against any proceedings that might get instituted against them for non-compliance of the CSR law. It’s basically a give and take policy that is being practiced by these affluent business tycoons and the governmental officials. It leads to a flagrant misuse of the CSR funds.

There has been a recent trend where the companies have been seen diverting their CSR funds towards animal welfare. The PRIME database report shows that 41 listed companied have made 73 separate donations between 2015-2018 to cow based activities and for the establishment and administration of Gaushalas. Companies like Genus Power Infrastructure and Paisalo Digital have spent around 19.5 million towards activities aimed at protection and well being of cows. The Schedule VII of the Companies Act, though mentions animal welfare as one of the categories on which the CSR money can be spent, it does not explicitly talk about the protection of cows. This is used a tool to duck the CSR laws. The statutory provisions of CSR rules has made it mandatory that the activities undertaken by the companies should be in pursuance to the subjects mentioned in Schedule VII of the Companies Act, 2013. Though the topics mentioned in the schedule are meant to be read liberally and are made broad enough to cover a wide range of activities, the main motive behind the said provision should not get lost amidst all this. It’s amusing to see how these companies neglect more pressing concerns in the society and channelize all their resources towards the protection of cows and other animals. They are cynically aligning their activities to suit the political concerns of the government negating the true objective of the Act.

The fact that no tax exemptions have been extended to CSR expenditure as per Finance Act, 2014, further discourages the companies from undertaking activities that would comply with the CSR laws. The attitude that most companies have towards CSR laws is not very favorable. They are averse to its provisions. For them it’s just an extra burden in addition to the income tax that they pay every year. There is no specific tax exemption for any CSR expenditure, but there are certain subjects mentioned in the VII Schedule like scientific research, rural development projects, skill development projects, agricultural extension programs that enjoy exemptions under different sections of the Income Tax Act, 1961.

CONCLUSION

CSR has been reduced to a mere accumulation of projects without creating any social impact, the main reason for which it was formulated and mandated in the first place. The aim of the act was to inculcate business responsibilities towards every individual that is stakeholder in the business. Social responsibility should not be equated with monetary contributions only. The way these companies are making profits is as important a consideration as they are spending the profits made by them is. Companies have been seen behaving irresponsible in this front in addition to their non-compliance with the CSR laws. Companies are using the scarce resources of the economy , therefore they ought to behave responsibility towards its development. Instead of focusing only on financial contributions they should also be mindful of providing client value that will serve the society in a longer run.

It is the duty of the companies to realize and comprehend that their activities play an integral role in the development of the nation. The government should make policies that will ensure stricter implementation of the CSR laws. Initiatives should be taken to make sure that all the areas are benefitted from the social activities undertaken by these companies, so that there is no disparity and bigotry between different regions of the country. There exists a lack of knowledge about the CSR provision in the rural areas and the penalizing provisions all over the country. The penalizing provision should be a pocket burn to these companies. However, all this is only possible, when to contribute towards the development of the society comes for one’s inner conscience and not because of the fear of getting sanctioned in case of non-compliance. Just like you can only bring a horse to the pond but cannot make it drink water, Government efforts are going to be futile unless and until companies themselves willingly come forward and shoulder the responsibility to serve the community by honestly complying with the CSR requirements.