Doing good and doing it well

Reading most annual reports will convince you that firms have adopted CSR unreservedly

Corporate social responsibility (CSR) has found place on the board agenda since the Companies Act 2013 was enacted. Before CSR was made mandatory, companies did try and push back. Many argued that the government is abdicating its “social responsibilities” and inserting the provision regarding CSR spend reflected government failure. Others went on to argue that the government should drop the provision, and increase corporate tax by the equivalent two per cent—after all, the business of business is business and such pastimes do not fit into the business plan. Three years later, if we look at the alacrity with which corporates have embraced CSR, we wonder what the fuss was all about.

A tradition of giving

In a sense, this should not be a surprise. India has a deep-rooted tradition of philanthropy. Largely, giving is unorganised, taking the form of donations at the temple, gurdwara, waqf board etc., which is then used for a myriad of social objectives. Institutional philanthropy, or what we now call CSR, is equally well established. There are multiple examples to show that it is sufficiently widespread in spread and scope: Jagannath Shankarshet set up the Native School of Bombay in 1824 (now Elphinstone College), donated to the Grant Medical College and setting up of the Mumbai zoo; Cowasji Jehangir, whose generosity earned him the sobriquet Readymoney (hospitals); Jamsetji Jeejeebhoy helped set up, among others, the Mahim Causeway (a road); and Jamsetji Tata who set up an endowment well before these gained currency in the US. And this was in the nineteenth century and all just in Mumbai.

Moving to the present. Crisil, a rating agency, studied 4,887 companies listed on the Bombay Stock Exchange. They found that 1,505 of them met the criteria stipulated in the Companies Act for mandatory spending in fiscal 2016. Not all reported on their CSR activities, but the 1,158 companies that did, spent over Rs 8,300 crore. The top 100 companies spent Rs 6,550 crore (albeit lower than the Rs 7,500 stipulated spend). To put these numbers in context, the revenue and capital budget of the ministry of water resources, river development and Ganga rejuvenation for 2017-18 is Rs 6,887 crore, for the ministry of skill development, Rs 3,016 crore, and for the department of health research, Rs 1,500 crore.

Spending large sums of money takes planning

While it is easy to take companies to task for not directing the mandatory two per cent on CSR, the companies are spending substantial sums on CSR: In FY16, Reliance Industries’ CSR spend was Rs 650 crore, NTPC Rs 490 crore, ONGC Rs 420 crore and TCS Rs 290 crore. And while companies have the option to donate to the Prime Minister’s relief fund (lazy CSR, if I were to paraphrase what Dr Rakesh Mohan said in another context), the diversity of projects that not just these, but other companies as well have identified, is humbling.

Spending these amounts of money takes a fair amount of planning. Companies need to identify the area on which the money will be spent, plan for large projects, hire teams that can execute and then set up a process to monitor the spend.

In fact, the private sector is expected to bring the same rigour, innovation and discipline to CSR that they bring to the commercial end of the business. Equally important, more efficient utilisation and closer monitoring ensure means that more recipients benefit and the outcomes are being measured. The CSR spend will travel far.

Innovation and alignment

HDFC Asset Management’s recently raised money under its Cancer Cure Fund. The idea behind the fund is to provide financial assistance to needy cancer patients, for their treatment, by tapping those investors who would be willing to donate part of the dividend or entire dividend declared. And as it is a “capital protection” scheme investors should get their principal back after 37 months with the dividend money going directly to the beneficiary identified by the India Cancer Association.

Of a different hue, the “Ride to Safety” campaign by ICICI Lombard is to generate awareness on road safety in India. In a country where a life is lost every four minutes in a road accident and one in 14 is a child inculcating sensible road behaviour early in life is important.

India has a deep-rooted tradition of philanthropy. Largely, giving is unorganised, taking the form of donations at the temple, gurdwara, waqf board etc., which is then used for a myriad of social objectives.
 

A few things stand out. HDFC AMC is using its money management skills to generate resources for the Indian Cancer Society. ICICI Lombard, being one of the largest motor insurers, is focusing on the safety of its customers. To the extent these causes are “aligned” with the business they get wider buy-in from senior management and greater focus from the firms. Both Milind Barve at HDFC AMC and Bhargav Dasgupta at ICICI Lombard speak about these initiatives with the enthusiasm of a Mumbai Indians fan cheering a Kieron Pollard six.

Second, the alignment gives the recipients long-term visibility. The cancer cure fund ensures the cancer society money for three year. ICICI Lombard has committed for five years. This not just gives continuity to purpose, but the ongoing commitment ensures that the staff have a better understanding of the nuances.

These are just two examples in a rapidly growing list. Reading most annual reports will convince you that companies have adopted CSR unreservedly. As only the profitable companies are mandated to undertake CSR, corporate boards briefly believed they were forced to do good, because they were doing well. Having embraced it wholesomely, now that they are doing good, they want to do it better.

The author is founder and managing director, Institutional Investor Advisory Service India Limited. Twitter: @amittandon_in