The relationship between Indian corporations and CSR activities has taken a complete U-turn over the past decade; the importance of social contributions has skyrocketed.
Every major company today is finding creative and unique ways to implement CSR directives. Glaxosmithkline, for example, exclusively focuses on health and healthy living. The company establishes programs in tribal villages where they offer medical check-ups, treatment, health camps and health awareness drives. They also provide money, medicines and equipment to non-profit organizations that work towards improving health and education in underprivileged communities. The Reliance Industries’ ‘Drishti Project’, focuses on treating visually challenged people from economically weaker sections of the society.
The Mandate
Traditionally, most Indian companies have been known to be very stingy with their contribution to society in terms of Corporate Social Responsibility. This changed with the passing of the Companies Act, 2013. The act makes sure that every corporate earning a net profit of more than INR 5 crore, or a turnover exceeding INR 1000 crore, spends at least 2% of its average net profits, from the last three fiscal years, towards CSR activities. This initiated a barrage of CSR initiatives by major companies in the country, which not only provided much needed development to weaker sections of society, but also helped create a favorable corporate image in the mind of the consumer.
A Change In The Tide
While CSR wasn’t a very big part of running an organisation back in the day, it has proved integral to the growth of some of the biggest companies in our country. Tata is well known for being actively involved in giving back to the community, and the development of infrastructure. When other organisations were trying to find ways to escape spending money on sustainability and social work, Tata was busy setting up hospitals and research stations.
Let’s take ITC as an example. Being a highly-varied conglomerate, they needed to isolate the taboo associated with their tobacco units and make sure it didn’t stain their image across different sectors. To do this they introduced a unique CSR strategy in the form of the 1 Rupee scheme. Classmate, ITC’s line of stationery products, gives INR 1 towards the education of underprivileged children from the sale of each Classmate notebook. Through this scheme, ITC ended up contributing over INR 214 crore towards CSR in 2014-2015.
Not only did this scheme increase the sales of Classmate notebooks, but also managed to substantially dilute the cigarette taboo linked to their products. This is just one example of how CSR can be seamlessly incorporated into company operations. It’s arguably one of the best ways to increase stakeholder retention, as it is a visible effort from the organisation to give something back to society.
Why Invest In CSR?
A study by Hewitt & Associates found that morale was 55% better, business process were 43% more efficient, public image was 43% stronger, and employee loyalty was 38% better in organisations with strong CSR programs. Many organisations don’t see how easy things like customer engagement become, if they put in a little effort into designing and implementing new and innovative CSR strategies.
For example, Walmart is one of the loudest voices in environmentalism. They’ve run ad campaigns to raise awareness about sustainable product choices that customers can make while shopping at their stores. With minimum expenditure, they found a way to do something ‘good’ which helped them grow their consumer base on the side.
You can even use it as a tool to differentiate yourself from your competitors. PepsiCo and Coke have been relentless in trying to up each other with their CSR activities. Coke has a tie-up with WWF, where they engage in protection of fresh-water sources, and replenishment of ground-water. PepsiCo too runs sustainable agriculture programs which not only help small farmers, but also help secure a supply of raw material to the company’s manufacturing plants.
Companies actively involved with CSR find it easier to recruit employees, even in tight labour markets. Employees tend to stick around longer with such organisations, leading to increased employee retention, which also cuts down largely on recruitment and training costs. In fact, a survey by Net Impact found that 35% of workers would take a pay cut to work for a company committed to CSR.
How Can CSR Work For You?
The Reputation Institute’s 2011 ‘Pulse Survey’ found that CSR is responsible for more than 40% of a company’s reputation. At Vardaan, we specifically deal with CSR management and offer all-round solutions on how to achieve CSR objectives. Trust us when we tell you that the days of simply donating a cheque are absolutely over.
Even with hundreds of corporations actively investing more time and resources into their CSR initiatives—some with full-fledged social responsibility departments—there are certain firms that are relatively apathetic about creating real social change. What needs to change is the mindset that CSR is just another scheme to drain money out of the company, without any tangible short-term or long-term benefits.
An effective CSR system not only helps society, but can also increase profit margins and generate immense goodwill. It may not be the only way to get the same results, but is definitely the easier and more socially responsible way of taking your organisation where you want it to go.
But most nonprofits had inadequate capacities and weren’t capable of effectively handling the sudden surge of financial aid. This meant that corporates also needed to help their beneficiaries with capacity building—monetary aid wasn’t the only answer. In order to do this effectively, organisations had to first create clear-cut CSR policies that defined core objectives. Moreover, they also required measurement models that could accurately evaluate the efficacy of social programs.
As many corporates weren’t fully aware of the intricacies within the CSR domain, they sought professional help. Vardaan has been providing end-to-end consulting services to organisations in this regard.
The CSR mandate has resulted in a number of positive changes all over the country. But before we get right into them, let’s take a look at how the Act actually works.
The 2% Mandate
If a company has a net profit of ₹5 crore or more per year, then it needs to spend at least 2% of its average net profits from the preceding three years on social initiatives. The rule also applies to companies that have annual turnovers of ₹1000 crore or are valued at over ₹500 crore. Now, corporates pay a 30% tax in India, which can turn out to be quite a hefty figure for companies with large incomes. But the CSR mandate states that corporates need to pay 2% of their profits before being taxed. Which means that they shell out almost 2.857% of their profits in reality.
A company’s CSR spending cannot be deducted from its taxable business income. This is because CSR expenditure is seen as an application of income, which is not tax-deductible under Indian law. Apart from increasing corporate spending, one of other main aims of the 2013 act was to bring SMEs into the CSR mix.
Large-Scale Contribution Of The SME Sector
SMEs undoubtedly have a large influence on the country’s economy, and they can potentially be just as impactful in bringing about social change—according to a 2013 survey, nearly 40% of India’s workforce is employed by these organisations. Many SMEs conduct their business activities in proximity to rural communities and are collectively more aware of the community’s needs. This allows them to tailor realistic social programs that create the necessary impact.
After the 2013 mandate, any company with a net profit of ₹5 crore or more had to participate in CSR activities. The Act ensured that these organisations could collectively pool their resources in order to create a sizeable CSR fund. This kind of an alliance proved to be highly beneficial to SMEs, allowing them to reduce their operational costs. In addition, they have also been able to focus more on developing long-term projects that need more resources to be accomplished. Due to the CSR mandate, SMEs in the country are today promoting a variety of causes such as education, environmental sustainability and gender equality.
Increased Domestic CSR Expenditure
Given their higher levels of regulation, it may be understandable that foreign companies end up spending more on CSR initiatives than Indian organisations. The average CSR expenditure by foreign firms has been significantly more than their Indian counterparts in both, 2011 and 2012. But in 2013, the average CSR expenditure by Indian firms rose by about 700%, comfortably outstripping foreign MNCs. In one way, the mandate has definitely improved the engagement levels of Indian organisations in social causes.
Although the CSR mandate has created a positive impact in India, there’s still a lot that needs to be done. Tackling the inadequate capacities of Indian nonprofits is a particularly major challenge. After all, nonprofits are ever at the forefront of social change, and in better shape, they can help corporates work some real CSR magic. 
