CSR: More than tax benefits

Boardroom meetings are often abuzz with terms such as ‘corporate social responsibility (CSR)’, ‘sustainable development’ and ‘social impact’. While the Income Tax (IT) Act specifies tax benefits for some CSR activities, the Ministry of Corporate Affairs has come up with the National Voluntary Guidelines (NVGs) on Social, Environmental and Economic Responsibilities of Business. These guidelines have been embraced by the Securities and Exchange Board of India (SEBI), which has mandated the top 100 listed companies to disclose their progress on NVGs in the form of a business responsibility report in their annual report. Some specific requirements of SEBI’s mandate and the NVGs are focused on reporting the impact generated through community programmes run by corporates. Furthermore, the Companies Bill provides that companies in certain categories should spend 2 per cent of their average net profits made in the preceding three financial years on certain CSR activities, followed by reporting of the impact it had on the relevant community.

These mandates and guidelines will stimulate corporates to view CSR activities from a project perspective, rather than as a means to accrue tax benefits alone. Creating an alignment between the chosen CSR sector and the business operations will be the differentiating factor. Besides, since all the aforesaid mandates are interlinked, corporates are adopting the smart option of marrying the requirements of the IT Act, NVGs, SEBI mandate, and Companies Bill, and integrating them under a common umbrella.

The successful execution of CSR projects is just one side of the coin. With business responsibility reports, (along with the CSR requirement) becoming mandatory, companies need to effectively demonstrate the impact of their programmes on society, and provide stakeholders (primarily investors and shareholders) with information about the money spent. Companies could opt to report the impact in a quantitative form, so as to demonstrate the degree of improvement to the stakeholders. While some stakeholders (primarily shareholders) could judge CSR activities on the basis of the wealth created for society in return for the money spent, (apart from the other qualitative returns) there could be some projects where the returns on investment may be negative but the social returns are substantial. For such activities, capturing the perception and satisfaction index of the impacted stakeholders is an effective means of reporting the degree of performance. Effective planning and resource utilisation should also go into making CSR programmes self-sustaining and self-reliant, so that the next batch of funds spent could be for a different CSR activity.

While corporates create positive social impact in a multitude of ways, often in collaboration with extra-organisational partnerships, legal mandates around the corner could mean that stakeholders might specifically demand to know the attribution of all parties involved in the overall success of a CSR project.

While creation of an attribution framework has always been a challenge, successful frameworks have been created and found to be acceptable to the parties involved. Furthermore, to add credibility to the information relating to community impact, independent reviews are being obtained. For example, Multi Commodity Exchange of India (MCX)’s flagship CSR Project2, Gramin Suvidha Kendra, is an example of how a company can leverage its domain strengths to develop business-driven CSR projects with the aim of creating a sustainable and comprehensive process of rural development. Oil & Natural Gas Corporation (ONGC) continues to make a tangible, positive difference in the lives of the vulnerable and disadvantaged. While some companies mistakenly view such socially solicited moves as a liability, progressive companies use them to shape society’s perception in their favour, thereby creating a win-win situation for all.

Rajib Kumar Debnath is Director, and Ria Bakshi is Assistant Manager, Deloitte Touche Tohmatsu India Pvt Limited

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