India’s Mandated CSR Law: Early Results are In
In 2013, India became the first country to mandate spending on CSR. The Companies Act requires qualifying companies to spend two percent of their average net profit for the past three years on development projects. Over 16,000 companies fall under the law’s standards, of a net worth of $76 million or a turnover of $150 million annually. Initial results are in, and it’s a mixed picture. Companies report CSR spending of almost $14 billion, but early analysis also shows most companies fell short of the two percent target. Under the law, companies are not penalized for underspending, but have to report on why they did.
One issue is a lack of definition of what CSR projects are approved. The Companies Act separates CSR efforts from a company’s business strategy, a restriction that has caused delays in compliance as companies struggle to identify, organize, and execute development efforts that are distinct from their purpose. Going forward, it is hoped that the Indian government will alter this provision to allow companies to align their CSR activities with their core strategy, an integrated approach that has been increasingly adopted by other companies around the world, with great effect.
I’m John Howell for 3BL Media.