Social and Impact
Driving through the pathways of social responsibility with CSR and ESG checkpoints
07 Sep 2021
Corporate Social Responsibility (CSR) has become a business methodology and a management model. Corporates and large organizations undertake specific actions to address social, environmental, and economic concerns to protect our collective futures. Their actions through integrated CSR vision, and a combination of business values, and culture, address specific community challenges, and barriers, focuses on bringing behavioral outcomes aligned to bigger societal goals.
As per the Companies Act, 2013, companies with a net worth of INR 500 Cr or more, or a turnover of INR 1,000 Cr or more, or a net profit of INR 5 Cr or more during the immediately preceding financial year are required to spend 2 percent of their profits on CSR programs. Eligible companies need to form a CSR committee and plan a CSR policy to implement projects.
Key highlights of India’s CSR approach and development over 5 years as per a recent Praxis research:
- The cumulative expenditure by listed NIFTY 100 companies from (2014-15 to 2018-19 was INR 35,077 Cr
- 12 percent of companies have aligned their CSR activities to ‘Sustainable Development Goals – SDGs’
- Annually, India Inc. spends approximately 60 percent of its CSR budget on two sectors, health and education
- 62 percent of the 100 companies we surveyed have women in the CSR committee, of which, one third have women as Chairperson of the CSR committee
- 41 percent of companies have aligned CSR projects to SDGs in their annual report
The study shows a significant shift towards reorienting the purpose of business, where giving and receiving go hand in hand. CSR is no more just philanthropy. With a linkage to SDGs, companies are accepting CSR as a continuing commitment by businesses to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large.
Below are the principles listed by the National Voluntary Guidelines (NVGs) for companies to inculcate responsible business conduct:
- Organize and regulate themselves with ethics, transparency, and accountability
- Encourage the well-being of all employees
- Respect and promote human rights
- Safeguard and make efforts to restore the environment
- Responsible conduct for being engaged in influencing public and regulatory policy
- Endorse inclusive growth and unbiased development
In FY20, 21,349 companies spent approximately INR 21,231 Cr on CSR initiatives across 30,987 projects in 30 different sectors. The CSR spent by PSUs was INR 4,649 Cr, while private sector companies spent INR 16,582 Cr.
Top companies CSR spends by development sectors in FY20
Education, Differently Abled & Livelihood (EDL) followed by health & sanitation are key sectors where CSR spend has been the highest in India.
CSR spends in top 10 Indian state in FY20
The high CSR spent of Maharashtra and Karnataka can be attributed to the presence of multiple large-cap organizations in the metropolitans of Mumbai and Bengaluru.
Large cap companies’ spending patterns on CSR
Companies are ranked according to the spending patterns on CSR performance, spending with respect to the responsibility matrix, Environment Social Governance (ESG) performance, and how companies are integrating Sustainable Development Goals (SDGs) into their business actions.
Interdependences of ESG and CSR
ESG is a measurable criterion and managed by investors to assess potential business investments that are profitable in the future and ethical too.
Quite a few business advantages are directly linked to sustainability metrics including superior public image, customer loyalty, and investment value. ESG requirements are now prevailing as strong indicators for a company’s overall strength and have become must criteria rather than optional ones.
In previous years, CSR was universal for a company’s social and environmental procedures but not always quantifiable and was voluntary too. The introduction of ESG has moved the needle forward making sustainability a verifiable and central element of business approach. ESG makes CSR policies strategic to a company’s growth by defining, clarifying, and assessing its sustainability endeavors. While CSR aims to make a business responsible, ESG criteria make such business efforts measurable. CSR implementations become a strong base for ESG, and both are interdependent components for a company’s sustainability. ESG takes on CSR and builds on it in a manner that takes it out of the domains of pure philanthropy, to a concrete set of numbers that can be used by investors to invest in the company’s practices.
The CSR objective of the Government works in sync with the Government’s focus on the expansion of disclosures on ESG reporting by Indian listed companies. A company’s reporting of performance on sustainability-related factors has become as essential as reporting on financial and operational performance. Governments too can objectively curate programs and drive outcomes on environmental, social, and governance parameters while corporates’ actions and performance on ESG becomes more visible and transparent.
ESG will bring significant impact on how companies protect the environment, do business and manage the future of the entire value chain and ecosystem more sustainably and responsibly. ESG‘s integrated vision, impact, and influence on an organization's decision-making process throughout the lifecycle of the business lines are actively monitored and analyzed by large FPI, private equity players in a more inclusive manner in their investment thesis. Asset managers, consumers, and employees are all pushing for more transparent, purpose-driven corporate practices that match with the values they operate and market.
Authored by:
Lokesh Bohra, Senior Vice President, Social and Impact Advisory