Giving more teeth to the CSR law
Many companies continue to treat their corporate social responsibility (CSR) in a casual manner. Back in 2013, the government, not willing to leave things to chance, had inserted Section 135 into the Companies Act, making it mandatory for companies with a net worth of over `500 crore to spend 2% of their profits every year on CSR activity. Nonetheless, some have continued to use various loopholes to side-step the law. So it is laudable that the government now intends to tighten the screws and make the norms for CSR spending more stringent.
Among the changes proposed is to make it compulsory to spend the CSR budget directly through the company and not allow charitable work to be routed through trusts. It has been found that monitoring CSR spends through trusts and societies is difficult. Moreover, many companies have been setting up these in-house trusts and round-tripping funds back to activities that are beneficial to themselves. Other changes envisaged include disallowing the ‘CSR tag’ for contributions to political parties and ensuring any surplus arising from CSR should be ploughed back into the same project. More stringent reporting will include the CFO having to certify that the CSR funds were in fact spent for the ‘approved’ projects and any unspent amounts over three financial years will have to be detailed.
The concept of ‘philanthropy’ has evolved over time. In the colonial era, Indian industrialists saw daan or the act of giving to poorer souls as a cleansing, spiritual act. The certificate of being a ‘philanthropist’ added to social stature too. Over time, ‘benevolent capitalism’ has redefined philanthropy not as choice but a necessity if the system has to survive. ‘Giving back to society’ is now seen as part of being a good corporate citizen and also a process of redistributing wealth. In this context, the charade of creating trusts and societies as fronts of companies to avoid CSR spends is a disservice to the goal of a more equitable society. The government clamping down on these escape routes has not come a day too soon.