Journal of Management (JOM) Volume 5, Issue 6, November-December 2018, pp. 129 136, Article ID: JOM_05_06_018 Available online at http://www.iaeme.com/jom/issues.asp?jtype=jom&vtype=5&itype=6 ISSN Print: 2347-3940 and ISSN Online: 2347-3959 A STUDY OF CORPORATE SOCIAL RESPONSIBILITY REPORTING IN INDIA Ghanasham S. Joshi Assistant Professor, SMBK Govt. First Grade College, Naregal, Dist: Gadag, Karnataka ABSTRACT Corporate Social Responsibility (CSR) has grown in importance and significance over the last few decades. Reporting on social, environmental issues has been voluntary so far. However, Governments and certain stock exchanges in some countries have made CSR reporting mandatory. CSR in India has gained a lot of attention and has been an issue for discussion with the enactment of Companies Act, 2013. The present study is aimed at examining compliance by companies in Energy and Metal sector under section 135 of the companies Act, 2013. The findings suggest overall improvement in compliance in 2017 compared to 2015. Health and Education sectors are the primary areas of CSR spending followed by rural development. Keywords: Corporate Social Responsibility, CSR, Sustainability, Companies Act. Cite this Article: Ghanasham S. Joshi, A Study of Corporate Social Responsibility Reporting In India, Journal of Management, 5(6), 2018, pp. 129 136. http://www.iaeme.com/jom/issues.asp?jtype=jom&vtype=5&itype=6 1. INTRODUCTION Corporate Social Responsibility (CSR) has grown over the last few decades in importance and significance. CSR is an organization s action on environmental, ethical, social and economic issues. Many alternative terms such as Corporate Sustainability, Corporate Citizenship, Corporate Social Responsiveness, Corporate Social Performance and Business Responsibility etc are used to denote CSR. CSR requires corporations to give up profit only motive and look beyond profit. These days, CSR has become a business necessity than a mere option. No company can disown its responsibility these days. CSR has been voluntary so far. However, governments and stock exchanges are mandating companies to report on sustainability issues. Governments in some countries have made CSR reporting mandatory (Denmark, France, Indonesia, Malaysia, South Africa, UK, and Norway). A few stock Exchanges have also made CSR reporting a mandatory aspect (Denmark, France and South Africa). The outperformance of several sustainability indices such as Dow Jones Sustainability Index, AIChE Sustainability Index, BSE CORBONEX and BSE GREENEX are encouraging investors to consider these green companies for investments. CSR or Sustainability reporting has become dominant in business reporting in the light of these developments. http://www.iaeme.com/jom/index.asp 129 editor@iaeme.com
A Study of Corporate Social Responsibility Reporting In India CSR in India has gained a lot of attention and has been an issue for discussion with the enactment of Companies Act, 2013 that came in to force from April 1, 2014. Ministry of Corporate Affairs (MCA) issued a circular on June 18, 2014 stating that CSR activities undertaken must be relatable to Schedule VII of the Companies Act 2013. The present study investigates CSR reporting practices as per Indian Companies Act, 2013. 2. REVIEW OF LITERATURE Corporate Social Responsibility Reporting has received attention of the researchers and a number of studies have been carried out in developed countries. In India, CSR reporting has gained importance in recent years after the Companies Act has come in to force. A brief review of earlier works has been done to identify research gaps in CSR reporting in India. Murthy and Abeysekera (2008) find that firms use dual strategies in reporting their human resource and social relations to legitimize their activities to stakeholders. Mishra and Suar (2010) conclude that stock listed firms show responsible business practices and better financial performance than non- stock listed firms. Gautam and Singh (2010) find that most annual reports do not mention the amount spent on CSR activities in their reports or balance sheets. Sharma and Muktamani (2013) find that public sector banks have overall highest contribution in CSR activities and private sector banks and foreign banks lag behind. KPMG s India s CSR Reporting survey 2015 of Top 100 reveals that health and sanitation is the priority sector for spending followed by education. KPMG s India s CSR Reporting survey 2016 of Top 100 finds that health, sanitation and education sector accounts for the 63.74 per cent of the total spends on CSR against 50 per cent in 2015 and indicates considerable increase in CSR spending on rural development. Jayaraman et al., (2018) find that NGOs play a decisive role in determining the benefits of corporate involvement and recommends need for NGO business partnerships for meaningful social change. Bhattacharya et al., (2014) conclude that SER by Indian organizations is lower in quantity and poorer in quality than Australian organizations. The study also finds that the extent of total disclosure is unrelated to organizational age, external auditor size and extent of multinational influence for both countries. 3. OBJECTIVES OF THE STUDY To examine compliance under section 135 of the Companies Act 2013 To examine the CSR focus areas. To examine the amount spent on CSR focus areas 4. RESEARCH METHODOLOGY The study is based on Nifty Energy and Nifty Metal Index companies listed on NSE as on November 30, 2018. NIFTY Energy Index includes companies belonging to Petroleum, Gas and Power sectors and comprises of 10 companies. Nifty Metal Index comprises 10 companies and include mining sector. The study investigates CSR practices of sample firms by content analyzing 60 annual reports from 2015 to 2017. Table 1 reports profile of the sample companies. http://www.iaeme.com/jom/index.asp 130 editor@iaeme.com
Ghanasham S. Joshi Table 1 Profile of sample companies NIFTY Energy N % NIFTY Metal N % Govt. companies 7 70 Govt. companies 4 40 Private companies 3 30 Private companies 6 60 Total 10 100 Total 10 100 (Source: NSE India) Above Table 1 depicts that Energy sector has more number of government companies (70%) and Indian private sector companies dominate Metal sector. 4.1. Applicability of the Companies Act 2013 The Companies Act is applicable to all those companies having a net worth of INR 500 crore or more, or turnover of INR 1000 crore or more, or net profit of INR 5 crore or more during any financial year. 4.2. CSR Reporting The Act mandates the eligible companies to incorporate in its Board's Report an annual report on CSR containing details on company's CSR Policy, web link address of CSR policy, overview of CSR projects to be undertaken etc. 4.3. CSR Committee It is mandatory for eligible companies to constitute a CSR committee of the board consisting of at least three directors including an independent director to formulate and monitor CSR policy of a company. 4.4. CSR Activities The eligible companies are required to carry out CSR activities as per schedule VII to the Act and all CSR activities should be environment friendly and socially acceptable to the local people and society. 4.5. CSR Spends and Allocation It is mandatory for eligible companies to spend not less than 2% of the average net profits of the company made during the three immediately preceding financial years. 5. FINDINGS The following pages examine the compliance aspect under section 135 of the Act, 2013. Table 2 highlights the number of annual reports and CSR policies collected from the public domain for content analysis. Table 2 Annual reports and CSR policies collected Reports and Policies 2014-15 2015-16 2016-17 Total Annual reports 20 20 20 60 CSR Policy 20 20 20 60 (Source: Company websites) http://www.iaeme.com/jom/index.asp 131 editor@iaeme.com
A Study of Corporate Social Responsibility Reporting In India 5.1. CSR Policy All companies in the sample fall within the scope of the Act. It is observed that all companies in both sectors have CSR policies and provide details of web link address for all three years. 5.2. Mode of implementation of CSR projects The Act mandates the companies to disclose the mode of implementation of CSR projects in the CSR policy. The Act gives freedom to the companies to implement the policy either on their own, or through a registered trust or registered society or through a company registered under Section 8 of the Act. Table 3 reports the mode of implementation of CSR projects. Table 3 Mode of implementation of CSR projects Energy Metals Mode of implementation 2015 2016 2017 2015 2016 2017 N % N % N % N % N % N % Directly 0 0 0 0 0 0 1 10 1 10 1 10 Through Agency 3 30 3 30 3 30 1 20 1 20 1 20 Combination of Direct & 7 70 7 70 7 70 8 80 8 80 8 80 Agency Total 10 100 10 100 10 100 10 100 10 100 10 100 A perusal of above table 3 reveals that more than 70% of the companies implement their projects through a combination of direct implementation and agencies. It is found that more number of companies collaborate with agencies for the implementation of CSR projects. The NGOs play a predominant role in implementing CSR projects in all years. 5.3. Members in CSR Committee The Act mandates eligible companies to constitute a CSR committee with at least three members including an independent director. Table 4 depicts number of members in CSR committees. Table 4 Number of Members in CSR Committee Energy Metals CSR committee members 2015 2016 2017 2015 2016 2017 N % N % N % N % N % N % 3 Members 5 50 2 20 1 10 1 10 1 10 1 10 4 Members 2 20 3 30 2 20 4 40 3 30 1 10 5 Members 1 10 3 30 6 60 2 20 2 20 4 40 More than 5 Members 2 20 2 20 1 10 3 30 4 40 4 40 Total 10 100 10 100 10 100 10 100 10 100 10 100 Table 4 highlights an increase in the number of members forming part of CSR committee. Although it cannot be inferred that the increase in the number of members will lead to better monitoring of CSR activities, it is an encouraging trend from CSR project implementation perspective. It is evident from the above table that the minimum requirement of three members has not been considered from compliance perspective in both the sectors. For the year 2017, the number of CSR committee members range from 3 to 6 in Energy sector and 3 http://www.iaeme.com/jom/index.asp 132 editor@iaeme.com
Ghanasham S. Joshi to 7 in Metal sector. It is interesting to note that JSW Steel Ltd had seven-member CSR committee in 2017. 5.4. Independent Directors in CSR Committee The eligible companies have a mandate to include one outside independent director in CSR committee. Table indicates the number of independent directors in CSR committees. Table 5 Number of Independent Directors in CSR Committee Energy sector Metal sector Independent 2015 2016 2017 2015 2016 2017 Directors N % N % N % N % N % N % One 3 30 5 50 4 40 1 10 2 20 1 10 Two 3 30 3 30 4 40 6 60 4 40 4 40 Three 2 20 2 20 2 20 2 20 3 30 4 40 Four and more 1 10 0 0 0 0 1 10 1 10 1 10 Nil 1 10 0 0 0 0 0 0 0 0 0 0 Total 10 100 10 100 10 100 10 100 10 100 10 100 (Source: Table 5 highlights that 90% of companies in Metal sector and 60% of companies in Energy sector have two or more than two independent directors forming part of CSR committees which is a good sign from CSR governance. For the year 2017, the number of independent directors range from 1 to 3 in Energy sector and 1to 4 in Metal sector. NAALCO s CSR committee comprises of 4 independent directors. 5.5. CSR Spending Table 6 Target CSR Outlay and Actual Amount Spent (Rupees in Crores) Energy 2015 2016 2017 Tgt Act % Tgt Act % Tgt Act % BPCL 76.01 33.80 44.47 112.60 95.59 84.89 159.14 90.98 57.17 GAIL 118.67 17.15 14.45 102.34 109.94 107.43 81.47 92.16 113.12 HPCL 34.03 34.07 100.12 53.92 71.76 133.09 82.90 108.11 130.41 IOCL 112.95 113.79 100.74 141.50 156.88 110.87 212.67 213.99 100.62 NTPC 283.48 205.18 72.38 271.35 491.80 181.24 227.85 271.81 119.29 ONGC 660.61 495.23 74.97 593.70 419.07 70.59 535.67 525.90 98.18 PGICL 110.51 48.21 43.63 121.79 115.78 95.07 135.58 147.28 108.63 RIL 532.96 760.58 142.71 557.78 659.00 118.15 620.41 674.00 108.64 RIL 35.68 25.35 71.05 28.36 32.50 114.60 32.78 32.78 100.00 TPL 29.80 31.13 104.46 28.29 29.01 102.55 21.84 22.79 104.35 Total 1994.70 1764.49 88.46 2011.63 2181.33 108.44 2110.31 2179.80 103.29 Eligible companies are mandated to spend 2% of average net profits of past three years. Table 6 and 7 demonstrate CSR spending by companies for three years. http://www.iaeme.com/jom/index.asp 133 editor@iaeme.com
A Study of Corporate Social Responsibility Reporting In India Table 7 Target CSR Outlay and Actual Amount Spent (Rupees in Crores) Metals 2015 2016 2017 Tgt Act % Tgt Act % Tgt Act % CIL 24.04 24.62 102.41 19.69 73.26 372.07 13.65 128.05 938.10 HIL 34.84 32.42 93.05 31.00 34.15 110.16 21.00 28.36 135.05 HZL 152.64 59.28 38.84 170.05 55.52 32.65 175.35 49.40 28.17 JSW 42.86 43.39 101.24 51.22 51.36 100.27 36.75 42.94 116.84 JSPL 47.97 49.78 103.77 24.42 26.71 109.38-15.36 - NMDC 199.58 188.65 94.52 193.28 210.09 108.70 160.22 174.18 108.74 NAALCO 20.14 19.10 94.84 26.24 27.17 103.54 27.56 30.01 108.89 SAIL 78.00 35.04 44.92 57.20 76.16 133.15-29.05 - TSL 168.26 171.46 101.90 150.00 204.46 136.31 115.80 193.61 167.19 Vedanta - 25.60 - - 17.32-48.88 - Total 768.33 649.34 84.51 723.10 776.20 107.34 550.33 739.84 134.44 According to above tables, in the first year of CSR implementation i.e., 2015, Energy and Metal sectors utilized 88.46% and 84.51% of target expenditure. However, during 2016 and 2017 both the sectors spent more than target outlay. Bharat Petroleum Corp. Ltd failed to utilize CSR funds fully in all three years. During 2017, Reliance industries spent highest funds (Rs 674 crore) followed by ONGC (Rs 525 crore), and NTPC (Rs 271.81 crore). In case of Metal sector, in terms of total spending during 2017, Tata Steel Ltd spent Rs 193.61 crore followed by NMDC (Rs 174.18 crore) and Coal India Ltd (Rs 128.05 crore). It is encouraging to note that a few companies spent on CSR projects despite losses. Jindal Steel and Power (Rs 15.36 crore), Steel Authority of India Ltd (Rs 29.05 crore) and Vedanta Ltd (Rs 48.88 crore) exhibit their commitment towards CSR amidst heavy losses. 5.6. CSR Focus Areas Companies which fall within the ambit of section 135 of the Act are free to carry out any of the CSR activities mentioned schedule VII to the Act. Table 8 and table 9 report area wise spending. Table 8 Area wise CSR spending by Energy sector CSR Focus Areas 2015 2016 2017 Amount % Amount % Amount % Healthcare 873.76 49.52 970.47 44.49 627.87 28.73 Eradicating Hunger 0.05 0.00 0.00 0.00 0.00 0.00 Education 181.19 10.27 444.03 20.36 504.60 23.09 Environment 349.95 19.83 150.20 6.89 223.60 10.23 Women Empowerment 11.11 0.63 2.29 0.10 11.33 0.52 Livelihood Generation 21.35 1.21 95.12 4.36 172.79 7.90 Community Development 18.86 1.07 4.37 0.20 30.68 1.40 Safe Drinking water 2.39 0.14 14.14 0.65 15.81 0.72 Art, Culture & Heritage 27.25 1.54 14.56 0.67 106.90 4.89 Sports 6.05 0.34 28.44 1.30 50.85 2.33 Sustainable Sourcing 0.00 0.00 0.00 0.00 0.00 0.00 PM Relief 0.00 0.00 0.00 0.00 0.00 0.00 http://www.iaeme.com/jom/index.asp 134 editor@iaeme.com
Ghanasham S. Joshi CSR Focus Areas 2015 2016 2017 Amount % Amount % Amount % Disaster Mgt 1.35 0.08 10.00 0.46 11.00 0.50 Rural Development 247.22 14.01 410.81 18.83 363.46 16.63 Rain Water Harvesting 4.52 0.26 5.91 0.27 8.95 0.41 Total 1745.06 98.90 2150.34 98.58 2127.85 97.35 Adm Exp 19.43 1.10 30.99 1.42 57.95 2.65 Grand Total 1764.49 100 2181.33 100 2185.80 100 In case of Energy sector, more than 85 % of CSR funds were spent on healthcare, education, environment protection and rural development. The findings are consistent with the findings of KPMG CSR surveys for 2016 and 2017. Certain schedule VII areas like rainwater harvesting, women empowerment received less attention and areas like livelihood generation, promotion of national heritage and promotion of sports received increased attention of the companies. The Act allows eligible companies to spend maximum of 5% on administrative overheads. Above table depicts that spending on administrative overheads is within the prescribed limit. It is discouraging to note that very few companies report on administrative overheads. Table 9 CSR spending by Metal sector CSR Focus Areas 2015 2016 2017 Amount % Amount % Amount % Healthcare 131.99 20.33 212.26 27.35 145.24 19.63 Eradicating Hunger 4.67 0.72 77.04 9.93 27.50 3.72 Education 238.39 36.71 198.47 25.57 232.80 31.47 Environment 20.41 3.14 28.53 3.68 49.42 6.68 Women Empowerment 4.22 0.65 8.00 1.03 6.86 0.93 Livelihood Generation 60.47 9.31 50.59 6.52 34.99 4.73 Community Development 1.45 0.22 1.92 0.25 1.27 0.17 Safe Drinking water 7.09 1.09 1.53 0.20 18.37 2.48 Art, Culture & Heritage 8.86 1.36 9.02 1.16 11.26 1.52 Sports 18.67 2.88 23.35 3.01 67.42 9.11 Sustainable Sourcing 1.58 0.24 0.28 0.04 1.82 0.25 PM Relief 4.08 0.63 0.50 0.06 0.01 0.00 Disaster Mgt 0.00 0.00 0.00 0 4.94 0.67 Rural Development 120.70 18.59 141.81 18.27 115.34 15.59 Rain Water Harvesting 1.20 0.18 0.00 0.00 0.00 0 Total 623.78 96.06 753.28 97.05 717.24 96.95 Adm Exp 25.57 3.94 22.91 2.95 22.60 3.05 Grand Total 649.35 100 776.19 100 739.84 100 It can be observed from the above table that education and healthcare areas are the priority areas of spending as more than 50% of CSR funds were spent on these areas in all three years. Rural development is another priority on which more than Rs 100 crore was spent in all three years. More than 9 % of CSR funds were spent on sports in 2017. Contribution to other focus areas was meager. http://www.iaeme.com/jom/index.asp 135 editor@iaeme.com
A Study of Corporate Social Responsibility Reporting In India 5.7. Compliance under 2% spending requirement Table 10 CSR spending in percentage Energy Metals CSR spending 2015 2016 2017 2015 2016 2017 N % N % N % N % N % N % Less than 1% 3 30 0 0 0 0 2 20 1 10 1 10 1 to 2% 3 30 3 30 2 20 3 30 0 0 0 0 Equal to 2% 1 10 0 0 0 0 0 0 0 0 0 0 More than 2% 3 30 7 70 8 80 4 40 8 80 6 60 Spending despite losses 0 0 0 0 0 0 1 10 1 10 3 30 Total 10 100 10 100 10 100 10 100 10 100 10 100 A perusal of the above table reveals an increase in number of companies spending more than 2% requirement. During 2017, 80% companies in Energy sector and 60% companies in Metal sector spent more than 2% CSR outlay. Spending less than 1% is nil in case of Energy sector. In case of Metal sector 30% of companies (JSPL, SAIL and Vedanta) spent despite losses. 6. CONCLUSIONS Findings suggest that most of the companies report the activities as per the requirements under section 135 of the Act. It can be observed that some companies go beyond compliance and spend more than required. Overall compliance is encouraging except non-compliance of 2% required spending by BPCL, Hindustan Zinc Ltd. Industries may be encouraged to spend on other focus areas like rainwater harvesting, welfare of war veterans and war widows, vocational skill development and livelihood generation etc. The study is based on a small sample and the findings cannot be generalized. REFERENCES [1] Eliza Sharma & Mukta Mani, "Corporate Social Responsibility: An Analysis of Indian Commercial Banks", AIMA Journal of Management & Research, February 2013. [2] Supriti Mishra and Damodar Suar, Does Corporate Social Responsibility influence firm performance of Indian companies?, Journal of Business Ethics (2010). [3] Murthy, V. & Abeysekera, I. 2008, Corporate social reporting practices of top software Indian firms, Australasian Accounting, Business and Finance Journal, Vol. 2, No. 1, pp. 36 59. [4] Richa Gautam, Anju Singh. CSR Practices in India: A study of top 500 Companies. Global Business and Management Research; An International Journal, 2010; 2(1):4 [5] India s CSR Reporting Survey, KPMG [6] www.mca.gov.in [7] www.kpmg.com http://www.iaeme.com/jom/index.asp 136 editor@iaeme.com