'Effective CSR spending needs a mindset change in top management'

Spending on corporate social responsibility activities by central public sector undertakings has been mandatory since 2010.

The new Companies Bill will boost such spending by both public and private companies.

Praful Patel, Union minister for heavy industries & public enterprises, speaks to Business Standard on the issue.

Edited excerpts:

The department had taken an initiative in making CPSEs mandatorily spend on CSR. What is the experience so far?

These funds have been generally well channelised for addressing social, economic and environmental concerns.

Now, with the passage of the Companies Bill, the budgetary allocations for such activities would have to be revised in consonance with the new provisions.

The new guidelines we’ve issued are robust and comprehensive; two areas of spending have been made mandatory -- one on development of backward regions as identified by the Planning Commission under its Backward Region Grant Fund Scheme and the other regarding environment sustainability.

CPSEs have been at the forefront in CSR activities and far ahead of other companies.

Give us some examples.

Several CPSEs have taken up CSR and sustainability projects in the areas of environment, education, health, development of backward areas, skill development, capacity building -- aimed primarily at creating income generation capacity of weaker sections.

The list of examples of commendable work is long.

Two situations come to mind instantly.

One is the natural calamity which struck Leh in 2010.

Because of a sudden cloudburst, a large number of houses were demolished and thousands of people were rendered homeless.

Large-scale destruction of property was witnessed.

Because of the prompt rehabilitation undertaken by CPSEs in coordination with each other, the dwellings of those affected were reconstructed in a very short span of time.

Similarly, in the unprecedented scale of destruction and loss of human lives in the recent tragedy in Uttarakhand, CPSEs have reacted instantly, with massive contributions from their CSR funds for relief and rehabilitation measures in the ravaged areas.

A change in the mindset of top managements is required and, hopefully, the change will come about as expected.

It would transform the way business is conducted.

How will the new Companies Bill help?

In this, only companies above a particular threshold of profit are required to spend on CSR.

In comparison, the Department of Public Enterprises guidelines stipulate that all profit making CPSEs have to spend on CSR and sustainability activities, though the slabs of expenditure prescribed are differentiated on the basis of profitability.

With the new Companies Act, the financial component for spending on CSR activities would have to be revised for CPSEs, too.

However, pressure would be built on all companies to take CSR more seriously and to incur expenditure as prescribed.

The DPE guidelines on CSR and sustainability are more stringent in this regard.

Under the Companies Bill, those not spending the budgetary amount on CSR in a particular year will be required to explain why.

Whereas, in the DPE guidelines, not only do the CPSEs have to explain a failure to utilise money for this in a particular year but in the event of their failing to spend the said amount in the next two years, the unspent amount would be transferred to a ‘Sustainability Fund’ to be created separately for CSR and sustainability activities.

This creates greater pressure in CPSEs to spend the funds earmarked.

What is the monitoring mechanism put in place during the implementation of CSR by CPSEs. Can this be used by other companies?

There’s a two-tier structure within the companies.

One is a board-level committee, and the other is a team of officers below this level.

The composition of the former is similar to one envisaged in the new Companies Bill.

Overseeing the performance of CPSEs, including implementation of its CSR activities, is done by the administrative ministry/department concerned.

In addition, the memorandum of understanding signed by each CPSE with its ministry is another tool.

CPSEs can also engage specialised agencies to help them in the task of monitoring.

The monitoring mechanism under the new guidelines is fairly elaborate and companies other than CPSEs might like to borrow from our guidelines and learn from our experience in implementing these.

Image: Praful Patel; Photograph: Reuters