Corporate social responsibility projects demand expertise too

Source– The post is based on the article “Corporate social responsibility projects demand expertise too” published in the “mint” on 10th July 2023.

Syllabus: GS 4 – corporate governance

Relevance: Issues related to corporate Social Responsibility

News-The article is about concerns related to the money spent by companies on corporate social responsibility (CSR) activities.

Companies above a threshold level of profit, sales or net worth are mandated to invest 2% of their average profit for the last 3 years on CSR activities, which are defined.

What are the issues related to CSR spending?

Limited areas: There has been concentration in three activities. These are education, health and rural development. For example, 77% of the total amount spent between 2014-15 and 2020-21 was on these three areas.

Regional Inequity in spending: There has also been a concentration of spending in some large states: Maharashtra, Gujarat, Andhra Pradesh, Karnataka, Uttar Pradesh, Tamil Nadu, Rajasthan and Madhya Pradesh.

Companies do not have any core competence in these areas. Internal staff that are not competent to do this work. They are involved in low-effort exercises like distributing water coolers or laptops to schools.

Companies look for easy ways out by transferring the money to a centralized fund like the Prime Minister’s National Relief Fund to save the management time on CSR compliance.

What are the challenges faced by companies?

Most of the companies like to transfer the money to a centralized fund like the Prime Minister’s National Relief Fund. It is because companies are not meant to do social work. They need to allocate more resources in compliance with their CSR responsibility. Therefore, it should be the responsibility of the government to use CSR funds effectively.

What is the way forward?

Government can set up a separate organization to work on the deployment of these resources. NITI Aayog could be entrusted with this responsibility.

Centre can take the prerogative on how to deploy these funds. The amount can be paid by companies in a lump-sum manner to deploy based on their social-sector priorities.

Government can draw up a list of all CSR projects followed by directed or suggested CSR spending. Advice can be given routinely to firms on where money should be spent and for what exact activity.