Does Legally-Enforced CSR Actually Work?

Alook at whether India’s enforced CSR laws are actually resulting in change, two years after being passed.

In April, 2014, India wrote corporate philanthropy into law. The rule? Businesses with annual revenues of more than 10bn rupees (R2bn) must give away 2% of their net profit to charity, specifically in the areas of education, poverty, gender equality and hunger. Supporters of the idea said it would finally bring philanthropy into the boardrooms – instead of relegating it to a back section of HR. But critics have said it will simply enforce a tick-box mentality amongst big business – instead of a commitment to real, sustainable change through ongoing business policies.

There’s no denying the laws have increased charity spend. According to The Guardian, independent reports show that the private sector’s combined charitable spend increased from around 33.67bn rupees in 2013 to around 250bn rupees after the law was enforced.

But not everyone is on board. In December 2015, a survey by accountancy firm KPMG found that 52 of the country’s largest 100 companies did not spend the required amount year. And, there have been allegations of fraud. The Economic Times reported that sources claim some companies would write a cheque out to a trust, who’d then take a commission and give the rest back in cash to the company. Since, it reports, CSR spend by companies does not need to be vetted by auditors, and trusts’ financials don’t often come under scrutiny – the opportunity for fraud, while sticking to compliance, is high.

It also seems that the laws in India are benefitting only the large charities in the same vicinity as the businesses – and not always smaller charities in poorer, more remote communities. Because big business needs to ensure the funds go to credible charities, larger, more established ones are being “flooded with money”. While those unable to get past the piles of red tape don’t always reap the rewards.

There’s also the knock-on effect that the law has had in leading companies who were giving more than 2% to cut back – now that it doesn’t really affect their brand’s status, since it’s required by everyone. The Guardian quotes a sustainability director from a conglomerate who claims “Charitable giving used to be a big reputation builder for us… now it’s just about legal compliance”.

And it’s that tick-box attitude that critics say is the most worrisome effect of making giving back a law. If a business is simply required to pay a certain amount of money each year to charity, will it go out of its way to find innovative, creative solutions to positive change – from a desire to truly help? In South Africa, too, the CSI laws are under scrutiny for the same reason. Brand South Africa board chairperson, Khanyisile Kweyama, while speaking recently at the 2016 In Good Company conference at the Atterbury Theatre in Pretoria, argued that companies should be more creative and courageous in the way they allocate CSI budgets. Far too often, she said, according to South Africa Info, companies look at CSI as charitable spending rather than funds that can make real change. Instead, the rationale behind CSI should be to truly commit to creating change across all areas of a business strategy.

Of course, one can’t deny that giving to charity – even when required by law – benefits some communities in need. And that’s good. But what really needs to happen is a change in mindset of the c-suite; leaders who know that with or without legal ramifications, they need to commit to righting social wrongs – and influence others do to the same.

– By The Philanthropic Collection –

 

The Philanthropic Collection™ is a boutique social enterprise,
where we tailor haute-couture brands for philanthropy.

 

Our appliqué is made up of global leaders, influencers and forecasters,
all creating conscious capital for humanity.