PSUs fail to bridge the social responsibility gap

At a time when the government is trying to make a mandate on CSR (corporate social responsibility) spending by companies in the private sector, there is an obvious presumption that public sector undertakings (PSUs) are doing well on that count. 

Actually, they are not. But then PSUs cannot be faulted for want of motivation or funding constraints or allocations.  PSUs have problems finding good social projects most of the time; this explains why they remain laggards on the CSR front.  So much so, six large PSUs which were together mandated to spend Rs 1,203 crore in FY12, managed to disburse only a little more than one-third of the amount.

For instance, state-run oil exploration major ONGC could spend only Rs 121 crore out of Rs 456 crore funds it allotted for CSR activities during 2011-12, while Indian Oil Corporation spent Rs 82.7 crore out Rs 161.7 crore it had allotted for CSR spend in the same period. 

Similarly, Coal India spent only Rs 82 crore out of an allocation of Rs 217.3 crore, while NTPC spent Rs 49.4 crore out of Rs 187 crore (equivalent of 0.5 percent of its profits), but steel behemoth SAIL is tad better than other PSUs as it spent more than 50 per cent of its CSR allocation.  SAIL made a CSR spend of Rs 61 crore out of funds allotted at Rs 98.7 crore during 2011-12.

From the banking sector, public sector lender State Bank of India (SBI) made a CSR spend of Rs 71.20 crore out of an allocation Rs 82 crore, which works out to 1 per cent of profit as against the mandated two per cent stipulated by the Department of Public Enterprises (DPE) for PSUs three years ago.

Even as private companies set to make transition to the new norms of CSR, PSUs are still struggling to live up to norms on CSR spends laid out by DPE three years ago.  For one, the bigger challenge for PSUs is in finding sustainable projects, more so in Tier II and III towns; that apart, they struggle for want of dedicated professionals who can ensure that the CSR money is spent well and judiciously.  Then, there is lack of partnerships with NGOs. Other factors include the inability to identify good social projects or some times, lack of top management vision for CSR.  For instance, explains a CSR consultant, SBI has a five-member central CSR team, but only one of them is dedicated to CSR while others deal with corporate communications. This team allocates budgets to circle heads who dole out funds to regional branch heads who then disburse money to projects.

Funds Race Against Time

Although decentralizing and working with local communities is helpful, the process is cumbersome. Also, loosely-held bureaucratic structures cause delays in money reaching projects, which in turn results in the inability to spend allocated funds within a specified time period, he points out.

A Mumbai-based NGO official who advises PSUs on CSR initiatives remarks that most PSUs don't have dedicated teams, with one person handling two or three functions with CSR as an added responsibility. "These (CSR initiatives) need dedicated teams apart from money only then targets could be achieved with relative ease," she said.  

All the same, there has been an enormous shift in the mindset of top managements of companies. People at the level of COOs are also now sitting in the meetings of CSR initiatives, implying that they are taking it seriously now than they were earlier. In this context, an ONGC spokesperson concedes that the biggest problem is in finding sustainable problems in smaller towns and cities. ONGC's CSR activity is in areas like education, healthcare, entrepreneurship, ecology protection and safeguarding heritage sites, to mention a few.  They are tying up with some niche NGOs to pursue their goals.  
Coal India's General Manager (Human Resources & CSR) Ajit Kumar says there are two reasons for the gap -absence of a monitoring system and lack of manpower to implement projects at ground level. To address this, Coal India recently signed a MOU with Tata Institute of Social Sciences to carry out needs-assessment on projects. Their NGO partners will now work with Kumar’s team to implement projects and carry out reporting on impact created by the projects.

What's more? Coal India has streamlining its dedicated CSR team to be more efficient in monitoring project work.

 Ditto with SBI, which has till date not partnered with NGOs for CSR on projects, is reconsidering this and it could soon work with NGOs to disburse more money on larger projects over Rs 25 lakh after the new Companies Bill becomes law, according to its spokesperson. More often, companies don’t know how to address those issues, which are so different from their particular industry and core competencies. Now SBI has veered round to the idea of engaging niche NGOs to seek their advice on projects they are undertaking.

PSUs are showing all intentions of taking CSR seriously. In the past two years, there has been an enormous shift in the mindset of top managements of companies.  

Integrating CSR With Work

On the private sector front, CSR initiatives were initially focused on some of the long established, family-owned companies like Tata, Birla, Bajaj, Mahindra & Mahindra, Infosys, Wipro and Aptech, but companies are now integrating CSR initiatives into their everyday business.

Tata Steel has over the years laid great emphasis on creating a green environment in and around its plants and on utilising the waste generated in the process of manufacturing steel. It roughly generates 700 kg of various wastes excluding fly ash in the process of producing one tonne of crude steel and of this, 83.16 percent is utilised either through recycling and re-use in the company’s own processes.

Godrej has been a key player in aiding education, environment and healthcare. One of its Foundations has been maintaining the western bank of the Thane Creek, the single largest mangrove belt in Mumbai.  The K C Mahindra Education Trust set up in 1953 undertakes a number of education plans, which make a difference to the lives of worthy students.  Its Nanhi Kali (children) project has over 3,300 children under it and the company aims to increase the number to 10,000 in the next two years by reaching out to the underprivileged children, especially in rural areas.

Dabur works towards developing sustainable cultivated source for herbal ingredients, which will help in reducing the strain on natural habitat of these herbs and also involved in reforestation in the Himalayan range.  Hindustan Unilever (HUL) is also committed in extending its efforts on water management to the larger community, while ITC focuses on the use of renewable energy such as biomass and solar energy. Infosys, Wipro and Aptech are engaged in education and community development projects.

The government is now making CSR statutory for all companies by extending the scope of the Companies Bill — which will make it mandatory for any company with a turnover of Rs 1,000 crore or more or net profit of Rs 5 crore or more to allocate 2 per cent of its net profit towards CSR activity. This has been met with mixed reaction by corporates and SMEs besides experts. As Arun Maira, member, Planning Commission, wrote: “This will create another set of accounts that corporations must give and the government must check, at a time when the former is pleading against excessive inspections.”  
Corporates are seen to do it because they care, and not because they are required to, said and asked, “If CSR is mandated, where is the heart?”

Another view reportedly voiced by Union Minister of State (independent charge) Corporate Affairs Sachin Pilot. “There was a trust deficit in society that corporations are not contributing enough. This provision can act as a bridge to correct that perception. We just want a clear-cut commitment from the corporate sector towards social causes. Most large corporations have undertaken their own CSR initiatives. The only change is that they now have to mention what they are spending on, and how much.”  If not, they have to explain valid reasons for it.

Industrialist Harsh Goenka of RPG group in a recent column suggested why it is a good idea to mandate corporate social responsibility: “It (CSR allocation) should be mandatory for the first three to five years. Thereafter, the momentum will be self-sustaining. The draft of the Companies Bill, 2009, had linked CSR expenditure to net profit. While there will be tax breaks, there will also be an impact on profit.”

 Anil Singhvi, Chairman, Ican Investment Advisors and a former executive of Ambuja Cement, says: “The performance of Indian companies in case of CSR has been pathetic as they have failed in their role of being a good corporate citizen. They are found to be doing more of lip service rather than actual initiatives in and around the areas of their operations.” 

Interestingly, one report points out that Indian listed companies had a combined net profit of Rs 4,37,167 crore last year.  At 2 per cent, this will yield slightly less than $2 billion a year as the CSR kitty of India Inc, and such a large sum generated every year could solve many of the country's social and environmental issues.

Besides, most companies these days -- be it multinationals or domestic ones -- go vocal saying that they are not in business for the sake of profits alone, they are also keen on serving larger social purpose.  So, they might as well say yes to the government on CSR mandatory spend now.