Review of the compliance of the mandatory corporate social responsibility (CSR) by the Indian corporate sector

Abstract

From the financial year 2014-15, the Indian corporate sector was made to comply with a newly introduced Sect. 135 (5) by the Companies Act of 2013. The rule required select companies to spend 2% of their average net profits on CSR initiatives. This paper tries to find if the companies have complied with the provision based on data for six financial years starting 2014-15. CSR performance of the top thirty companies forming part of the Bombay Stock Exchange (BSE) Sensex was evaluated and a CSR Spend-to-Obligation (CSR SO) Index was calculated comparing the actual spend vis-à-vis the obligatory requirement. A quantitative and a qualitative methodology were used for the analysis. The quantitative method involved computation of the CSR SO index at various levels. The “quality” of the CSR expenditure was also assessed by speaking to twelve experts from the Corporate to find out if the expenditure was in the right direction. The results show that the aggregate average six-year CSR SO index for the 30 Sensex companies is 0.98, suggesting that companies comply with the requirements of mandatory CSR. Moreover, the experts confirm that CSR spending is in the right spirit and direction. It certainly has a long-term orientation and qualifies as quality spending. A novel CSR-SO index is presented that compares CSR performance by comparing actual CSR spending with obligatory requirements. This index can act as a barometer for CSR performance and facilitate objective evaluation. Additionally, the qualitative assessment of CSR spending shows a holistic approach to evaluating CSR.