At a time when global political and business leaders are discussing at the World Economic Forum in Davos ways to be more socially responsible and reduce social divide, a report says most Indian businesses lag behind in fulfilling their corporate social responsibility (CSR).
According to the report published by German development aid agency Deutsche Gesellschaft für Internationale Zusammenarbeit (GiZ) in collaboration with the Indian Institute of Corporate Affairs (IICA), Indian businesses spend an average of 1.4% of profits after tax (PAT) as CSR.
This is lower than the 2% of net profits before tax (PBT) expenditure mandated by the Companies Act, 2013.
The report published on December 29, 2014, analysed top 100 listed companies, across 13 sectors, based on their business responsibility disclosures and sustainability practice in India. The report analyses Business Responsibility Report (BRR) by the companies in the first reporting cycle (2012-13).
The lowest CSR expenditure came from the telecom and media sectors, while the highest was by the housing sector.
India has one of the world's largest telecom and media sectors with an annual turnover of around $15 billion (more than Rs 90,000 crore).
The report says telecom and media sectors earmarked only 0.4% of profits for CSR initiatives, followed by information technology (0.5%) and financial (0.6%) sectors.
The housing sector spent the most with 3.5% of its PAT going as CSR, followed by metal, metal products and mining (2.3%) and cement (2.2%) sectors.
Significantly, the 1.4% average CSR spending is an inflexible estimate given that PAT is used by the companies as the base figure rather than PBT, which is the optimal base.
Therefore, it is an unsatisfactory gap that the companies need to bridge.
According to the report, 10 out of these 13 sectors did not spend the stipulated 2% for their CSR.
Incidentally, the sectors that spent the most for CSR are seen to be most vulnerable to allegations of corruption.
The report also speaks of challenges such as lack of transparency by companies in disclosing CSR strategies and lack of responsiveness in dealing with social concerns.