New Law Passed in India Requires Businesses to Engage in CSR

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Over the last few weeks I’ve talked about the difficulty in determining appropriate CSR metrics, finding metrics useful for comparison of businesses and whether the annual CSR report is obsolete, however I have to admit, I did not see coming a mandate by a national government (of a enormous country for that matter) requiring businesses to engage in CSR.

However, believe it or not that’s exactly what’s happened. Last month, India passed a bill, in which a company that’s net worth is Rs 500 crore (roughly $100,000,000) “shall be required to formulate a CSR Policy to ensure that every year at least 2% of its average net profits during the three immediately preceding financial years shall be spent on CSR activities as may be approved and specified by the company.”

This is an extremely interesting maneuver from both a business and policy standpoint. I think it’s safe to say that while there has been some talk of mandatory CSR reporting in the United States, it would be almost unimaginable for a bill to be passed that would require corporations do anything with their profits aside from reinvest them or use them to pay dividends to their shareholders. Basic corporate tax rates are already a major point of contention. However, that’s not to say that this is a bad idea or one that might not have merit in other countries with different cultures and different political mechanisms.

The Indian government is not specifying how the money is to be used- that is up to the companies and presumably the shareholders- but the evidence must show up on an annual report in regards to how the money has been spent.

It will be extremely interesting to see how this plays out. Will companies be receptive to this law and will they donate money in such a manner that has an intended positive and measurable affect on society as a whole? How will shareholders react? And could this potentially act as a mode that could be replicated down the road? As far as I know this is the largest scale CSR “endeavor” undertaken, but I am interested to see how companies, which up until now had been instituting CSR initiatives that suited the company, will deal with a law governing their strategies.

Image Credit by Ashish T via Flickr under a CC license

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1 thought on “New Law Passed in India Requires Businesses to Engage in CSR”

  1. Expenditure on CSR is not limited to donations. Phylantropy is just a fraction of the possible social responsibility investments. What seems most interesting of this law is that it is an incentive for companies to start identifying important issues and including changes in their business strategy, which in the long run, are key for their own sustainability. The macroeconomic impact of such a mandate may imply a slow transformation of capitalism as it is conceived today. It may be a way of assuring that there is an overturn in the environmental and social negative impacts that until now have been accepted as the unavoidable consequences of a productive economy.

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