Corporate spending patterns may change as pandemic chaos hits CSR hard

Talks with key executives in listed firms reveal diversion from existing plans such as supporting cancer hospitals, towards giving all the money under their budget to help deal with pandemic

Companies have been finding it harder to execute their regular charitable corporate social responsibility (CSR) projects amid the Covid-19 pandemic lockdowns.

Some have had to pause project execution. Others have altered plans to account for the pandemic to the exclusion of priorities in previous years.  Conversations with those who advise on such matters as well as key executives in listed companies show that there has been a shift away from existing plans such as supporting cancer hospitals, towards giving all the money under their budget to help deal with the pandemic. This is for companies who are still able to meet their obligations.

In the present scenario, there is so much of cash crunch many companies are just in survival mode, according to Gaurav Pingle, Pune-based company secretary. A company secretary advises firms on meeting their legal obligations including CSR.

“Companies are not keen on doing it immediately,” he said.

Viral Thakker, Partner, Deloitte India said that the lockdown had also earlier affected the ability of many companies to carry out planned activities.

“Depending on the area, progress suffered somewhat,” he said.

Challenges in the current environment may require tweaking the existing company plans on the support that they extend to themes such as health, rural development or projects; noted a ‘Social response to Covid-19’ report that Deloitte released on Friday. For example, companies could ‘...make provisions for necessary technology infrastructure including internet facility and digital devices to enable distance learning,’ to support education goals, it said.

This trend towards a change in strategy was also borne out by an executive in southern company who said that they had spent money on a Covid-19 project. They had earlier supported victims of natural disasters in previous years.  

The headwinds towards meeting CSR goals come even as compliance had been improving in recent years. More companies fell short of their mandatory spends than the one who met or exceeded it in 2014-15, shows ministry of corporate affairs data. This is shortly after they were required to allocate a proportion of their profits to such projects. Compliance improved over the years. There were 6528 companies which met or exceeded their mandatory spends in 2018-19. There were nearly twice as many companies who met or exceeded their obligations for every company which fell short, shows an analysis of the data.

The hit in the current year gains significance in light of recent regulatory changes. The Companies (Amendment) Act, 2020 passed last month levied penalties on both the company as well as its officials, though limited to one crore.

"... the company shall be liable to a penalty of twice the amount required to be transferred by the company to the Fund specified in Schedule VII or the Unspent Corporate Social Responsibility Account, as the case may be, or one crore rupees, whichever is less, and every officer of the company who is in default shall be liable to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, as the case may be, or Rs two lakh, whichever is less," it said.

Defaults in spending invited criminal action earlier. This has since been diluted.