Onerous disclosures

New CSR reporting requirements raise tricky issues

The National Democratic Alliance (NDA) government appears to have significantly raised the levels of obligation for the corporate social responsibility (CSR) mandate, which came into force from 2014-15 for listed and unlisted companies of a certain size. From 2022, the government has mandated a new disclosure framework that requires a detailed level of reporting from FY21 within a prescribed format that needs to be submitted to the Registrar of Companies. The deadline for FY21 is end-March 2022, for which the framework was put in place this month. The expanded disclosure requirements demand an unprecedented level of granular detail. Companies qualifying for the CSR mandate now need to show how much they are spending on ongoing and new projects, what funds have been left unspent, and whether capital assets have been created, in addition to impact assessment reports. The new reporting format will also require information on the constitution of the company’s CSR committee, the details of the committee, and approved CSR projects on the company’s website.
 

The government has said this level of detail is required for “analytical purposes” as well as to inform stakeholders better on CSR obligations. This explanation is, prima facie, unexceptionable, but on closer inspection it raises two tricky issues. The obvious one is the onerous compliance burden it imposes on companies. As several of them have pointed out, much of this information is already available on corporate websites and in the directors’ report, which accompanies all annual reports, more so now as companies look for financing from the growing band of environment, social and governance (ESG) funds. Retrofitting all of this information into a government-prescribed form amounts to a duplication of work. More concerning, perhaps, is the direction that the CSR mandate has taken. What started out as a comply-or-explain template for large companies under the United Progressive Alliance government has evolved into a quasi-legal commitment under its successor. In 2019, for instance, the government proposed to amend the law to treat non-compliance as a criminal offence. Though this amendment was later softened to a civil offence in 2021 after industry lobbies protested, the transition from a discretionary regime to a mandatory one had become explicit.

Encouraging companies to spend their surpluses on social projects such as education and health instead of merely enhancing shareholder value may sound logical in theory, but the question is whether a mandate of this nature can transform society in a meaningful way. At least one apprehension that has arisen is that the mandate could evolve from determining whether India Inc is genuinely contributing to societal development to tracking whether corporations are donating to causes that align with political agendas. Further, given the administration’s hardening regime towards NGOs and other civil society organisations, companies may find the room for manoeuvre in terms of donating to causes of their choice increasingly constrained. Most concerning, perhaps, is that at a time when India urgently needs investment, the new disclosure requirements are unlikely to enhance India’s reputation as an easy place to do business.