Over the past two fiscals, the amount spent on corporate social responsibility (CSR) has surged at a compound annual growth rate of 14%, despite a lukewarm 5% growth in net profit, an analysis of 1,186 eligible and listed companies by CRISIL Foundation shows.

While the improvement in CSR parameters is heartening, it also emerges that the improvement rode on widespread use of implementing agencies such as non-government organisations (NGOs).As many as 74% of the eligible companies – including two-thirds of the small ones -- used implementing agencies last fiscal when spending on CSR.

“NGOs are natural allies when executing CSR projects given their presence in the target areas, local knowhow, and resources, besides experience in executing social projects,” said Maya Vengurlekar, Chief Operating Officer, CRISIL Foundation. “Corporates typically lack such experience. However, given the ever-increasing monies involved, ensuring robust due-diligence before appointing an NGO or a voluntary organisation as a partner has become an imperative.”

A survey conducted by CRISIL Foundation to see how corporate India was approaching the CSR mandate also corroborated this trend.

Additionally, the survey also indicated almost two-thirds of the respondents had less than five dedicated personnel for CSR activities, indicating companies have underinvested in building their own capacity to provide strong oversight.

CRISIL Foundation believes the stipulation that overhead cost cannot exceed 5% of the total CSR spend could be one of the key drivers for this. Respondents in our survey, too, indicated this limit is holding them back from engaging more directly.

“Some regulatory intervention can help here,” said Ramraj Pai, President, CRISIL Foundation. “An increase in the limit can ensure a more direct involvement of companies by helping them build bigger teams for CSR. Also, as the use of implementing agencies is inevitable for execution, steps can be taken to promote benchmarking of NGOs to gauge their execution capability and usher in standardisation.”

Meantime, the amount spent on CSR by eligible listed companies rose nearly 7% on-year to just shy of Rs 9,000 crore in fiscal 2017, the third year of implementation of the legislative mandate.

Around 70% of the 1,186 companies spent more than they did the previous fiscal. Those spending the stipulated 2% of net profit also increased, though on-year growth in the number of companies spending on CSR was slower at just 2.4%, compared with 13.1% in fiscal 2016.

Commendably, the improvement came despite a high base of fiscal 2016, which had seen a whopping 22% spurt in spending, led by government push to schemes such as the Swachh Bharat Abhiyaan. Also, the growth was despite the jitters caused by demonetisation and impending rollout of the Goods and Services Tax.