Maximizing the impact through effective Annual Action Planning

Introduction

Companies Act, 2013 [“the Act”] mandates companies falling under a specific threshold to spend in every financial year as part of its Corporate Social Responsibility [“CSR”] obligation under certain activities which are identified under Schedule VII of the Act.

Activities specified under Schedule VII of the Act are of very crucial importance and are included in the list of activities with the purpose that it is an opportunity for corporates to contribute meaningfully and cause greater impact to society.

For this to happen it is essential that CSR is viewed by corporates as not just an obligation but an inherent responsibility which they have towards the society in which they operate.

Any activity to be implemented successfully requires detailed planning from the start. It cannot so happen that the end means is achieved just by deciding on a particular activity.

In the case of CSR as well it is important that corporates understand the end means of undertaking CSR activity. Compliance with the mandate of the Act is just one aspect but creating maximum impact through CSR activities should be the main objective of all corporates.

One of the crucial aspects which can help corporates effectively implement its CSR activities is comprehensive drafting of its Annual Action Plans for the financial year.

Lack of importance to preparation of effective and detailed Annual Action Plan leads to a situation where maximum spendings are witnessed in the last quarter in an unplanned manner. This results in companies not being able to spend the entire obligation in the financial year and thereby are required to transfer the unspent amount to designated Schedule VII funds defeating the purpose of creating the impact in the identified areas which the company otherwise would have achieved by spending in a planned manner.

This last-minute rush to spend the CSR funds highlights the need for a substantial shift in the approach of the corporates. An effective remedy to this issue lies in meticulous planning through a well-structured Annual Action Plan right from the onset of the financial year.

Components of the Annual Action Plan:

1. The Why, Where, What, When, How & Need context in framing of Annual Action Plan: i.e. Why CSR is to be done, where it needs to be done[1] ,What in CSR, When it should be done, How it should be done & Is there a need to do the particular CSR activity

An essential aspect to be kept in mind while drafting the Annual Action Plan for any particular financial year is giving of importance to the “need factor” of undertaking the particular CSR activity. Corporates which have a clear vision with respect to the desired objective of undertaking any CSR activity are always placed in a better position to analyze the level of impact which it desires to achieve via its CSR projects and activities.

Thus, before undertaking a particular activity, it becomes essential that sufficient stakeholders of the target areas are engaged and comprehensive surveys and analysis is done to address the actual needs of the community involved.

2. Flexibility & Authority to act must be included: Proviso to Rule 5 (2) of the Companies [Corporate Social Responsibility Policy] Rules, 2014 specifically provides an authority to the Board of Directors of the Company to alter the Annual Action Plan at any time during the financial year by recording reasonable justification to that effect.

The Proviso to Rule 5 (2) can be read as follows: Provided that Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect.

Recognising CSR as an evolving plan, it is essential to allow flexibility and empower key decision makers to adapt strategies as per evolving needs. Assigning of authority to competent individuals facilitates swift decision making thereby enhancing the responsiveness of the overall CSR Annual Action Plan.

Therefore, it is advisable that the CSR Annual Action Plan must be inclusive of such authority which would enable the implementation in such a way which would derive the maximum impact to the targeted community.

3. Balance between long term visions and immediate needs: The Annual Action Plan must strike a balance in allocation of the overall CSR budget of the Company in such a manner that 70 to 80 % of the total Budget of each year is towards the long-term vision of the entity in the area identified under Schedule VII. The balance funds shall be towards the meeting of the immediate urgent needs of the community or target area identified.

Allocating the majority of the Budget towards the long-term vision of the entity while reserving a portion for immediate needs shall enable the corporate entity to achieve a harmonious balance for achieving maximum impact.

If a corporate has a long-term vision for its social endeavors set on the basis of a 5-to-10-year roadmap for the future, then developing Annual Action Plans becomes a small part of the overall framework which is then very easy for the company to establish and set. The reason being that it already has in place the vision set for the next ten years.

4. Execution and Implementation Methodology: Sub rule (5) & (6) of the Companies [Corporate Social Responsibility Policy] Rules, 2014 place a statutory responsibility on the Board of the Company to monitor and satisfy itself that whether the funds so allocated or disbursed for spending are properly utilized and is actually spent as it was listed out under the Annual Action Plan for the purpose for which it was allocated.

The text of the said provisions of sub rule (5) & (6) of Rule 4 can be read as under:

(5) The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.

(6) In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period.

Keeping in mind the same the Annual Action Plan must chalk out certain systems and methodologies which would enable the concerned authorised persons to review and monitor from time to time the activities or the spendings undertaken.

This becomes even more important when the company is adopting an indirect route for the purpose of its CSR obligations, i.e. the company is not directly undertaking the activity but is fulfilling its CSR obligations through an implementation agency.

Conclusion:

To maximise CSR impact, companies must adopt strategic planning and long-term vision. The commitment to societal welfare shouldn’t be viewed merely as an obligation but as a proactive endeavour to create a positive and enduring impact.

Effective CSR Annual Action Plan is not just a document it is a roadmap to achieve the long-term impact in identified areas in the society. By prioritizing need assessments, shifting from last minute compliance to proactive planning and infusing the ‘Why’ behind every initiative it can be ensured by companies that the CSR activities undertaken shall achieve the maximum impact on the actual needs of the society.

Annexure 1