Mandatory CSR for big companies in Nepal? Maybe not a stupid idea at all

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There has been controversy since the new Industrial Enterprise Act entered in force as some of its provisions force small, medium and large industries with transactions over Rs 150 million to spend at least one percent of their annual profits in Corporate Social Responsibilities, CSR activities.

A special financial vehicle, a Children Welfare Fund, will be created by the Ministry of Industry to manage these contributions.

The Ministry of Industry, probably following the enthusiasm created by the recent initiatives of the Dhurmus Suntali Foundation, has decided that the first contributions to the Fund will be to support the much neglected children from the Musar community in Siraha district.

The Industrial Enterprise Act follows recent directives of the Nepal Rastra Bank that made it mandatory for commercial banks to allocate one percent of their profits for CSR activities.

While similar in scope, the two provisions are very different in nature as the regulations from Nepal Rastra Bank are more liberal, setting just clear standards on the administration of the funds, including the way to select the beneficiary projects, while leaving each private entity the freedom to choose in which projects to support.

From the perspective of a CEO or Board of Directors, certainly between the two, the regulations issued by the central bank are much preferable: the Industrial Enterprise Act is “centralizing” and “patronizing” at the same where companies are simply asked to put money into a basket on which they have no control whatsoever.

After all no one forgot how corporates, under pressures from the dare circumstances, had to “voluntarily” donate to the Prime Minister Fund in the aftermath of the earthquakes.

Three years on, with the same donations aimed at the reconstruction of the country still remaining unspent, it is obvious that the new provisions are met with controversies from the national business community.

It is obvious that with such background there is a well justified level of skepticism from the national business community towards any forced CSR activities.

With these two new legal provisions, Nepal has officially joined few countries like India and Indonesia that are making CSR contributions mandatory.

In 2014 the European Parliament passed a new legislation that requires publicly traded companies with more than five hundred employees to report on their suitability levels.

According to GreenBiz, a web site, at the time the law was passed only 2,500 companies were voluntarily sharing their sustainability impact and with the new law implemented, the number would rise to 7,000 by end of 2017.

Yet in most of the nations around the world, CSR is seen mostly from the voluntary perspectives with companies being incentivized and in some cases nudged towards it but very rarely forced to donate.

The Boston College Center for Corporate Citizenship, a leading research center on CSR that nowadays more known as “corporate citizenship” in its flagship State of Corporate Citizenship 2017 stated that executives worldwide anticipates an increase in community investment over the next three years.

At the same time the report reinforces previous insights that corporate citizenship helps companies and their employees enhance their performance, playing an important role in achieving corporate goals.

Certainly the debate and discussions between “voluntary” versus “mandatory” contributions will remain live for foreseeable future in Nepal as well as in other countries.

One hope is that in future an increased focus on social businesses and ethical investments coupled with more ethical corporate behaviors, where, for profit commercial activities that create wealth for the shareholders while also contributing positively and significantly to the local communities and the wider society, will make CSR contributions redundant.

In this future scenario, companies will have enough social contributions already embedded it their corporate missions that ethical forms of business will be a standard way of doing business where cross sector partnerships will provided added value to the way of work.

Yet even globally there is still a long way before reaching this forecast. After all we should not forget that many multinationals, while pro- active on corporate citizenship, exploits many legal loopholes in order to pay less taxes, a clear indicator on how “double standards” are still well practiced.

In the case of Nepal there is clearly a lack of understanding on the benefits of CSR related activities especially on its return and the way it can benefits, in the long run, the company’s bottom line.


Newest and most innovative forms of CSR, including corporate volunteerism, have never been really implemented in the country.


If local companies aspire to compete globally, they also need to be bold and innovative in terms of community engagement while the not for profit sector must raise up to the new opportunity to work with the corporates with professionalism and ethical standards.


So far very few companies have shown genuine interest in embracing global practices in matter of CSR. Their attitudes must change and make a real effort to come up with innovative ideas.


The Government, instead of acting unilaterally, should have embraced the private sector in a frank discussion on how to frame and develop corporate social responsibility in the country.


The provisions of the Industrial Enterprise Act should be amended giving more freedom and liberty to the private sector to decide on its own how to spend the money for CSR.


While in all effects, the two provisions can be seen as a new tax, we should accept and welcome the Nepal Rastra Bank’s approach while more flexibility is required on the level percentage to be invested.


After all not all companies are in a financial position to contribute one percent of their profits to CSR.


Let’s call it a “necessary evil” that big companies and banks not only must necessarily deal with but also welcome it as an opportunity to do good at community level while also enhancing their performances.


It is also a good chance to show the potential of cross sector partnerships in transforming the country.


Yet, to better induce and motivate the private sector towards this new reality, the Government should include tax breaks or deductions for CSR contributions in the upcoming budget.



Position: Co -Founder of ENGAGE,a new social venture for the promotion of volunteerism and service and Ideator of Sharing4Good

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