Implementing CSR initiatives effectively presents significant challenges, ranging from a lack of clear objectives to complexities in measuring their impact

Corporate Social Responsibility (CSR) is a fundamental aspect of modern business strategy, reflecting a company’s commitment to social equity, environmental sustainability and ethical practices.

In India, CSR became a legal requirement in 2013, and companies are now expected to integrate these principles into their operations. However, while CSR initiatives are vital for societal and environmental progress,  accounting for them presents unique challenges that businesses must address to achieve compliance and maximise impact.

Challenges in CSR Accounting:

1. Lack of Clear Objectives

Many companies undertake CSR without clearly defined goals, resulting in misaligned initiatives that fail to resonate with stakeholders or address critical social issues.

2. Insufficient Stakeholder Engagement:  CSR initiatives often overlook the input of key stakeholders such as employees, customers, and community members. For instance, a clothing brand may launch a sustainable fashion line without consulting suppliers or customers, leading to low adoption and minimal impact.

3. Limited Resources

Smaller businesses face budget constraints and lack expertise to implement effective CSR programmes. A local coffee shop, for example, might abandon a recycling initiative due to insufficient funds for bins or awareness campaigns, missing the chance to enhance its brand.

4. Fund Utilisation Issues

Companies often face compliance challenges regarding the disbursal of funds to implementing agencies. Under Section 135(5), mere fund transfer does not qualify as CSR spending unless the implementing agency utilises the funds appropriately. Companies must plan and monitor fund utilisation effectively.

5. Difficulty in Measuring Impact: Assessing the outcomes of CSR initiatives is complex, as many lack standardised metrics to measure their social and environmental impact. For example, a manufacturing firm may struggle to quantify carbon emission reductions from a green energy project, making it harder to demonstrate success.

6. Reputation Risks

Greenwashing or poorly executed initiatives can damage a company’s credibility. For instance, a beverage company that markets itself as environmentally friendly while engaging in unsustainable practices risks losing consumer trust and suffering long-term reputational harm.

Strategies to Overcome CSR Challenges

1. Define Clear Objectives

Companies should set SMART (Specific, Measurable, Achievable, Relevant, Time-bound) goals for their CSR initiatives.

2. Engage Stakeholders Early

Regular engagement with stakeholders ensures CSR initiatives address their needs and receive their support.

3. Start Small and Scale Up

Small businesses can begin with low-cost, high-impact projects and expand as they gain experience. A local restaurant might start with a composting programme and later adopt a broader sustainability plan, including local sourcing and reduced waste.

4. Utilise Metrics and Reporting: Establishing clear metrics allows companies to measure and report their CSR progress effectively. For instance, a tech firm could publish an annual report detailing energy savings, employee participation, and community engagement outcomes.

5.Communicate Transparently: Openness about successes and challenges builds stakeholder trust.

Conclusion: Proactively addressing these issues helps businesses enhance their reputation, strengthen stakeholder relationships, and make meaningful societal contributions. Successful CSR initiatives ultimately benefit both companies and communities, driving sustainable growth.

(The writer is partner Audit and Corporate Tax, Bhuta Shah and Co.; views are personal)