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Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR)

  • The term “Corporate Social Responsibility” in general can be referred to as corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.

How is it regulated in India?

  • India is one of the first countries in the world to make Corporate Social Responsibility (CSR) mandatory for companies following an amendment to the Companies Act, 2013 (Companies Act) in 2014.
  • Under the Companies Act, businesses can invest their profits in areas such as promoting rural development in terms of healthcare, sanitation, education including skill development, environmental sustainability, etc.
  • Section 135(1) of the Act prescribes thresholds to identify companies which are required to constitute a CSR Committee – those, in the immediately preceding financial year of which:
    • Net worth is Rs 500 Crore or more; or.
    • Turnover is Rs 1000 Crore or more; or.
    • Net profit amounts to Rs 5 Crore or more.
  • As per the Companies (Amendment) Act, 2019, CSR is applicable to companies before completion of 3 financial years.

Fines and Imprisonment

  • Provision for penalty in the form of fine on the company and officers in default, between Rs 50,000 – Rs 25,00,000, has been inserted in case of failure in compliance with Section 135. Additionally, every officer in default may also be imprisoned for a term of up to 3 years.

What activities can be carried on?

CSR is a commitment to support initiatives that measurably improve the lives of underprivileged by one or more of the following focus areas as

  • Eradicating hunger, poverty & malnutrition
  • Promoting education
  • Improving maternal & child health
  • Ensuring environmental sustainability
  • Protection of national heritage
  • Measures for the benefit of armed forces
  • Promoting sports
  • Contribution to the Prime Minister’s National Relief
  • Slum area development etc.

How is it beneficial to companies?

  • Consumers are socially conscious – Many consumers actively seek out companies that support charitable causes. Therefore CSR attracts customers.
  • Competitive advantage – Businesses that show how they are more socially responsible than their competitors tend to stand out.
  • Boosts employee morale – CSR practices have a significant impact on employee morale, as it reinforces his confidence on Company’s empathy.

Current provisions governing Corporate Social Responsibility (CSR)

  • The laws governing CSR come under the Companies Act, 2013, and became effective on 1 April 2014.
  • These laws state that companies with a net worth of ?500 crore or revenue of ?1,000 crore or net profit of ?5 crore during the immediately preceding fiscal should spend 2% of their average net profit in the last three years on activities related to social development such as sanitation, education, eradication of hunger, poverty and malnutrition, conservation of heritage, art and culture, and vocational training such as setting up grooming outlets or training centres for sewing.
  • If a company is unable to fully incur the CSR expenditure in a given year, it could carry this amount forward and spend it in the next 12 months, in addition to the money for that year.

Injeti Srinivas Committee Report on Corporate Social Responsibility (CSR)

  • The committee chaired by Injeti Srinivas, secretary, corporate affairs ministry, has submitted its recommendations on Corporate Social Responsibility (CSR) to the Minister of Corporate Affairs (MCA).
  • Recommendations of the Committee:
    • Making CSR expenditure tax deductible,
    • Provision for carry forward of unspent balance for a period of 3 – 5 years,
    • Aligning Schedule 7 with the SDGs by adopting a SDG plus framework (which would additionally include sports promotion, Senior Citizens’  welfare, welfare of differently abled persons, disaster management and heritage protection),
    • Balancing local area preferences with national priorities,
    • Introducing impact assessment studies for CSR obligation of 5 crore or more,
    • Registration of implementation agencies on MCA portal,
    • Developing a CSR exchange portal to connect contributors, beneficiaries and agencies,
    • Allowing CSR in social benefit bonds,
    • Promoting social impact companies and third party assessment of major CSR projects,
    • Companies having CSR prescribed amount below Rs. 50 lakh may be exempted from constituting a CSR Committee and
    • Violation of CSR compliance may be made a civil offence and shifted to the penalty regime.

Strategic importance of Social Responsibility

  • A healthy business can only succeed in a healthy society. Thus, it is in the best interest of a company to produce only goods and services which strengthen the health of society
  • If the company wants to succeed in the long term it needs to have the acceptance—or licence to operate—from social actors affected by the company’s’ operations.

 

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