Author: Anam Irfan Patel, ILS Law College
CSR is a multifaceted field that integrates social, ethical, and moral duties, while adhering to both legal and voluntary standards. It focuses on managing corporate responsibility initiatives to create a positive societal impact. India became the first country globally to mandate Corporate Social Responsibility (CSR) through an amendment to the Companies Act, 2013, enacted in April 2014. Under this regulation, businesses are required to allocate a portion of their profits to CSR activities, which can include investments in education, poverty alleviation, gender equality, and hunger relief.
As corporations expand, their responsibilities extend beyond merely generating profits to include various non-financial or social obligations. Businesses play a vital role in society, contributing to the maintenance and enhancement of healthy ecosystems, promoting social inclusivity and equity, and adhering to ethical practices and sound governance. According to Business for Social Responsibility (BSR), “Corporate Social Responsibility involves conducting business in a way that meets or exceeds the ethical, legal, commercial, and public expectations society has of the company.”
CSR Compliance Requirements for Companies in India
Eligibility Criteria: A company must meet at least one of the following thresholds in the immediately preceding financial year (FY) to be subject to CSR obligations:
Net Worth: ₹500 Crore or more
Turnover: ₹1000 Crore or more
Net Profits: ₹5 Crore or more
CSR Committee:
Formation and Role: The company must establish a CSR Committee consisting of at least three directors. If the company is required to have an Independent Director (ID), the committee must include an ID.
Responsibilities: The CSR Committee is responsible for formulating, recommending, and monitoring the CSR policy and expenditure.
CSR Policy and Expenditure:
Board Approval: The Board of Directors must approve the CSR policy and ensure its implementation.
Expenditure: The company is required to spend or transfer 2% of its average net profits from the immediately preceding three financial years on CSR activities.
Administrative Overheads: Preference should be given to actual CSR project expenditures over administrative overhead costs.
Activities and Reporting:
Scope of Activities: CSR activities must align with those listed in Schedule VII of the Companies Act, which covers a broad range of social and environmental initiatives. The interpretation of Schedule VII should be liberal.
Local Area Requirement: CSR funds should be primarily spent within India. However, expenditures on projects outside India are permissible, but they should not exceed 5% of the total CSR expenditure for the FY.
Penalties for Non-Compliance:
For Failure to Spend: If a company fails to spend the required CSR amount, it faces a penalty of twice the amount it was supposed to spend or ₹1 Crore, whichever is less.
For Officers in Default: Each officer in default is liable for a penalty of 1/10th of the amount required to be spent or ₹2 Lakh, whichever is less.
Principle of CSR
Transparency: CSR reporting requires companies to openly disclose their activities, including how funds are used and the impact achieved, ensuring stakeholders are informed about CSR efforts.
Accountability: Companies must take responsibility for their CSR actions and outcomes, addressing concerns of shareholders, employees, and the community, demonstrating ownership of their social and environmental impacts.
Consistency: Effective CSR reporting should follow a standardized format and regular schedule, allowing stakeholders to track and compare progress over time.
Materiality: Reports should focus on significant issues for the business and its stakeholders, highlighting activities that have a meaningful impact.
Stakeholder Inclusiveness: CSR reporting must consider the interests of all stakeholders, including employees, customers, and the community, ensuring alignment with their expectations..
Types of CSR Reporting
1. Environmental Responsibility: Companies report on their environmental initiatives, such as reducing pollution and conserving resources, to demonstrate their commitment to sustainability and protecting the planet.
2. Ethical/Human Rights Responsibility: Reporting in this area covers fair labor practices, prevention of child labor, and respect for workers’ rights, showcasing the company’s dedication to ethical operations.
3. Philanthropic Responsibility: This includes detailing charitable contributions and community support, such as funding education and healthcare, reflecting the company’s role in societal betterment.
4. Economic Responsibility: Reports highlight how companies contribute to the economy by supporting local businesses, creating jobs, and ensuring positive economic impact.
Examples of CSR
Tata Group
The Tata Group, a major Indian conglomerate, undertakes a wide range of CSR initiatives focused on community development and poverty alleviation. Its efforts include empowering women through self-help groups, supporting income generation, and advancing rural development. In education, Tata Group provides scholarships and endowments to various institutions. Its healthcare initiatives include child education support, immunization programs, and AIDS awareness. The group also works on economic empowerment through agricultural programs, environmental protection, and infrastructure development, including hospitals, research centers, educational institutions, sports academies, and cultural centers.
Ultratech Cement
As India’s largest cement producer, Ultratech Cement engages in CSR across 407 villages to foster sustainability and self-reliance. Its initiatives cover healthcare, education, infrastructure, environmental conservation, and social welfare. The company organizes medical camps, immunization drives, sanitation programs, school enrollments, plantation efforts, water conservation, industrial training, and organic farming.
Mahindra & Mahindra
Mahindra & Mahindra (M&M) established the K. C. Mahindra Education Trust in 1954 and the Mahindra Foundation in 1969, focusing on educational advancement for disadvantaged communities. M&M’s CSR programs include scholarships, grants, livelihood training, remote area healthcare, water conservation, and disaster relief. Notable initiatives are Nanhi Kali for girls’ education, Mahindra Pride Schools for vocational training, and Lifeline Express for healthcare in remote regions.
In conclusion, CSR in India embodies a comprehensive approach to corporate responsibility, integrating legal mandates with ethical and social commitments. Companies are expected to transparently manage their social, environmental, and economic impacts, reflecting a broader commitment to societal well-being and sustainable development.
FAQS
What is CSR in India?
CSR (Corporate Social Responsibility) in India mandates certain companies to allocate a percentage of their profits to social, environmental, and economic initiatives.
Which companies need to comply?
Companies meeting thresholds for net worth, turnover, or net profits as specified by the Companies Act, 2013.
What are the penalties for non-compliance?
Penalties include fines for both the company and its officers for failing to meet CSR spending requirements.
