CORPORATE SOCIAL RESPONSIBILITY (CSR)
In today’s rapidly changing and increasingly complex world, where global environmental, social, and economic challenges are part of everyday life, businesses are expected to go beyond profit-making and act as responsible corporate citizens; recognizing this, the Ministry of Corporate Affairs in India introduced a legal mandate under the Companies Act, 2013, requiring certain companies to engage in Corporate Social Responsibility (CSR) activities that promote sustainable development and create a positive impact on society.
What is Corporate Social Responsibility?
Corporate Social Responsibility (CSR) refers to the voluntary efforts made by businesses to contribute to social well-being and environmental sustainability. It involves companies incorporating ethical, social, and environmental considerations into their daily operations and decision-making processes, aiming to create a positive impact on their stakeholders and the broader community.
However, Under Section 135 of the Companies Act, 2013, certain companies are legally required to spend on CSR activities, which include projects listed in Schedule VII and those approved by the Board based on the CSR Committee’s recommendations.
Benefits of Corporate Social Responsibility
• CSR enhances a company’s reputation by showcasing its contributions to social good, making it more appealing and trustworthy to consumers.
• CSR attracts greater media attention, helping to highlight the organization in a positive way and enhancing its public presence.
• CSR boosts a company’s brand value by fostering a positive and socially responsible connection with its customers.
• CSR allows companies to differentiate themselves from competitors by actively engaging in community initiatives and social causes.
CSR Applicability in India
The provisions of CSR apply to every company fulfilling any of the following conditions in the preceding financial year:
• Net worth of more than Rs.500 crore
• Turnover of more than Rs.1000 crore
• Net profit of more than Rs.5 crore
Contribution
Every company to which CSR provisions apply is required, through its Board of Directors, to ensure that it spends at least 2% of the average net profits earned during the three immediately preceding financial years on CSR activities each financial year, as outlined in its CSR policy. If the company has not completed three financial years since incorporation, the required CSR spending is based on the average net profits of the financial years completed so far.
CSR Committee
• Every company to which CSR provision are applicable must constitute a Corporate Social Responsibility (CSR) Committee.
• The CSR Committee should consist of three or more directors, out of which at least one director must be an independent director.
• An unlisted public company or a private company shall have its CSR Committee without any independent director if an independent director is not required.
• A private company having only two directors on its Board shall constitute its CSR Committee with two directors.
• In the case of a foreign company, the CSR Committee shall comprise of at least two persons of which one person shall be a person resident in India authorised to accept on behalf of the foreign company – the services of notices and other documents. Also, the other person shall be nominated by the foreign company.
A company having any amount in its Unspent Corporate Social Responsibility Account shall constitute a CSR Committee and comply with the CSR provisions
Duties of the CSR Committee
• The CSR Committee will formulate and recommend a CSR policy to the Board. CSR policy shall point out the activities to be undertaken by the company as enumerated in Schedule VII of the Act.
• CSR Committee will recommend the amount of expenditure to be incurred on the CSR activities to be undertaken by the company.
• CSR Committee will monitor the CSR policy of the Company from time to time.
• The CSR Committee will establish a transparent controlling mechanism for the implementation of the CSR projects or programs or activities undertaken by the company.
Role of Board of Directors
• After considering the recommendations made by the CSR Committee, approve the CSR policy for the Company and disclose the contents of the Policy on its website.
• The Board must ensure only those activities must be undertaken which are mentioned in the policy.
• The Board of Directors shall make sure that the company spends in every financial year, a minimum of 2% of the average net profits made during the three immediately preceding financial years as per CSR policy.
• In case a company has not completed three financial years since its incorporation, the average net profits shall be calculated for the financial years since its incorporation.
• The Board’s Report shall disclose:
• CSR Committee’s composition
• The contents of CSR Policy
• In case CSR spending does not meet 2% as per CSR Policy, the reasons for the unspent amount, and details of the transfer of unspent amount relating to an ongoing project to a specified fund (transfer within a period of six months from the expiry of the financial year)
List of Permitted CSR Activities Under Schedule VII
The Board of Directors shall ensure that the activities included by a company in its CSR Policy fall within the purview of the activities included is schedule VII of the Act.
1. Eradicating poverty, hunger and malnutrition, promoting health care which includes sanitation and preventive health care, contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
2. Improvement in education which includes special education and employment strengthening vocation skills among children, women, elderly and the differently-abled and livelihood enhancement projects.
3. Improving gender equality, setting up homes and hostels for women and orphans, empowering women, setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups
4. Safeguarding environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining a quality of soil, air and water which also includes a contribution for rejuvenation of river Ganga
5. Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts
6. Measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows
7. Training to stimulate rural sports, nationally recognized sports, Paralympic sports and Olympic sports
8. Contribution to the Prime Minister’s National Relief Fund, Prime Minister's Central Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development providing relief and welfare of the Scheduled Castes, the Scheduled and backward classes, other backward classes, minorities and women
9. Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government, State Government, Public Sector Undertaking or any agency of the Central Government or State Government
10. Contributions to public funded Universities, IITs, National Laboratories and autonomous bodies established under DAE, DBT, DST, Department of Pharmaceuticals, Ministry of AYUSH, Ministry of Electronics and Information Technology and other bodies, namely DRDO, ICAR, ICMR and CSIR, engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
11. Rural development projects
12. Slum area development. Slum area means any area declared as such by the Central Government or any State Government or any other competent authority under any law for the time being in force
13. Disaster management, including relief, rehabilitation and reconstruction activities.
Transfer and Use of Unspent Amount
If a company fails to spend 2% of its net average profits for CSR, it must transfer unspent CSR amount to the following specified funds within six months from the end of the financial year:
• A contribution made to the Prime Minister’s National Relief Fund.
• Any other fund is initiated by the central government concerning socio-economic development, relief and welfare of the scheduled caste, minorities, tribes, women and other backward classes.
• A contribution made to an incubator is funded either by the central government, the state government, public sector undertaking of the state or central government, or any other agency.
• Contributions made to:
• Public-funded universities
• Indian Institute of Technology (IITs)
• National Laboratories and Autonomous Bodies established under:
• Indian Council of Agricultural Research (ICAR)
• Council of Scientific and Industrial Research (CSIR)
• Department of Atomic Energy (DAE)
• Department of Biotechnology (DBT)
• Department of Pharmaceuticals
• Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH)
• Ministry of Electronics and Information Technology
• Indian Council of Medical Research (ICMR)
• Defence Research and Development Organisation (DRDO)
• Department of Science and Technology (DST) engaged in conducting research in technology, science, medicine, and engineering aimed at encouraging Sustainable Development Goals (SDGs).
In case of the unspent amount relating to an ongoing project under the company’s CSR policy, the company will transfer the unspent amount to an exclusive account to be opened by a company, known as ‘Unspent Corporate Social Responsibility Account’, in any scheduled bank within 30 days from the end of the financial year.
The company must use the funds in the ‘Unspent Corporate Social Responsibility Account’ towards its obligations under the CSR policy within a period of three financial years from the date of the transfer.
In a case where the company fails to utilise the funds at the end of the three financial years, the funds should be transferred to the specified fund mentioned above within a period of 30 days upon completion of the third financial year
Example of CSR in 2023-24 in India
As per the CSR Journal, Adani Group spent more than Rs. 650 crores on CSR in FY 2023-24. It has committed to invest $100 billion over the next decade in various green energy projects in alignment with India’s goal to achieve net zero emissions by 2070. It includes investment for the development of 10 gigawatts (GW) of hydroelectric projects internationally
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