Corporate Social Responsibility – Tool for nation building

We live in a natural eco-system and each activity of a citizen impacts the surrounding environment and communities around us. Therefore, it is the moral responsibility of each citizen to give back to the society in which he/she lives and earns livelihood. India firmly believes in the theory of giving back to society. This can be better understood by the following shloka-

आत्मार्थं जीवलोकेस्मिन् को न जीवति मानवः ।
परं परोपकारार्थं यो जीवति स जीवति ॥

(इस जीवलोक में स्वयं के लिए कौन नहीं जीता? परंतु, जो परोपकार के लिए जीता है, वही सच्चा जीना है ।)

But is it the responsibility of citizens only? The answer is obviously “No”. It is also the moral responsibility of groups, societies, organisations and companies collectively who are earning profit by utilising the common resources of eco system. This responsibility can be termed as corporate social responsibility (CSR). Though, there is no universal definition of CSR but the common understanding is concerned with how the profits are made and how they are used, keeping in mind the interests of all stakeholders. The concept of Corporate Social Responsibility is constantly evolving. The emerging concept of CSR requires the company to act beyond its legal obligations and to integrate social, environmental and ethical concerns into company’s business process because it has a responsibility towards its stakeholders and society at large.

Introduction of Section 135 (Corporate Social Responsibility Rules) under Companies Act

With the idea of giving back to society and environment through corporate social responsibility, India has become the first country in the world to make corporate social responsibility (CSR) mandatory  by introducing Section 135 (Corporate Social Responsibility Rules, 2014 and Schedule VII) of the companies’ act 2013. This law brings CSR activity of companies under the purview of corporate law.

The provisions of the CSR shall be applicable to all those companies which come under the criteria contained in Sub Section 1 of Section 135 of the Companies Act, 2013. As per the said section –

1. Every company

• having Net worth of Rs.500 crore or more; or
• Turnover of Rs.1000 crore or more; or
• A Net Profit of Rs.5 crore or more during any financial year

shall constitute a Corporate Social Responsibility Committee (CSR Committee) of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

2. The Board’s report shall disclose the composition of the CSR Committee.
3. The Corporate Social Responsibility Committee shall,—
   1. formulate and recommend the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
   2. Recommend the amount of expenditure to be incurred on the activities.
   3. Monitor the Corporate Social Responsibility Policy of the company from time to time.

4. The Board of every company
   1. after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, and
   2. To ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.

5. The Board of every company shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
   1. Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities.
   2. Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Mandatory Disclosures under Section 8:

Section 8 of the CSR Rules is applicable to eligible companies on or after 1st April, 2014. Under this section, companies shall be required to incorporate in its Board’s report an annual report on CSR with the following particulars:

• A brief outline of the company’s CSR Policy, including overview of projects or programs proposed to be undertaken
• The composition of the CSR Committee;
• Average net profit of the company for last three financial years;
• Prescribed CSR Expenditure (2% of the amount of the net profit for the last 3 financial years);
• Details of CSR Spent during the financial year;
• In case the company has failed to spend the 2% of the average net profit of the last three financial year, reasons thereof;

Activities permitted under CSR

The Policy recognizes that corporate social responsibility is not merely compliance; it is a commitment to support initiatives that measurably improve the lives of underprivileged. Some of the major areas where CSR activity can be undertaken are broadly categorized as under –

• Education & skill development
• Healthcare & sanitation
• Rural development project
• Environment Protection
• National heritage protection
• Women Empowerment
• Promotion of sports
• Various Central & State Relief funds
• Funds for technology development
• Benefits for armed force veterans & families
• Slum area development
• Others
  • Hunger, poverty & malnutrition Eradication
  • Child mortality Reduction
  • Meternal health improvement
  • Water Supply including Drinking Water:
  • Contribution to the Swach Bharat Kosh
  • Contribution to the Clean Ganga Fund
  • Contribution to COVID -19 Pandemic

The Above list is illustrative not exhaustive. All activities under CSR should be environment friendly and socially acceptable to the local people and Society.

Administration of CSR Projects

The Corporation can meet its CSR obligations by funneling its activities on its own or through a third party, such as a society, trust, foundation or Section 8 company (i.e., a company with charitable purposes) that has an established record of at least five years in CSR-like activities. Companies may also collaborate and pool their resources, which could be especially useful for small and medium-sized enterprises.

Impact of CSR on Society

No project, rule or law can bring change unless it is measurable in quantitative terms.  The objective of CSR is to bring visible changes in the life of communities in which the companies are operating through their synergy and efficiency. The impact of CSR activities can be seen by the huge amount spent by number of eligible companies through various projects which is depicted in table as under –

Amount Spent by companies on various projects over a period of time

Source:-National CSR Data Portal (www.csr.gov.in)

It is evident from the above table that total amount spent by companies is increasing every year and almost all the states & Union territories are beneficiaries of these CSR projects. Almost 71000 crore rupees have been spent by the companies on around 1.05 lakh projects by bringing small but long lasting changes in the life of the communities.

Similarly, performance under CSR can also be measured by cumulative amount spent by companies under various development sectors.

Amount Spent by companies on various development sectors over a period of time

Source:-National CSR Data Portal (www.csr.gov.in)

The table depicts that most of the companies have cumulatively spent around 38%, 27% & 11% in development sectors belonging to education, health & rural development respectively. Almost 75% of the total cumulative amount spent belongs to these three development sectors.

Conclusion:

The concept of corporate social responsibilities defines that responsibility of corporate is not only to take business decisions, maximize profits or shareholders’ value but also to serve and protect the interests of other members of a society such as workers, consumers and the community as a whole. In other words, protecting the interests of the society for holistic development is also the responsibility of a business enterprise. Off late, Indian government has recognized the need of CSR and thus It has made it mandatory for the eligible companies to spend a certain sum of money towards upliftment of society.  The overwhelming response by the eligible companies can be seen in the huge number of amount spent by companies over a period of time. Slowly but surely, the concept has gained momentum. It will help to transform human assets of far flung areas of our nation by bringing visible changes in their life which will surely serve the dream of shaping a new India.