All you want to know about Corporate Social Responsibility (CSR)

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This post is written by Mehul Jain, a student of Maharaja Agrasen Institute of Management, Rohini

We live a dynamic life in a world that is growing more and more complex every day. On a global scale environmental, social, cultural and economic issues have now become a part of our everyday life. Boosting profits is no longer the only business performance indicator for the corporate and that they need to play a task of a responsible corporate citizen as they owe towards the society, where they operate and draw resources from and they are an integral part of society. Corporate social responsibility is underpinned by public policy and therefore, it has undeniable links in law. CSR is not something new to India and the concept of trusteeship advocated by Mahatma Gandhi, the Father of the Nation was embraced by many companies, in various forms over the years.

CSR has been defined by different people giving it a varied dimension. According to Michel Hopkins “Corporate Social Responsibility cares about treating the stakeholders of a corporation or institution ethically or in a responsible manner. ‘Ethically or in a responsible manner’ refers to treating key stakeholders in a manner deemed acceptable according to international norms.”It is essentially a replacement business strategy to scale back investment risks and maximise profits by taking all the key stakeholders into confidence. The proponents of this attitude often include corporate social responsibility in their advertising and social marketing initiatives. It is a tool to increase the reputation of the company in the eyes of the society; it also motivates their employees to work harder.

Meaning –CSR has many interpretations but can be understood to be a concept imposing a liability on the company to contribute to the society (whether towards an environmental causes, educational causes, promotion, social causes, etc) along with the reinforced duty to conduct the business in an ethical manner).It is also known as corporate conscience, corporate citizenship, social performance or sustainable/responsible business.

Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules 2014, Corporate Social Responsibility refers to the sustained economic growth in the current decades. We still continue to face major challenges on the human side in India-The problems such as poverty, illiteracy, malnutrition, etc. Thus the concept of CSR came into existence so that the corporate can also make contribution in the development of the company by helping in eradicating such problems from the company.

But, the CSR policy should invariably cover-

  • Care of all the stakeholders,
  • Ethical functioning,
  • Respect for human rights,
  • Respect for environment and
  • Activities for social and inclusive development

Applicability-Section 135 of the Companies Act, 2013 states the provisions relating to Corporate Social Responsibility provisions which are to be followed by certain classes of companies. The CSR provision is applicable to companies which fulfills any of the following criteria during the immediately preceding financial year:-

  • Companies having net worth of rupees five hundred crore or more, or
  • Companies having turnover of rupees one thousand crore or more, or
  • Companies having a net profit of rupees five crore or more.

According to the rules mentioned under Companies Act, the CSR provisions will also be applicable to every company including its holding and subsidiary, and a foreign company having a branch office or project office in India who fulfills the above mentioned conditions.

 

CSR committee –The formulation of the CSR committee is mandatory for every company which fulfills the conditions mentioned under Sec 135 of the Companies Act. The committee shall consist of three or more directors out of which at least one director shall be an independent director. There is no need for an independent director in the committee if the company is an unlisted Public Company or a Private Company. In case of Private Company, the committee can be formed with two members.

Also Read:  Lifting of Corporate Veil under the Companies Act, 2013

CSR committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in Schedule VII and also recommend the amount of expenditure to be incurred on CSR activities. The Board of every company shall ensure that the company spends in every financial year at least 2% of the average net profits of the company made during the three immediately preceding financial years in pursuance of its CSR policy.

Net profit of a company for the purposes of the sec 135 of the Companies Act, 2013 does not include the profits arising from the overseas branch of the company and the dividends received from other companies in India.

Where the company fails to spend such an amount, the Board shall in the report specify the reasons for not spending the amount. The preference shall be given to the local areas in spending the CSR fund. The reporting on Corporate Social Responsibility is to be made with the registrar in e-form AOC-4 and the CSR policy is required to be displayed on the company’s website.

The functions of the CSR committee are as follows:-

  • To formulate and recommend to the board, a CSR policy which would indicate the activities to be undertaken in areas or subjects, specified in Schedule VII of the Act.
  • To recommend the amount of the expenditure to be incurred on the activities undertaken in pursuance of the CSR policy.
  • To institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.
  • To monitor the CSR policy of the company from time to time.

CSR activities –The Company shall give preference to the local areas where it operates, for spending the amount earmarked for CSR activities. The CSR activities shall be undertaken by the company, as per its stated CSR policy, as projects and programs excluding the following activities:

  • The projects or programs that benefit only the employees of the company and their families.
  • One-offs events such as marathons/award/sponsorship’s or TV programmes etc.
  • Expenses incurred by the companies for the fulfillment of any other Act/Statute of regulations.
  • Contribution of the amount directly or indirectly to any political party.
  • Activities undertaken by the company in pursuance of its normal course of business,
  • The project or programmes or activities undertaken outside India.

The Board of the company may decide to undertake the CSR activities approved by the committee, through a registered trust or a registered society or a company established by the company or holding or subsidiary or associate company under section 8 of the Act or otherwise.

Conclusion

A company is said to be an artificial person and it is said to have some responsibilities towards the society as we all do. Making the concept of CSR compulsory for the companies gives a sense of justice towards the world they are working in. CSR also works as a motivation for the employees. It is believed that the multinationals take a lot from the society so they owe the society at least this much.

REFERENCES

[1] https://www.mca.gov.in/SearchableActs/Section135.htm
[2] Companies (Corporate Social Responsibility Policy) Rules, 2014

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