CSR-Understanding & its impact

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Corporate Social Responsibility is now accepted as a means to achieve sustainable development of an organization. Hence, it needs to be accepted as an organizational objective. The Companies Act, 2013 will make Indian companies to consciously work towards that objective, as it requires a prescribed class of companies to spend a portion of their profits on CSR activities.

Businesses can no longer limit themselves to using resources, to engage in activities that increase their profits. They have to be socially responsible corporate citizens and also contribute to the social good. Corporate Social Responsibility (CSR) is about integrating economic, environmental and social objectives with a company’s operations and growth. Many consider CSR philanthropy, but that is only a limited definition. An organization can accomplish sustainable development if CSR becomes an integral part of its business process.

CSR impacts almost every area of operations: governance and ethics; employee hiring, providing opportunity; stakeholders benefit sharing and energy usage and environment protection. The Companies Act, 2013 intends to inculcate the philosophy of CSR among Indian companies.

STIPULATIONS OF THE COMPANIES ACT, 2013

√	Every company with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more or a net profit of Rs 5 crore or more during any financial year is required to constitute a CSR Committee of the Board consisting of three or more directors, of which at least one director shall be an independent director.
√	The Board’s report to disclose the composition of the CSR Committee.
√	The main functions of the CSR Committee are to : Formulate and recommend to the board, a CSR policy indicating the activity or activities to be undertaken by the company as specified in Schedule VII of the Act; Recommend the amount to be spent on these activities; and Monitor the company's CSR policy periodically.
√	After the CSR Committee makes it recommendations, Board of the company shall approve the CSR Policy and disclose contents of such policy in its report and also place it on the company's website. Further, details about the policy developed and implemented by the company on CSR initiatives during the year to be included in the Board's report every year.
√	Board to ensure that the activities listed in the CSR Policy are undertaken by the company.
√	Board to ensure that at least 2% of average net profits of the company in the three immediately preceding financial years are spent in every financial year on such activity.
√	Preference to be given to the local area and areas around the company operates for CSR spending.
√	If a company fails to provide or spend such amount, Board to specify reasons in its report for that failure.
√	Companies required to comply with CSR shall give additional Information by way of notes to the Statement of Profit and Loss about the aggregate expenditure on CSR activities.
√	Schedule VII of the Companies Act 2013 prescribes activities that may be included by companies in their CSR policies Eradicating extreme hunger and poverty; Promotion of education; Promoting gender equality and empowering women Reducing child mortality and improving maternal health; Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases; Ensuring environmental sustainability; Employment enhancing vocational skills; Social business projects; Contribution to the Prime Minister's National Relief Fund or any other fund set up by the Central Government or the State Governments for socio economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and Other matters as may be prescribed.

EXISTING ACT:

There are no provisions in The Companies Act, 1956 on CSR.

Impact/Industry Response:

With CSR spending becoming mandatory for prescribed class of companies, there is bound to be increased engagement of companies with social and development projects. So far, there were only voluntary guidelines for companies to follow.

The rationale for CSR activity is that corporates earn their profit by exploiting different resources of the society, and so a portion of the benefit derived by them should be channeled for the betterment of society.
Though compulsory CSR spending may seem burdensome for some class of companies, it will create of a sense of responsibility among corporates, especially when they see benefits in the long term.
Children, women, uneducated, and unemployed would be among the beneficiaries as CSR activities may be focused on them.
The intention of policy makers is quite clear - to report business community's contribution for fulfillment of social, environmental and economic responsibilities. While contribution to the local community is a good objective, businesses should choose social, environmental and economic activities that contribute to society at large.
CSR activities will also help improve the image of a company within the society as one that cares for the community.
Significantly, there is no penalty for defaulting on CSR norms. Only an explanation is to be given by the board in its report for such non-compliance. So, it seems there is no real coercive factor.
The Government has adopted a "Gandhi wad" with the provision - either contribute to society or inform to society why you are not contributing.

Existing CSR Activities of some companies.

Company Name	Major CSR Initiatives
ITC Ltd	e-Choupal, social & farm forestry, watershed development, women's empowerment, livestock development, primary education
Infosys	Employees take up social causes like education, rural rehabilitation and inclusive growth. energy conservation, water sustainability, afforestation, waste management, awareness on carbon footprint.
Jubilant Life Sciences	Basic healthcare facilities, supporting government rural primary education system, developing resource pool through vocational training programmes.
Reliance Industries Ltd	Health, education, infrastructure development (drinking water, improving village infrastructure, construction of schools etc.), environment (effluent treatment, tree plantation, treatment of hazardous waste), relief and assistance in the event of a natural disaster, and miscellaneous activities such as contribution to other social development organizations.

Expected contribution for CSR after the CSR provisions are enforced :

No.	Name of the companies	Average Profits(of the FY 2009-10, 2010-11, 2011-12) (Amt in Rs. millions)	Proposed contribution in CSR (2% of the Average Profits) (Amt in Rs. millions)
1.	GAIL (INDIA) LIMITED	34,516.03	690.32
2.	HINDUSTAN UNILEVER LTD	23,998.00	479.96
3.	Infosys	69,053.33	1,381.07
4.	Larsen & Tourbo Ltd	42,633.03	852.66
5.	NTPC Ltd	90,181.73	1,803.63

(1)

Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility 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 under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.

(3)

The Corporate Social Responsibility Committee shall,—

(a)	formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the compay as specified in Schedule VII;
(b)	recom mend the amount of expenditure to be incurred on the activities referred to in Section (a); and
(c)	monitor the Corporate Social Responsibility Policy of the company from time to time.

(4)

The Board of every company referred to in sub-section (1) shall,—

(a)	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, if any, in such manner as may be prescribed; and
(b)	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 referred to in sub-section (1), shall to 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:

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

Provided further that if the company fails to spend such amount, the Board shall, in its report made under Section (o) of sub-section (3) of section 134, specify the reasons for not spending the amount

Explanation- For the purposes of this sectiton "average net profit" shall be calculated in accordance with provisions of section 198.

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Recent Comment

Name

Sep 16 2013 2:04PM

This is comment for testing....plz Ignore it :)

pankaj

Feb 18 2014 5:40PM

nice,but shall allow printing

CA Rajan Modi

Feb 19 2014 8:14AM

I am very pleased to see such provision in Company law. It is good effort to implement Gandhi Philosophy through provision of law. The concept of sharing happiness among people who are directly or indirectly connected in progress of company. Very impressive, ethical & philanthropic ideal.

GVSampat

Feb 19 2014 8:37AM

Very concise but adequate information. Serves as a Check List for easy execution

vishwaraj pal singh

Feb 19 2014 8:50AM

I am a Advocate practising law. I have joined NGO Akhil Bhartiya Adhivakta Parishad and we do plan CSR activities in our bar by organising Workshops for our junior Advocates. Recently we organised a programme on Cow milching and breeding and benefits of such uses.

DAMODAR MISHRA

Feb 19 2014 11:17AM

This CSR provision has indirectly iomposed compulsion on the companies to spend 2% of their profit for social cause. This has impact to demoralise honest companies who are cotributing a sinificant amount toward various taxes including Income Tax, Custom duty,Excise duty, VAT etc. As per our Constitution, it is the primarily responsibility of the Government to take care of CSR out of taxes being paid by tax payers. But, the Govt. is failing to discharge its responsibility by misusing tax payers' money to take of the interest of the politicians and now imposing its own responsibility on the honest companies through CSR provision. This will definitely motivate the honest companies to become dishonest.

Lathika

Feb 19 2014 11:29AM

It's really appreciable to include such provisions in the Act. Even if it is a voluntary provision, it will have great impact on company thoughts and subsequently in policies . I feel there should be a recognition from Govt side for the companies which think outside the box and give outstanding results. That will be a motivation to others.

CA G. P. Sureka

Feb 19 2014 12:15PM

It is indeed a good effort but not an honest effort from the Government. In Indian environment corporate are not honest in doing such spending. Some penal provision could have made it actually mandatory. The big few corporate were already spending for social work like ITC and reliance.

CS V Periwal

Feb 20 2014 2:49PM

Its a good effort though its really true that its the responsibility of Government to look after development by using the money paid as taxes and not the corporates. Besides, 2% amount is not that small as it seems. Company having average net profit of even 5 crores also shall have to spend 10 lacs fr this. This in turn will increase cost of products and services offered by the corporates as well as corporates might inclucate dishonesty practices Rest as my dear friend said that big companies are already doing this, then i must tell that they are doing the same as a compliance requirement of listing agreement only and not on their own will. This in turn gives them publicity also.

Suresh Jain

Feb 21 2014 12:14PM

As per stipulation of Co's Act 2013 the Company should constitute a CSR committee which again must have atleast 3 director but if the pvt. ltd. company have only two director then what ? again as per new Co's Act 1 director can form a pvt. ltd. company then what about the CSR committee ? please clarify.

P Krishna Reddy

Mar 5 2014 3:31PM

Iam a practicing Cost Accountant, this is good policy for development of Country. But the implimentation should be under committee and proper audit required , otherwise this may go wrong way.

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