Provisions of CSR mandate

CSR refers to the idea that companies need to invest in socially and environmentally relevant causes in order to interact and operate with concerned parties having a stake in the company’s work. CSR is termed as “Triple-Bottom-Line-Approach”, which is meant to help the company promote its commercial interests along with the responsibilities it holds towards the society at large. CSR is different and broader from acts of charities like sponsoring or any other philanthropic activity as the latter is meant to be a superficial or surface level action as part of business strategy, but the former tries to go deep and address longstanding socio-economic and environmental issues.

Small or Medium Enterprises (SMEs) should be asked to promote CSR by taking into account their respective fiscal capacity and not over-stretching their rather limited resources. According to the United Nations Industrial Development Organization (UNIDO), CSR based on Triple Bottom Line (TBL) Approach, can help countries in the developing bracket to accelerate their socio-economic growth and help them become more competitive. TBL approach encourages private companies and institutions to align their activities in a socially, economically and environmentally viable way. This will help countries achieve Sustainable Development Goals (SDGs) in the long run. Companies should be encouraged to take up cost-effective CSR programmes that help the society and the environment according to the UNIDO.

Need of CSR

CSR is responsible for generating a lot of goodwill to companies either directly or indirectly. These include:

• Making employees more loyal and help companies retain them in the long run.
• Make companies more legitimate and help them in accessing a greater market share.
• Since companies act ethically, they face less legal hurdles.
• Bolster the goodwill of companies amongst the general public and help in strengthening their “brand value”.
• Help in the stabilization of stock markets in both the short and long run
• Help in limiting state’s involvement in corporate affairs as companies self-regulate and act as most ethical.

CSR helps companies and their components like their shareholders to help in the development of a country’s economy on a macro-level. They motivate companies to cooperate and communicate with each other, their customers and the administrative machinery.

The various advantages granted to various stakeholders are explained below:

• The Standard of living gets better with the introduction of more amenities.
• Companies engage in large-scale “capacity building” due to which the society becomes more prosperous and wealthier.

• Creates a more balanced world and healthier environmental systems.
• Ecosystems become healthier due to balancing efforts of the corporates.
• Management of waste is improved.
• Cleaner and greener environment is created.
• Advantages to corporates.
• Creates greater societal acceptance and respect.
• Helps the company to grow fiscally and makes it more competitive.
• Helps the company to interact with various stakeholders and helps them understand their needs.
• Employees and their family feel proud to be associated with a balanced corporate organization.

CSR LAWS IN INDIA

The Companies Act, 2013, a successor to The Companies Act, 1956, made CSR a compulsory act. Under the notification dated 27.2.2014, under Section 135 of the new act, CSR is compulsory for all companies- government or private or otherwise, provided they meet any one or more of the following fiscal criterions:

• The net worth of the company should be Rupees 500 crores or more
• The annual turnover of the company should be Rupees 1000 crores or more
• Annual net profits of the company should be at least Rupees 5 crores.

If the company meets any one of the three fiscal conditions as stated above, they are required to create a committee to enforce its CSR mandate, with at least 3 directors, one of whom should be an independent director.

The responsibilities of the above-mentioned committee will be:

• Creation of an elaborate policy to implement its legally mandated CSR activities. CSR acts should conform to Schedule VII of the Companies Act, 2013.
• The committee will allocate and audit the money for different CSR purposes.
• It will be responsible for overseeing the execution of different CSR activities.
• The committee will issue an annual report on the various CSR activities undertaken.
• CSR policies should be placed on the company’s official website, in the form and format approved by the committee.
• The board of directors is bound to accept and follow any CSR related suggestion put up by the aforementioned committee.
• The aforementioned committee must regularly assess the net profits earned by the company and ensure that at least 2 percent of the same is spent on CSR related activities.
• The committee must ensure that local issues and regions are looked into first as part of CSR activities.

Features of CSR Laws

The broad and important features of the CSR laws are as follows:

• Quantum of money utilized for CSR purposes are to be compulsorily included in the annual profit-loss report released by the company.
• The CSR rules came into force on 1st April 2014 and will include subsidiary companies, holdings and other foreign corporate organizations which are involved in business activities in India.
• CSR has been defined in a rather broad manner in Schedule VII of Companies Act, 2013. The definition is exhaustive as it includes those specific CSR activities listed in Schedule VII and other social programmes not listed in schedule VII, whose inclusion as a CSR activity is left to the company’s discretion.