What is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) is a concept that suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates positive impact on society at large. Although there is no fixed denition, however the concept revolves around that fact the corporations needs to focus beyond earning just profits. The term became popular in the 1960s and now is formidable part of business operations. Here are the dierent denitions as per global institutions:

  • OECD -Corporate responsibility involves the search for an effective ‘fit’ between businesses and the societies in which they operate.
  • UN-A management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders

EU -The responsibility of enterprises for their impacts on society.

Like other concepts, CSR also came to India from the western economies and has been evolving in due course of time. The concept differs from basic philanthropy and charity where there is not much accountability or responsibility attached. Whereas CSR activities quite simply suggests that businesses cannot succeed in isolation, especially when the society fails. Some of the similar terminologies are Corporate Citizenship, Business Responsibility, Corporate Conscience etc.

The Companies Act, 2013

As per as Corporate Social Responsibility is concerned, the Companies Act, 2013 is a landmark legislation that made India the first country to mandate and quantify CSR expenditure. The inclusion of CSR is an attempt by the government to engage the businesses with the national development agenda. The details of on corporate social responsibility is mentioned in the Section 135 of the Companies Act, 2013. The Act came into force from April 1, 2014, every company, private limited or public limited, which either has a net worth of Rs 500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on Corporate social responsibility activities. The CSR activities in India should not be undertaken in the normal course of business and must be with respect to any of the activities mentioned in Schedule VII of the act. The corporations are required to setup a CSR committee which designs a CSR policy which is approved by the board and encompasses the CSR activities the corporations is willing to undertake. The act also has penal provisions for corporations and individuals for failure to abide by the norms. The details of the same are highlighted in the act.

Section 135

  • 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.
  • The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
  • 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 company as specified in Schedule VII;
    (b) recommend the amount of expenditure to be incurred on the activities referred to in clause;
    (c) monitor the Corporate Social Responsibility(CSR) Policy of the company from time to time.
  • The Board’s report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
    (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility(CSR) 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;
    (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company.
  • The Board of every company referred to in sub-section (1), 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: Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for csr activities: 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..

Schedule VII

In exercise of the powers conferred by sub-section (l) of section 467 of the Companies Act, 20l3 (18 of 2013), the Central Government hereby makes the following amendments to Schedule Vll of the said Act, namely :-

  • In Schedule VIl, for items (i) to (x) and the entries relating thereto, the following items and entries shall be substituted, namely :-
    eradicating hunger, poverty and malnutrition, promoting preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water;
  • promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;
  • promoting gender equality, empowering women, setting up homes and hostels for women and orphans; 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;
  • ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for the promotion of sanitation;
  • protection of national heritage, alt 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;
  • measures for the benefit of armed forces veterans, war widows and their dependents
  • training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;
  • Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women;
  • contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government;
  • rural development projects;
  • slum area development.

Current Trends

The Indian companies in the last two years have invested majorly in education & skill development, healthcare & sanitation, rural development projects and environment after being mandated to allocate a portion of their profits towards community development. In a written reply to Rajya Sabha, Corporate Affairs Minister Arun Jaitley on 1st March 2016 said a total of 460 listed firms have so far disclosed spending Rs 6,337.36 crore in 2014-15. This included 51 PSUs that spent Rs 2,386.60 crore. Of the 460 companies, 266 firms spent less than 2 per cent of the average profit.
Here Are Some Links
Companies Act Notification
Ammendment Notification
News Article