CORPORATE SOCIAL RESPONSIBILITY
Corporate Social Responsibility (CSR) is the concept where companies take initiatives to integrate social and environmental concerns in their business operations and management. This concept has been practiced by several renowned traditional merchants like Tata, Godrej, Birla, and Mahindra, who promoted philanthropically motivated CSR during industrialisation. They participated in the freedom struggle and nation-building process through their initiatives. However, these efforts towards industrial and social development weren’t purely selfless; they had some commercial interest involved. (1)
Traditionally, CSR in India was practiced as a philanthropic activity and to fulfill their moral responsibility towards society. In 2013, it was introduced as a mandate and a statutory duty amendment in the Companies Act 2013 (the Act). CSR aims to increase the impact a company has on society while meeting business objectives and addressing the expectations of the stakeholders. So now, rather than just focusing on profit-making, companies have to consider the impact of their business decisions on profit, people, and the planet and become more socially responsible.
CSR compliance mandate is provided under Section 135 of the Companies Act 2013, which provides that companies have a net worth of Rs.500 crore or more, turnover of Rs.1000 crore or more, or net profit of Rs.5 crore or more, should spend at least 2% of their average profit of last 3 years towards CSR activities.
For proper implementation of CSR Rules and laws, the law provides for aspects related to monitoring and reporting CSR funds spent by all companies. The reporting guideline was introduced with the aim of standardising CSR reporting, assessing the impact of the CSRpolicy of companies, and analysing when, how, and where the CSR money is spent. It also aimed to bring about standardisation, transparency, and accountability in CSR allocations and spending.
CSR REPORTING
Reporting of CSR initiatives and activities is an essential component of CSR. It entails informing the stakeholders involved and the general public about the impact of the corporations' CSR initiatives and making it measurable and comprehensive. Such reporting gives businesses a crucial chance to show their stakeholders how sincere they are about their efforts. The Companies Act, its recent amendments, and CSR Rules 2014 provide certain guidelines for the manner in which the reporting should be done.
A corporate social responsibility (CSR) report is a document that organisations use to explain CSR initiatives and their impact on the environment and community, both internally and externally. The CSR Rules 2014, under Rule 8 provide that the companies upon which the CSR provisions are applicable are required to include an Annual Report on CSR in their Board Report. The said annual report, as per Reporting Guidelines for CSR (2), includes the following things:
1. Company details- Name, Address, Company size, financial details like net worth, net profit (3), turnover for the last three preceding financial years, and period of reporting (4) among others.
2. CSR Policy- A brief outline of the CSR policy undertaken by the company, which should include a brief overview of initiatives and programs proposed to be undertaken, along with the web link to the CSR policy.
3. CSR Committee- Composition of CSR committee, details of members.
4. CSR Allocation- Allocated CSR expenditure, which shouldn’t be less than 2% of the net profit in the last 3 years.
5. Nature of allocation- Mention the nature of initiatives like philanthropy, infrastructure, community empowerment, environmental protection, and others.
6. Funds Spent- Detailed description of spending of allocated CSR funds during that financial year. Where the company failed to spend a minimum of 2% of the average net profit of the last 3 years, the reasons for the same are to be mentioned.
7. CSR Committee meeting- Details of meetings held in relation to CSR projects. It may include the date of meetings, members present, agenda, outcome, projects approved, budget allocation, the timeline for the project, beneficiary details, and geographical areas covered.
8. Duration, review, and extension of projects- If any project gets extended, details of such project including reasons for extensions, timeline, and others.
9. Stakeholder engagement- Stakeholders' engagement helps in identifying gaps and understanding the needs of the community. Therefore, its details are important.
10. CSR Spending- Money spent should be listed as per Annexure-VII of the Act, mentioning the amount spent on each activity, the percentage of the total CSR budget, and the rationale.
11. Resource Pooling- If the company performed its CSR by pooling resources (5), details of the same should be mentioned, which includes the name of the collaborating company, project name, and expenditure shared.
12. Implementing and monitoring agency- If the company is partnering with agencies like NGOs, for the execution of CSR projects (6). The details should include the name of the implementing organisation, the amount granted, monitoring agencies, if any, and due diligence.
13. Grievance redressal- State whether the organisation has a grievance redressal mechanism for grievances related to CSR planning and execution. The details may include the number of grievances received and disposed of, grievances pending, and the types of grievances.
14. Project review- A section mentioning reviews for CSR projects held, number of projects achieved, outcomes and sustainability of the project, key impact, and success stories.
15. Statement from top management- A statement from top management stating the relevance of CSR policy, and CSR plans- short-term & long-term, highlighting key initiatives and successes, a brief roadmap for the coming year, and other components.
CSR AMENDMENT RULES 2021
The Ministry of Corporate Affairs brought in the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 to bring in better monitoring and reporting aspects of the CSR Funds spend. The following changes were made by the 2021 Amendment:
i. Organisations engaged in carrying out and implementing CSR projects will have to register themselves with the central government by filing an e-form namely CSR-1 and generating a Unique registration number.
ii. The Form CSR-1 shall be verified digitally by a practicing Chartered Accountant, Company Secretary or Cost Accountant and shall be signed & submitted electronically by the organisation.
iii. Where the organisation is a foreign company, the balance sheet shall contain an annual report on CSR.
iv. The Board’s report about any financial year shall include an annual report on CSR activities in the format given under Annexure II. Whereas Annexure I is applicable to organisations whose CSR projects were approved prior to 1st April 2021.
v. The Board of Directors of the company shall disclose the composition of the CSR committee, CSR policy, and CSR projects approved on their website for public access. This was done to ensure transparency.
vi. Companies having an average CSR obligation of Rs. 10 crore or more in the last three years should take an impact assessment of projects having outlays of Rs. 1 crore, by employing an independent agency.
vii. The impact assessment report should be annexed to the annual CSR report and should be placed before the Board.
viii. The Board has the duty to ensure that the administrative expenses shall not exceed 5% of the total allotted CSR expenditure or 50 lakhs, whichever is less, for the financial year.
ix. The Board shall ensure proper implementation of the CSR project in a permissible time period by regularly monitoring the approved timelines, and year-wise allocations, and making required modifications.
CSR AMENDMENT RULES 2022
The Ministry of Corporate Affairs (MCA) has notified the amendment to the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 in September this year. As per the amendment, the following provisions are important from the perspective of CRS reporting:
i. Annual report to Registrar- It states that all companies which fall under Section 135(1) of the Companies Act, 2013 will be required to furnish a report on their CSR obligations in Form CSR-2 to the Registrar of Companies.
ii. Revised format for the annual report on CSR initiatives- The amendment revised the format for the annual report on CSR activities under Annexure II, which is to be included in the board’s report. The Report should include-
Brief explanation of its CSR policy,
Information about members of the CSR committee,
Reports about the meetings of the CSR committee,
Web links to the company’s website where the CSR initiatives and details of the CSR committee are listed,
Executive summary & weblinks for impact assessment of CSR projects,
Details of the amount spent in the preceding financial years,
Details on any unspent amount of the CSR project,
Information regarding the transfer of the unspent amount of CSR,
Information regarding the creation of capital assets through CSR funds.
These amendments were made to help the government create a database to effectively manage, analyse and investigate CSR data. It will ensure compliance & enforcement and will also help in efficient policy formulation.
CONCLUSION
Corporate Social Responsibility has come a long way in India and is still evolving. From philanthropic activities to sustainable initiatives, organisations have displayed their ability to make a significant difference in society. It has now become an essential strategy for businesses to cater to different stakeholders, promote the inclusive character of the company, and participate in the overall development of quality of life.
There has been an increase in CSR spending and reporting since the Companies Act made it mandatory for companies. Indian businesses have undertaken a number of steps to fulfill their social obligations. CSR reporting further helps companies measure, track and improve their performance. Sustainable performance reporting has proven CSR efforts to be more fruitful. CSR reporting can boost profitability since it allows them to keep proper track of all the initiatives closely and make conscious investments that rapidly pay for themselves and contribute to the bottom line.
The recent amendments, though likely to add to the compliance burden on companies, will enhance the level of transparency. These amendments have not only been brought to oversee compliance but to also collect data for better implementation of CSR laws and policies. It will provide better oversight to not only the government but also the stakeholders involved and they can work together towards more successful CSR initiatives.
(1) Tarjana Ciiahoud El Al., Corporate Social And Environmental Responsibility In India - Assessing the Un Global Compac's Role, 24-26 (2007).
(2) Available at: https://www.cseindia.org/content/downloadreports/8339.
(3) Section 198 of the Companies Act, 2013
(4) Rule 8, Sub-Rule 1, Companies (Corporate Social Responsibility) Rules, 2014.
(5) Rule 4, Sub-rule 3, Companies (Corporate Social Responsibility) Rules, 2014.
(6) Rule 4, Sub-rule 2, Companies (Corporate Social Responsibility) Rules, 2014.
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