CSR (Corporate Social Responsibility) is not a new concept in India. CSR has gone through many phases in India. Ever since their inception corporates like Tata, Aditya Group & Indian Oil Corporations have been involved in serving community. Through donations & charity events many organizations have been doing their part for the society.
A more comprehensive method of development is adopted by some corporations such as Bharat Petroleum Corporation Ltd., Maruti Suzuki Ltd & Hindustan Unilever Limited like provision of improved medical & sanitation facilities, building schools and houses & empowering villagers by providing them vocational training.
On the other hand Glaxo Smith Kline Paharmaceuticals focus on the health aspect of the community. They set up health camps in tribal villages which offer medical check-ups, treatment & undertake health awareness programs. CSR in New Companies Act, 2013 (Section 135)
Definition of CSR
The act defines CSR as activities that promote poverty reduction, education, health, environment sustainability, gender equality & vocational skills development. Companies can choose which area to invest in, or contribute the amount to central or state government funds earmarked for socioeconomic development.
CSR requirement will apply to any company that is incorporated in India, whether it is domestic or a subsidiary of a foreign company, and which has a
a. Net Worth of Rs.500 Cr or more, or,
b. Turnover of Rs.1000 Cr or more, or,
c. Net profit of Rs.5 Cr or more,
during any of the three financial years.
The act requires that such companies shall set up CSR Board Committee, which must consist of at least three directors, one of whom must be an independent director.
The committee must ensure that the company must spends at least 2% of the average net profits of the company made during three immediately preceding financial years on ‘CSR activities’.
Prior to each annual meeting, the board must submit a report that includes details about the CSR initiatives undertaken during the previous financial year. The board’s independent director helps to ensure the credibility of this process. If the company fails to spend this amount on CSR, the board must disclose the reasons in its annual report.
Challenges In Implementing CSR Policy
Companies hardly have three months to formulate CSR policy as CSR is going to be effective from F.Y: 2014-15.
But still there are certain issues which are bothering corporates in formulating & implementing CSR policy due to broad definition of CSR which is open to interpretation.
Clarification is required on the following issues:-
1. Clarification is required on whether a part of general overheads and cost of service provided by employees, who are primarily to work for the core business of the companies, but spend some time on CSR projects, should be considered as CSR spend.
2. Clarification is required as to whether activities related to ‘Environment Sustainablilty’, wherein corporates undertake research projects to improve existing products or processes to make them environment friendly, should be considered as CSR spend.
3. Clarification is required whether the company can invest corpus fund of CSR outside the business to earn an income that will form part of corpus.
4. Clarification is required on whether a company that is not otherwise required to appoint independent director is required to appoint an independent director only to comply with the requirement of CSR.
5. Clarification is required as to what constitutes acceptable reasons for which a company may avoid spending 2% on CSR.
In the absence of clarity, unscrupulous companies will take advantage of loopholes and honest companies will get harassed.
Corporates are keen to have further clarity on the provisions, as also tax benefits, if any, in order to ensure tangible outcomes.
Hence a strong step is required in this regard to resolve the matter so that CSR can achieve the goals for which it has been introduced.
Corporates can also join hands with NGO’s & use their expertise in devising programs which will address wider social problems like in case of SAP India, which joined hands with Hope Foundation, an NGO, to look after food, clothing , shelter & medical care of street children.
Partnerships among corporates, NGO’s & the Government should be facilitated so that a combination of their skills such as expertise, strategic thinking, manpower & money to initiate extensive social change will put the social economic development in India on a fast track.
Not one but all corporates should try and bring about a change in the current social situation in India in order to have an effective and lasting solution to the social woes.
By: ACA Laxmi Ramaswamy
Tags Corporate Law