CSR is broadly — some say vaguely — defined in the law to mean funding programmes for education, poverty alleviation, protecting the environment or tackling disease, among others.
The New Companies Act, 2013 mandates that companies of a certain size spend 2% of their three-year average annual profit towards corporate social responsibility (CSR), is a landmark one as it makes India among the first nations to have social welfare spending as part of company statute by law.
A look at the provisions of the Act
Provisions of the Act: Relevant Parts of the Act- the sections 134, 135, Schedule III and Schedule VII of the Companies Act, 2013 deal with CSR. The sections 134 and 135 are part of Chapter IX on Accounts of Companies.
ii. Mandatory Reporting- the Section 134, under subsection 3, clause (o),states that there shall be attached to (Financial) statements laid before a company in general meeting, a report by its Board of Directors, which shall include the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year.
iii. Which companies are covered- the section 135 provides further details on the corporate social responsibility initiatives. Under its subsection (1) it defines the companies for whom formation of a Corporate Social Responsibility Committee of the Board is mandatory- every company having net worth of INR 500 crore (INR 5 billion) or more, or turnover of INR 1,000 crore (INR 10 billion) or more or a net profit of INR 5 crore (INR 50 million) or more during any financial year.
iv. Composition of CSR Committee- it will consist of 3 or more directors, out of which at least one director shall be an independent director. This composition needs to be disclosed in the mandatory reporting mentioned in sub point ii.
v. Role of the CSR Committee- formulate and recommend to the Board a CSR Policy, the amount of expenditure to be incurred and monitoring of the Policy from time to time.
ix. Which Activities may be included in CSR Policy- in Schedule VII of the Bill there are 9 specified and 1 provisional generic category of activities:
a. Eradicating extreme hunger and poverty
b. Promotion of education
c. Promoting gender equality and empowering women
d. Reducing child mortality and improving maternal health
e. Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases
f. Ensuring environmental sustainability
g. Employment enhancing vocational skills
h. Social business projects
i. Contribution to the Prime Minister’s National Relief Fund or any other Fund set up by the Central Government or the State Governments for socioeconomic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women
j. Such other matters as may be prescribed.
xi. What if the company fails to spend the referred amount on CSR- in such case the company will have to specify the reasons for not spending the amount in the Mandatory Reporting mentioned in sub point ii.
Around 8,000 companies would fall under the Bill’s ambit and this mandate would translate into an estimated CSR spending of Rs 12,000-15,000 crore annually. This steps seems to be a welcome change so Companies now gear up for some charity and development work!!