Corporate Social Responsibility (CSR)

Via the Companies Act, 2013, Corporate Social Responsibility (CSR) initiatives have been made mandatory for certain businesses in India. The recently passed Companies Act, 2013 and the Regulations notified thereunder made it statutory to spend 2 per cent of their earnings on Corporate Social Responsibility for all companies above a certain scale.

India is the first nation in the world to have compulsory CSR investment (with exception provisions) along with compulsory reporting. Indian businesses have to invest upwards of Rs. 10,000 crores on CSR in FY 15 and more in subsequent years as corporate profits rise, according to some projections.

The current CSR regulations in terms of improving total social investment would be a game-changer, as CSR regulations are a step in the right direction. However, there are certain barriers to enforcing the current CSR legislation, which will entail steps such as enhanced regulatory supervision, more transparency about what constitutes CSR spending, and cooperation between businesses. The accomplishment of the CSR laws will focus largely on how well these problems are handled.

I. Introduction

India is a land with countless cultures and backgrounds. It is also the home with the greatest number of people residing in total deprivation (although the ratio of impoverished people has declined) and the highest number of undernourished children in the world and is gradually a significant player for the new world order. It appears that the gains of prosperity, as many citizens claim, are not evenly spread which is the root cause of social discontent. Industries have always been the target of those influenced by this unequal growth and, thus, are under intense examination for their contributions to society.

This attention can only escalate with time, provided that there is an increasing knowledge of this difference between the haves and the have nots. Many companies noticed the phenomenon immediately and proactively responded, while others did so only when pressed. Policy and legislative authorities also reacted to this unrest. The SEBI’s mandatory corporate transparency reports and the 2013 CSR provision in the company legislation are two indicators of the steps taken. The national voluntary recommendations on social, ethical and economic responsibility are similar to the SEBI’s 2013 study for the top 100 companies.

To order to fulfil the requirements under the Company Act of 2013, several businesses implementing such programs for the first time, at least 6,000 Indian firms would be expected to conduct CSR ventures, according to the Indian Institute of Corporate Affairs. In comparison, some figures suggest that the company’s CSR contributions are up to 20,000 crore INR. A mix of governmental and organizational scrutiny also culminated in businesses needing to perform their CSR responsibility more dutifully.

II. What is Corporate Social Responsibility?

The sense of obligation for the society and atmosphere (both ecologically and socially) through which an organization exists can be described as corporate social responsibility (CSR). Organizations will perform this obligation by waste and emissions management methods, educational and social services, conservation and related practices [1]. CSR is not just an organization or a donation.

CSR is a means for businesses to render a tangible difference to the common good. Socially conscious companies should not merely use capital to carry out activities which only enhance their income. They use CSR as a way of combining the company’s market and development cultural, environmental and social goals. CSR is said to improve its consumers and society’s image as a brand of a business. Section 135 of the Rules on Corporate Social Responsibilities, 2014 and Schedule VII have been defined in the Companies Act, 2013 which stipulates that Corporations shall meet their CSR.

The term “CSR” can be defined as a corporate effort that assesses and assumes liability for the environmental and social impacts of the organization.

The concept of CSR can be defined as a corporate effort that assesses and assumes liability for the environmental and social impacts of the organization. The word is typically used for undertakings which go beyond what regulators or environmental conservation organizations that need. Corporate social responsibility may also be considered “corporate citizenship” and may involve short-term expenses, which do not directly help the organization financially but encourage meaningful social and environmental improvements.

The Chair of the CSR Committee also stated the guidance as follows when it introduced the Corporate Social Responsibility Laws in compliance with Section 135 of Companies Act [2], 2013:

“CSR is the process by which an organization thinks about and evolves its relationships with stakeholders for the common good, and demonstrates its commitment in this regard by adoption of appropriate business processes and strategies. Thus, CSR is not charity or mere donations.

CSR is a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies do not limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth.”

India became, following an adjustment to the Companies Act of 2013 in April 2014, the first nation in the world to allow corporate social responsibility (CSR) mandatory. As part of accordance with CSR, companies will spend their income in sectors such as schooling, deprivation, equity and hunger [3].

III. Applicability of CSR Provisions

On every company including its holding or subsidiary having:

• Net worth of Rs. 500 crore or more, or
• Turnover of Rs. 1000 crore or more, or
• Net Profit of Rs. 5 crores or more

during the immediately preceding financial year, a foreign company having its branch office or project office in India, which fulfils the criteria specified above. However, if a company ceases to meet the above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions till such time it meets the specified criteria.

IV. What to Do When CSR is Applicable?

If a corporation is listed within the framework of the CSR, it will follow the CSR requirements. The following actions are expected of organizations regulated under Sub-Section 1 of Section 135:

• The corporations shall be required, as provided for in Section 135(1), to constitute the Committee of Corporate Social Responsibility of’ the following CSR body of the Board. There are 3 or more members of the CSR Board, from whom at least one impartial member is named.
• The Board study shall express the CSR Committee’s compositions.
• Per financial year, these businesses shall invest, in compliance with their Corporate Social Management Strategy, at least 2% of the total net income of the business generated over the next three financial years. In compliance with the rules of Section 198 of the Companies Act, 2013, it has been explained that the total net income is measured [4].

Furthermore, it requires that in compliance with the Companies balance sheet, income and loss report prepared by that corporation in conjunction with subsection 3 (1), subsections (a), subparagraph (1) in section 381 and section 198 of the Companies Act 2013 respectively, revenue or net benefit of a foreign business under the Act is determined.

CSR explores how company operations are controlled by businesses and create a beneficial cumulative impact on society. Organizations should show compliance with a variety of CSR requirements to illustrate strong corporate citizenship. The magnitude and scope of a company’s gains from CSR can differ depending on its structure and are challenging to quantify, however, a vast amount of literature calling for businesses to take measures beyond the financial context of CSR can be located within the organization’s human resources, corporate development, or public relations divisions or a different unit can be provided.

For certain organizations, CSR-type principles may be applied without a specific team or plan. A CSR initiative, particularly in the competitive graduate sector, may be called a recruiting assist. Potential candidates often inquire during an interview regarding a company’s CSR strategy and may profit from the robust approach. CSR will also help to raise the expectations of an organization in its workers, particularly if workers may contribute by creating payrolls, raising funds or volunteers. Companies are looking in competitive marketplaces for a new campaign plan that can distinguish customers from rivalry [5].

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

• To have loyal staff and to encourage businesses to hold workers long-term.
• Boost the reputation of businesses and assist them to gain additional market shares.
• Companies have fewer regulatory barriers as they behave ethically.
• Boost the collective goodwill and tend to increase the “name image” of businesses.
• Aid to balance short- and long-term capital prices
• Help to restrict the role of the state in corporate relations while companies self-regulate and behave as more ethically responsible.

CSR allows companies and their components and their owners to add to the macro-economic growth of a region. It also allows firms to collaborate and connect, their clients and their administrative machinery [6].

V. Implementation Guidelines

A business may carry out its CSR activities by means of a registered trust or company, a company set up by its holding company, a subsidiary or affiliate company, or otherwise, providing that the company has defined the activities to be carried out the modalities for the use of funds and the process for reporting and tracking. If a corporation or its holding company, affiliate or affiliate company is not established by the organisation in which the CSR operations are carried out the entity will need to have an established track record of three years of similar activities.

Companies can also partner with each other to collectively conduct CSR tasks, provided that each organisation is able to report on those projects independently. A business may build up the CSR capabilities of its employees or implementing agencies by institutions with at least three years of proven track records, providing that the expense for such activities does not exceed 5% of the company’s overall CSR expenditure in a single financial year [7].

According to the CSR Regulations, a company which does not follow the stated requirements for a cumulative period of three financial years is not obligated to comply with CSR obligations, which means that a company which does not comply with any of the specified criteria for a following financial year will also be required to carry out CSR operations until it fails to comply with the specified criteria for continuous peering. This could raise the pressure on small enterprises who do not continue to make large profits.

An annual report on the corporation’s CSR operations in the format specified in the CSR Rules should also be included in the report of the Board of Directors attached to the Company’s financial statements, setting out; a brief overview of CSR regulation, the makeup of the CSR Committee, the average net profit for the previous three financial years and the CSR expense specified. The explanations for not doing so should be set out in the Board Report if the organisation has not been able to invest the minimum needed on its CSR initiatives.

If a company has a website, it will be mandatory to publish the company’s CSR policy on such an official site [8].

VI. Conclusion

Corporate social responsibility is no longer measured by the donation of a corporation to a charity but by its involvement in initiatives that improve the standard of life of individuals. Corporate accountability has been a significant concern in the field of industry and has slowly become a central practice. The major impact that private sector operation has on workers, customers, culture, the climate, rivals, market owners, creditors, shareholders, governments and other groups is being progressively recognized.

It is also becoming abundantly evident that organisations will add to their own prosperity and the collective resources of the society when remembering the effect they have on the entire planet while making decisions. For charitable organizations, corporate social accountability is a central consideration. It has been seen that a corporation should concentrate its corporate social responsibility in several different fields.

For corporate social management, the first area of emphasis is environmental sustainability. Health, wellness, safety and welfare are other fields to address when designing corporate social responsibility programs.

“Investment in social accountability blends financial interests of creditors with their duty and contribution to social security considerations such as Eco sympathy, sustainable prosperity and social justice.”

Not only are certain components facets of corporate social responsibility but indeed a summary of an enterprise’s legal principles. To certain persons, it is immoral to possess and gain too much, at the detriment of other citizens who struggle. Furthermore, the pattern of environmental pollution contributing to illness and loss of life is immoral to businesses. It can be inferred that the preservation of strong ethical principles and social responsibility is not a choice but rather a duty for any organization.

CSR was passed with India in the expectation that the mindset of corporate entities might shift, which would give back the business to a large degree, even as it was the community whose requirements first enabled it to thrive. Similarly, the community still thought that its attempts to aid marginalized communities in many situations would be insufficient in favour of the state.

The act of CSR did not cover much territory in spite of all its positive intentions. Nonetheless, owing to certain regulatory and operational flaws it has struggled to establish a tortuous system for imparting CSR. This has provided businesses with the incentive to contribute back to society. Several of the main problems confronting Indian CSR law and regulation include insufficient standards for assessing the scale of money spends, data integration, narrow and self-serving CSR employment or short-term money investment. The aim for the hour is then to change the CSR law and to make it easy to track for long-term purposes. CSR laws, with some tweaks, will greatly help the society in the near future.

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References

[1] Arora, B., & Puranik, R. (2004). A review of corporate social responsibility in India. Development, 47(3), 93-100.

[2] Section 135 of Companies Act, 2013

[3] Sarkar, J.; Sarkar, S. Corporate Social Responsibility in India—An Effort to Bridge the Welfare Gap; Indira Gandhi Institute of Development Research: Mumbai, India, 2015

[4] Sharma, S.K. A 360-degree analysis of Corporate Social Responsibility (CSR) Mandate of the New Companies Act, PDF. Glob. J. Manag. Bus. Stud. 2013

[5] Kaur, S., & Tandon, N. (2017). The Role of Corporate Social Responsibility in India. Research Journal of Commerce & Behavioural Research.

[6] Kumar, N. (2019). Corporate Social Responsibility: An analysis of impact and challenges in India. International Journal of Social Sciences Management and Entrepreneurship (IJSSME), 3(2).

[7] Mitra, N., Akhtar, A., & Gupta, A. D. (2018). Communicating corporate social responsibility in the post mandate period: Evidence from India. International Journal of Corporate Social Responsibility, 3(1), 10.

[8] Sharma, N. K. (2018). An analysis of corporate social responsibility in India. Available at SSRN 3676827.

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