November 17, 2022

CORPORATE SOCIAL RESPONSIBILITY

INTRODUCTION

The Companies Act, 2013 introduced Section 135 and Schedule VII which makes it the first country in the world to mandate corporate social responsibility (CSR) spending along with a framework to identify potential CSR activities. The activities which can be performed by the company to achieve its CSR obligations includes eradicating hunger and poverty, empowering women, improving mental health, reducing child mortality, social business projects, etc. CSR focuses on the ethical practices in the business and the responsiveness of an organisation to its shareholders and the environment in which it operates. This article provides the concept of CSR, its functions and also throws light on the relation between corporate social responsibility and corporate environment responsibility.

CORPORATE SOCIAL RESPONSIBILITY

The concept of corporate social responsibility is not explicitly mentioned in Section 135 of the Companies Act, 2013[1], rather it provides a condition on the companies who shall constitute a CSR Committee. It provides the composition and the role of the Committee in fulfilling the objectives of CSR. It provides that every company which has a net worth of Rs 500 crores or more or turnover of Rs 1000 Crores or more or a net profit of Rs 5 crores or more during any financial year is required to constitute a corporate social responsibility committee.

COMPOSITION OF THE BOARD

The Board must consist of three or more directors of whom at least one should be an independent director and in case the company does not appoint an independent director it must have two or more directors in the Corporate Social Responsibility Committee.

FUNCTIONS OF THE BOARD

The CSR Committee shall-

  1. Formulate to the Board a CSR Policy which must mention the activities that are to be undertaken by the company as per Schedule VII.
  2. Recommend the amount of expenditure that is to be incurred on the indicated activities.
  3. Monitor the CSR policy from time to time in order to prevent any misfeasance.
  4. Disclose the contents of the report so prepared by the Committee and must place it on the company’s website.
  5. Ensure that the aforementioned activities are included in the policy are followed by the company.
  6. Ensure that the company spends at least two per cent of the average net profit in every financial year made during the three immediately preceding financial year in pursuance of its CSR policy[2].

It also states that if the company does not abide by the its functions in a proper manner it shall specify in its report the reasons for not spending the amount.

ROLE OF CSR

Corporate Social Responsibility describes how a company manages its industry and takes responsibility for its social impact. It has a significant influence on business interactions with customers as disreputable marketing conduct negatively affects the customer’s attitudes and social conduct. It also helps in strengthening consumer’s trust. It encompasses various characteristics like economic dependence, legal conformity, ethical requirement and societal influence.

It plays a significant role in spreading social awareness and education. It focuses in healthcare, infrastructure, family welfare programs, education, etc. The biggest example is UltraTech Cement which is known to be India’s largest cement company that carries out social work in 407 villages in the country in order to create sustainability and self -reliance. CSR contributes to the funds set up by the Central and State Government for socio economic development such as Prime Minister’s National Relief Fund and promotes the welfare of the Scheduled Tribes, other backward classes, minorities, women and children[3].  

Even during the pandemic companies like McDonald’s, Audi, Coca- cola, Volkswagen performed their corporate social responsibility by promoting social awareness among the masses for social distancing. McDonald’s sent a message to the society by bifurcating its ‘M’ logo into “n-n” to represent social distancing, similarly Audi separated its four rings in its logo and explored a tagline to maintain distance[4].

COMPLIANCE OF CSR BY COMPANIES

Companies are actually making an impact through CSR program. 80 per cent of top 100 companies worked for sustainability and CSR in 2021. Contributions towards CSR plunged from 64% to Rs 8828 crore in 2021 from Rs 24,689 crore the year before making the lowest in 7 years. 94% of the total expenditure during the year was done by 1599 non-public sector companies. Mukesh Ambani’s Reliance Industries spent 922 crores topping the charts. However, 353 of the 1619 companies in financial year 2021 spent less than the mandated amount while 178 companies showed zero spends[5].

Ambani’s Reliance Industries Ltd has planted mangroves on 875 acres of land around its Jamnagar refinery plant to preserve the ecological balance and has also planted 2.3 crore saplings till 2020-21 across its sites to conserve biodiversity and ecosystem. It looks to become a net zero carbon company by 2035.

Okhai which is the basis for Tata Chemicals Society for rural Development (TCSRD), the community intervention that is helping change the lives of hundreds of people. Okhai functions through 40 self-help groups which comprise 500 women artisans who work from home.

CORPORATE SOCIAL RESPONSIBILITY AND CORPORATE ENVIRONMENT RESPONSIBILITY

Corporate Environment Responsibility is a concept that suggests that is the responsibility of the companies to contribute towards economic, social and environmental development that creates positive impact on society at large.

The draft EIA notification, 2020 defines corporate environment responsibility as part of Environment Management Plan wherein the profit proponent is mandated to carry out certain activities for environment safeguard in the immediate surroundings of the project based on the issues raised during the public consultation and/or social need-based assessment carried during the EIA studies. In 2018, Ministry of Environment, Forest & Climate change (MoEFCC) issued a memorandum which tried to differentiate between CSR and CER[6]. The government itself is not able to determine whether corporate social responsibility and corporate environment responsibility are mutually exclusive or operate in separate spheres. The obligation to separately allocate funds for corporate environment responsibility was not received well by the corporate and the office memorandum of 2018 was challenged before the High Court in CREDAI NCR v Union of India[7] which is sub judice before the court.

CONCLUSION

Corporate Social Responsibility is the mandatory obligation for those companies who have a particular net worth as mentioned in the Act. It is a noble initiative wherein the companies make an effort to fulfil the inequalities available in the society and to improve the standard of living of the people. Various companies spend a huge sum in order to fulfil this objective. as it is the responsibility of the companies to work towards the underprivileged class, they must also work towards the betterment of the environment. Corporate Environment Responsibility must operate in a separate sphere.

REFERENCES

[1] The Companies Act, 2013, § 135, No. 18, Acts of Parliament, 2013 (India).

[2] AVTAR SINGH, COMPANY LAW 429 (Eastern Book Company 2018).

[3] Asif Khan, The Role of Corporate Social Responsibility and Corporate Image in Times of Crisis: The Mediating Role of Customer Trust, NATIONAL LIBRARY OF MEDICINE (Aug. 4, 2021), The Role of Corporate Social Responsibility and Corporate Image in Times of Crisis: The Mediating Role of Customer Trust – PMC (nih.gov).

[4] THE ECONOMIC TIMES, https://economictimes.indiatimes.com/industry/services/advertising/how-brands-are-endorsing-social-distancing/global-standstill/slideshow/74927403.cms (last visited Nov. 8, 2022).

[5] MINISTRY OF CORPORATE AFFAIRS, https://www.csr.gov.in/content/csr/global/master/home/home.html (last visited Nov. 10, 2022).

[6] Astha Ojha, Corporate Social Responsibility v. Corporate Environment Responsibility: Duplication of Efforts for Same Objective, SCC Online (Nov. 13, 2021, 2:45 PM), Corporate Social Responsibility v. Corporate Environment Responsibility: Duplication of Efforts for Same Objective | SCC Blog (scconline.com).

[7] CREDAI NCR v Union of India, WP (C) No. 13252 of 2019.

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