This article has been written by Ms. Neha Yadav, a fourth year student of University of Lucknow, Lucknow
ABSTRACT
In the fiscal year 2021-22, India demonstrated steadfast commitment to corporate social responsibility (CSR) with a significant expenditure of INR 26,210.95 million across 20,840 companies. The institutionalization of CSR through the Companies Act, 2013, signifies a global milestone, obligating designated corporations to allocate 2% of their income for societal welfare. Section 135 intricately defines obligations, while Rule 4 outlines autonomous, collaborative, or agency-based CSR execution modalities. Case studies highlight diverse global and Indian CSR approaches, emphasizing societal betterment within legal, regulatory, and philanthropic dimensions.
INTRODUCTION
In the financial year of 2021-22, total amount spent on corporate social responsibility is INR 26210.95 among 20840 companies. The implementation of the Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India represented one of the globe’s largest trials in integrating CSR as a compulsory provision, imposing a legal duty on companies to engage in CSR initiatives aimed at social welfare. India stands out as the sole nation to enforce and prescribe CSR requirements for specific categories of companies governed by the Act. This CSR mandate is expected to propel the nation towards realising sustainable development objectives and fostering public-private collaboration in India’s transformation journey.
CORPORATE SOCIAL RESPONSIBILITY: MANDATES AND IMPLEMENTATION
CSR, under the Companies Act, 2013, is encapsulated in Section 135. This section delineates the statutory obligation for certain categories of companies to engage in Corporate Social Responsibility activities. It outlines the criteria for applicability, specifying the required expenditure and reporting mechanisms. Essentially, Section 135 of the Companies Act, 2013 establishes the legal framework mandating companies to integrate social responsibility initiatives into their business practices.
Section 135 of the companies Act 2013 (Act) requires certain corporations to allocate at least 2% of their average net income from the previous three fiscal years to CSR activities. This provision applies to businesses with a net value of Rs. 500 crores or more, a turnover of Rs. 1000 crores or more, or a net profit of Rs. 5 crores or more in the preceding fiscal year. Such corporations must form a CSR Committee of the Board made up of three or more directors, at least one of whom must be independent. However, if a firm is not required to appoint an independent director under Section 149(4) of the Act, the CSR committee must consist of two or more directors.
The CSR Committee’s main responsibility is to develop and propose a CSR policy to the board, outlining the company’s planned activities in accordance with Schedule VII of the Act. Additionally, it oversees the execution of the CSR policy. The committee is tasked with producing an annual report on the company’s CSR endeavours, which must be included in the board’s report to shareholders. This report should detail the specific CSR initiatives carried out during the year, the allocated funds for each initiative, and the societal impact of these activities.
Schedule VII of the Companies Act 2013 in India pertains to Corporate Social Responsibility (CSR). Under this section, companies meeting specified criteria are required to spend a portion of their profits on CSR activities. The areas where CSR funds can be spent, as outlined in Schedule VII of the Act, include:
- Eradicating hunger, poverty, and malnutrition.
- Promoting Responsibility
luding special education and skill development.
- Ensuring gender equality and empowering women.
- Reducing child mortality and improving maternal health.
- Combating diseases and promoting healthcare.
- Ensuring environmental sustainability and ecological balance.
- Supporting social business projects.
- Contributing to the Prime Minister’s National Relief Fund or other government funds.
- Promoting rural development and slum area development.
- Protecting national heritage, art, and culture.
Companies need to allocate CSR funds to projects falling under these categories and report their CSR activities in their annual reports. It’s essential for companies to comply with these regulations to fulfil their social responsibility obligations.
Aside from the Companies Act, various Indian laws and regulations support CSR. For instance, SEBI requires listed companies to furnish a Business Responsibility and Sustainability Report (BRSR) detailing their CSR initiatives. Moreover, the Ministry of Corporate Affairs (MCA) has issued several guidelines and circulars related to CSR.
Implementation of Corporate Social Responsibility
According to Rule 4 of the Companies (CSR Policy) Rules, 2014, a company can execute CSR activities in three ways: self-implementation, through eligible implementing agencies, or in collaboration with other companies. Eligible implementing agencies include companies under section 8, registered public trusts, registered societies exempted under specific clauses, those approved under 80G of the Income Tax Act, entities established by the Central or State Government, or those established under an Act of Parliament or State legislature.
Rule 4(1) outlines the criteria for entities acting as implementing agencies, specifying companies under section 8, registered public trusts, and societies meeting certain criteria, along with those established by the government or under legislation. Additionally, agencies must have a three-year track record in similar activities.
Furthermore, any implementing agency must register itself with the Central Government by filing CSR-1 electronically with the Registrar, effective from April 1, 2021.
CASE STUDIES OVER CORPORATE SOCIAL RESPONSIBILITY
1.TOMS SHOES: ONE FOR ONE MODEL
Background: TOMS Shoes is renowned for its “One for One” model, where for every pair of shoes sold, another pair is donated to a child in need.
Impact:The initiative addresses poverty and health issues by providing footwear to those who lack access while creating a sustainable business model. It showcases how a company’s core business can be aligned with social responsibility.
- UNILEVER’S SUSTAINABLE LIVING PLAN
Background:Unilever’s Sustainable Living Plan focuses on environmental and social goals, aiming to improve health and well-being, reduce environmental impact, and enhance livelihoods across the value chain.
Impact:Unilever’s commitment to sustainability not only positively affects the environment but also resonates with consumers, fostering a positive brand image. It demonstrates the integration of CSR into corporate strategy.
- MICROSOFT’S AFFORDABLE ACCESS INITIATIVE
Background: Microsoft’s Affordable Access Initiative aims to bring affordable internet access to underserved communities worldwide.
Impact: By addressing the digital divide, Microsoft contributes to education, economic development, and community empowerment. This case showcases how technology companies can leverage their expertise to bridge social gaps.
- PATAGONIA’S ENVIRONMENTAL INITIATIVES
Background: Patagonia, an outdoor clothing company, has a strong commitment to environmental responsibility, with initiatives like the “Worn Wear” program promoting used clothing.
Impact: Patagonia’s focus on reducing its environmental footprint and encouraging sustainable consumer behavior exemplifies how companies can lead in environmental stewardship while maintaining a profitable business.
These case studies highlight diverse approaches to CSR, demonstrating the positive impact businesses can have on society and the environment.
Even Indian Companies have been approaching Corporate Social Responsibility, for instance,
- INFOSYS FOUNDATION’S EDUCATION INITIATIVES:
Background: Infosys Foundation, the philanthropic arm of Infosys, has been actively involved in promoting education in India. They support various projects, including building schools, providing scholarships, and enhancing educational infrastructure.
Impact: The foundation’s initiatives contribute to improving access to quality education, particularly in underserved communities, showcasing the role of corporate entities in addressing educational challenges.
- TATA GROUP’S RURAL DEVELOPMENT PROGRAMS:
Background: The Tata Group, through its various companies, has undertaken numerous initiatives for rural development in India. Projects include sustainable livelihood programs, healthcare services, and infrastructure development in rural areas.
Impact:Tata’s sustained efforts in rural development highlight how a conglomerate can positively impact local communities, fostering social and economic development.
- HUL’S PROJECT SHAKTI:
Background: Hindustan Unilever Limited (HUL) launched Project Shakti to empower rural women by providing them with entrepreneurial opportunities. Women act as direct-to-home sales agents for HUL products.
Impact: Project Shakti has not only increased market reach for HUL but has also empowered women economically, showcasing a successful model of inclusive business and women’s empowerment.
- 4. RELIANCE FOUNDATION’S HEALTHCARE INITIATIVES
Background: Reliance Foundation, led by Reliance Industries, focuses on healthcare initiatives, including building hospitals, providing medical facilities, and conducting health awareness programs in rural and urban areas.
Impact: The foundation’s healthcare initiatives demonstrate a commitment to improving health outcomes and accessibility, addressing critical healthcare challenges in different parts of India.
These Indian case studies illustrate the diverse ways in which companies contribute to social responsibility, emphasizing the significance of addressing local needs and challenges.
CONCLUSION
Section 135 of the Companies Act, 2013, constitutes the linchpin of CSR imperatives, meticulously delineating the statutory contours obligating specific corporations to seamlessly integrate social responsibility initiatives within their operational paradigms. The statutory prescription compels entities with a net worth exceeding Rs. 500 crores, an annual turnover surpassing Rs. 1000 crores, or a net profit exceeding Rs. 5 crores to earmark a minimum of 2% of their average net income from the preceding three fiscal years towards CSR activities. A pivotal facet of this mandate is the constitution of a CSR Committee vested with the responsibility of formulating and advocating CSR policies, as well as overseeing their efficacious implementation.
Schedule VII of the Act serves as a meticulous compendium, intricately specifying the arenas wherein CSR funds are admissible. These encompass the eradication of hunger, promotion of education, gender equality, healthcare, environmental sustainability, and support for social business projects, among other philanthropic pursuits. It is incumbent upon companies to meticulously adhere to these regulations to discharge their societal obligations seamlessly and ensure the harmonization of corporate practices with the broader canvas of social welfare.
Concomitantly, Rule 4 of the Companies (CSR Policy) Rules, 2014 expounds on the tripartite modalities of CSR execution, namely autonomous implementation, collaboration with peer entities, or engagement with eligible implementing agencies. Entities eligible to act as implementing agencies include those under section 8, registered public trusts, and those accorded approval under section 80G of the Income Tax Act. The imperative for such entities to formally register with the Central Government underscores a regime of heightened accountability and effective execution.
The explication culminates with an array of case studies delineating global and indigenous corporations’ nuanced CSR stratagems. Exemplary instances include TOMS Shoes’ paradigmatic “One for One” model, Unilever’s holistic Sustainable Living Plan, Microsoft’s laudable Affordable Access Initiative, and Patagonia’s resolute environmental stewardship. Noteworthy indigenous exemplars comprise Infosys Foundation’s laudable forays into educational upliftment, the Tata Group’s multifaceted rural development initiatives, Hindustan Unilever Limited’s empowering Project Shakti, and Reliance Foundation’s commendable healthcare endeavors. These instances collectively underscore the kaleidoscopic contributions of corporate entities within India, echoing the imperative of societal amelioration within the complex tapestry of legal, regulatory, and philanthropic engagements.
REFERENCES
- Company Law, Avtar Singh, 9789388206518, 17th Edition
- This information is available at the Government of India, web portal i.e. National Social Responsibility Portal. The link to the same is herein.
https://www.csr.gov.in/content/csr/global/master/home/home.html
- This article was originally written by Mohammad Kaif and published on the website Taxguru. The link for the same is herein.
- This article was originally written by an anonymous writer and published on the website dpncindia. The link for the same is herein
- This article was originally written by an anonymous writer and published on the website Lakshmikumaran & Sridharan Attorney. The link for the same is herein.