Corporate Social Responsibility (CSR) has emerged as a cornerstone of ethical business practices, driving companies to contribute to societal development alongside their profit-making objectives. In India, CSR became a legal mandate with the introduction of Section 135 of the Companies Act, 2013. This legislation ensures that businesses, especially larger corporations, actively participate in initiatives that benefit society and the environment.
Section 135 not only reinforces the importance of corporate accountability but also aligns businesses with India's broader developmental goals. From promoting education and healthcare to fostering environmental sustainability, CSR under the Companies Act bridges the gap between corporate growth and societal welfare.
What is corporate social responsibility (CSR)?
Corporate Social Responsibility (CSR) refers to a company’s commitment to contribute to societal and environmental well-being beyond its core business operations. CSR initiatives often involve activities such as funding education programs, improving sanitation facilities, and supporting renewable energy projects.
Importance of CSR in modern business ethics:
In today’s world, businesses are expected to go beyond profit-making and actively participate in creating a positive impact on society. CSR enhances a company’s reputation, builds trust with stakeholders, and fosters long-term sustainability.
Key objectives of CSR:
- Addressing social issues like poverty and education.
- Promoting environmental sustainability.
- Supporting community development efforts.
- Encouraging ethical business practices.
By aligning their operations with CSR principles, companies can strengthen their brand image while contributing to societal progress.
CSR full form and meaning in the Indian context
The full form of CSR is Corporate Social Responsibility. In the Indian context, CSR gained legal recognition under Section 135 of the Companies Act, 2013. This legislation mandates that eligible companies allocate a portion of their profits to activities that benefit society.
Real-life CSR examples in India:
- TATA Group: Known for its contributions to education and healthcare through initiatives like the Tata Trusts.
- Infosys: Focuses on environmental sustainability and rural development projects.
- ITC: Supports rural livelihoods through its e-Choupal initiative and other community programs.
These examples highlight how Indian companies are leveraging CSR to create meaningful societal change.
Applicability of CSR: Which companies are covered under Section 135?
Section 135 of the Companies Act, 2013, specifies that CSR provisions apply to companies meeting any of the following criteria:
| Criteria | Threshold |
|---|---|
| Net worth | Rs. 500 crore or more |
| Turnover | Rs. 1,000 crore or more |
| Net profit | Rs. 5 crore or more |
Companies meeting any of these thresholds are required to:
- Form a CSR committee.
- Spend at least 2% of their average net profits (from the last three financial years) on CSR activities.
For businesses planning CSR investments, understanding these criteria is essential.
Key provisions of Section 135 of Companies Act, 2013
Section 135 lays out specific guidelines for companies undertaking CSR initiatives. These include:
- CSR Committee: Companies must form a committee with at least three directors, including one independent director.
- CSR Budget: Allocate 2% of the average net profits (over the last three years) for CSR activities.
- Board Oversight: The board of directors must approve the CSR policy and ensure compliance.
- Reporting: Companies must disclose their CSR activities and expenditures in their annual reports.
- Penalties: Non-compliance can lead to fines for both the company and its officers.
These provisions ensure transparency and accountability in CSR implementation.
Role and responsibilities of the CSR committee
The CSR committee plays a pivotal role in planning and executing a company’s CSR initiatives. Its responsibilities include:
- Policy formulation: Drafting the company’s CSR policy in alignment with Schedule VII of the Companies Act.
- Budget allocation: Ensuring that the prescribed 2% of profits is utilised effectively.
- Project monitoring: Overseeing the implementation and impact of CSR projects.
- Reporting: Providing updates to the board and ensuring compliance with statutory requirements.
A well-functioning CSR committee ensures that a company’s efforts lead to measurable and sustainable outcomes.
Permitted CSR activities under Schedule VII
Schedule VII of the Companies Act outlines the activities eligible for CSR funding. These include:
| Category | Examples |
|---|---|
| Eradicating hunger | Mid-day meal programs for schools |
| Promoting education | Scholarships for underprivileged students |
| Gender equality | Women empowerment initiatives |
| Environmental sustainability | Afforestation and renewable energy projects |
Companies like TATA and Infosys have successfully implemented several such initiatives, showcasing the potential of CSR in driving societal change.
CSR policy: How companies should frame it
A robust CSR policy is essential for guiding a company’s social initiatives. Key components include:
- Eligible projects: Define the types of activities the company will support.
- Implementation strategy: Outline how projects will be executed, whether directly or through partnerships.
- Monitoring mechanisms: Establish systems to track progress and ensure accountability.
Collaborating with credible NGOs and conducting regular audits can enhance the effectiveness of CSR programs.
Modes of implementing CSR activities
Companies can choose from several methods to implement their CSR initiatives:
- Direct implementation: Executing projects through in-house teams.
- Partnerships: Collaborating with registered trusts, societies, or Section 8 companies.
- Joint efforts: Partnering with other corporations for larger-scale impact.
All implementing agencies must be registered with the Ministry of Corporate Affairs (MCA21) for compliance.
CSR reporting requirements and disclosures
Transparency is a critical aspect of CSR. Companies must adhere to specific reporting guidelines, including:
- Annual board reports: Include details of CSR activities and expenditures.
- Form CSR-2 filing: Submit reports to the Ministry of Corporate Affairs.
- Fund utilisation monitoring: Ensure that allocated funds are used effectively.
A clear and comprehensive reporting process builds trust with stakeholders and ensures regulatory compliance.
Recent amendments and CSR non-compliance penalties
Recent updates to CSR regulations include:
- Unspent CSR funds: Must be transferred to a government-approved fund within six months.
- Mandatory disclosures: Companies must provide detailed reports on CSR activities.
- Penalties: Non-compliance can result in fines for both the company and its officers.
These amendments reinforce the importance of accountability in CSR practices.
Examples of CSR initiatives by Indian companies
Indian companies have set benchmarks in CSR through impactful projects:
| Company | Initiative | Impact |
|---|---|---|
| TATA Group | Education and healthcare | Improved access to basic services |
| Infosys | Environmental projects | Promoted renewable energy usage |
| ITC | Rural livelihoods | Enhanced income for farmers |
Such initiatives demonstrate how businesses can drive meaningful change.
Why CSR matters for businesses and society
CSR creates a win-win situation for businesses and society by:
- Enhancing reputation: Builds trust and goodwill among stakeholders.
- Supporting SDGs: Contributes to global sustainable development goals.
- Attracting investors: Demonstrates accountability and long-term vision.
As Mahatma Gandhi once said, “The best way to find yourself is to lose yourself in the service of others.” CSR embodies this philosophy, fostering a culture of giving back.
Conclusion
Corporate Social Responsibility under Section 135 of the Companies Act, 2013, is a testament to India’s commitment to inclusive growth. By mandating CSR, the government has ensured that businesses contribute to societal and environmental well-being.
