CSR Activities – Meaning
There is no definitive description that can define Corporate Social Responsibility activities completely. Still, to help understand and get an idea of what comprises of CSR, it has been defined under the CSR Rules. The definition of CSR activities is as follows:
- Programs or projects which are relating to activities specified in the Schedule 7; or
- that have been recommendations of the CSR Committee as per the declared CSR policy. This would be subject to the condition that such policy covers subjects enumerated in the Schedule.
This definition of CSR suggests that it allows companies to engage in projects or programs relating to activities enlisted under the Schedule. While qualifying listed companies must engage in CSR activities in India, flexibility has been given to the company and CSR committee to decide which areas of development they want to contribute in. The activities taken up must be compulsorily displayed on the company website (if any).
The Companies Act, April 2013
The Companies Act 2013 has formulated Section 135 and is landmark legislation that makes Indian companies answerable to the government about their CSR expenditure. India is the first country to make the incorporation of Corporate Social Responsibility activities mandatory for qualifying companies. It is, for sure, a remarkable step towards growth, overall development and humanity.
Be it a private sector company or a public sector company, Corporate Social Responsibility CSR has to be adhered to by all listed companies. If a company falls in either of the following criteria for compulsion, they need to form a CSR committee. Companies:
- That has a net worth of Rs. 500 crores or more, or
- That have an annual turnover of Rs. 1000 crores or more, or
- That generate a profit of Rs. 5 crores or more.
During any financial year, if any of the above financial strength criteria are met then the rules of Section 135 apply. Prior to the compulsion of the Corporate Social Responsibility clause, CSR activities in India were voluntary for the listed companies. However, it was mandatory for them to disclose their CSR spending to their shareholders. Under the Companies Act, the preference has to be given to local areas in which the company operates.
THE CSR COMMITTEE AND POLICIES
The qualifying companies are required to form a CSR committee. They are needed to spend at least 2% of its average net profit for the 3 previous consecutive financial years on CSR initiatives. Mandatorily, a CSR committee has to be formed by the qualifying company. It also has to appoint at least 3 Board of Directors (Board). This Committee is responsible for preparing and recommend to the Board, a policy and a plan that will specify the CSR activities to be undertaken (CSR Policy). They would also suggest (and protect) the amount of expenditure to be incurred on the activities referred. Monitor the implementation of CSR Policy and activity is also their job. The Board will analyse the recommendations and suggestions made by the CSR Committee and support the CSR Policy and activities of the company.
The Role Of The Board Of Directors In CSR
The significant role of the board of directors of a company plays a crucial role in the CSR activities of the company. The role of the Board includes:
- Approval of the Corporate Social Responsibility policy.
- Ensuring that the CSR plan gets implemented in its entirety.
- Full disclosure of the spends and plan of CSR policies which are related to its report.
- Displaying the same on the company website.
- Making sure that specified amount allotted is being spent by the company in CSR activities.
- Though there is no penalty if the entire amount is not spent on CSR activities in India, the CSR committee and the board’s report should include the reason for the short spending.
TYPES OF CSR ACTIVITIES UNDER SCHEDULE VII OF THE COMPANIES ACT 2013
The following are the types of CSR activities in India that the qualifying listed companies under the Companies Act 2013 can contribute to:
(I) Eradicating Hunger, Poverty And Malnutrition
This can be done by promoting health care and sanitation in rural areas. This can also be a contribution to the Swach Bharat Kosh which has been set-up by the Central Government. Blood donation camps can also be done as a part of a company’s CSR initiative.
(Ii) Promoting Education
This can be inclusive of providing education to children and essential vocational skill training that enhance employment or special education among women, elderly and the differently-abled.
(Iii) Promoting Gender Equality.
Women empowerment programmes can be launched by setting up affordable hostels for women. Establishing old age homes, daycare centres and other facilities for senior citizens is another option. Orphanages can also be set up and managed by the CSR committee.
(Iv) CSR Initiatives Related To The Environment
Contributions can be made towards environmental sustainability. Activities that help in maintaining the ecological balance, protection of flora and fauna, promote animal welfare, conservation of natural resources and maintaining quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government.
(V) Protection Of National Heritage, Art And Culture:
This can include the restoration of heritage sites, buildings of historical importance and works of art. Public libraries can be set up as well.
(Vi) Measures Can Be Taken Towards The Benefit And Support Of Armed Forces Veterans, War Widows And Families.
(Vii) Contributions To The Prime Minister’s National Relief Fund Or Any Other Fund Set Up By The Central Government, For Welfare, Development And Relief Of The Schedule Caste, Tribes, Other Backward Classes, Women And Minorities.
(Ix) Contributions Can Be Made Towards Rural Development Projects And Slum Area Development.
CSR ACTIVITIES OF COMPANIES IN INDIA
Indian companies were always very generous when it came to voluntary contributions to social welfare. But since it has been made compulsory, more impactful steps have been taken up.
In quantitative terms, the CSR spending by top Indian companies in 2018 was 47% higher after the mandate. The power and energy sector contributed over 2400 crores, The sector of banking and financial services contributed 1353 crores while the IT Industry generated about 1100 crores for the corporate social responsibilities. As of 2016, about 460 companies have been listed as CSR contributors for the country. Some of the big guns are ITC, Tata Group, Infosys, Ambuja Cement, Ultratech Cement, Mahindra & Mahindra, Tata Chemical and Bharat Petroleum Corporation Ltd.
Contributions were majorly towards two sectors – health and education. About Rs 3,893 crore were spent as CSR in the last financial year in those two areas of development. 1029 crores were spent on rural development projects whereas 525 crores were diligently contributed towards equality and empowerment.
IMPORTANCE OF CORPORATE SOCIAL RESPONSIBILITIES
While CSR is a BIG step by companies for making a powerful change, let’s be frank, it also means an enhanced overall reputation. For companies, it is also a powerful statement through which they convey what they stand for. It helps its employees, people and the company itself contribute to something that is bigger than its own needs. CSR also gives employees a sense of belonging. It strengthens the bond among employees and attachment towards the organization as well.
Corporate social responsibility goes a long way in creating a positive word of mouth around the organization as a whole. It plays a great role in making brand publicity. When people hear about CSR activities by a company, they intuitively develop a positive feeling for the brand. They tend to lean towards brands that take a stand. 2% might sound like a small amount, but large companies generate profit in crores. It is a huge contribution and brings about a big change towards the welfare of society and the development of the country.