Author: Adarsh Srivastava, IV year of B.B.A.LL.B from Faculty of Law, Integral University, Lucknow
“A company should have in its DNA, a sense to work for the welfare of the community. CSR is an extension of individual sense of social responsibility. Active participation in CSR projects is important for a company"
- Ratan Tata
Over the years Corporate Social Responsibility (CSR), a concept comparatively new to India, is rapidly picking up pace. CSR has become a fundamental business practice and has gained much attention from the management of large international companies. It facilitates the alignment of business operations with social values. CSR is deemed as a point of convergence of various initiatives aimed at ensuring the socio-economic development of the community. Acknowledging the fact that mainstreaming CSR into businesses could be instrumental in delivering societal value, especially in a developing country like India.
Corporate Social Responsibility means doing needed things and contributing to balanced development and welfare for society. It has been seen for decades that CSR is a promise of business to contribute to sustainable economic development by working with their employees and their families, local communities of the society and the society at large to enhance their livelihood in that way which is good for their business and development.
The World Business Council for Sustainable Development (WBCSD) defines CSR as "The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large”.
Kotler and Lee define CSR as “Corporate social responsibility is a commitment to improving community well-being through discretionary, business practices and contribution of corporate resources. Corporate social initiatives are major activities undertaken by a corporation to support social causes and to fulfil commitments to corporate social responsibility”
Most of the companies initiate their CSR in the field of education, health, living of people, rural development and social entrepreneurship. By its different plans for CSR, companies play a crucial role by providing communities and projects which fulfil the vacant places of social requirements.
Let’s understand this with an example, Starbucks does not need any introduction, it has always put itself ahead in the matter of CSR and it has always committed to sustainability and community welfare. According to its 2019 Global Social Report, CSR milestones includes crossing 99%of ethically sourced coffee, creating a world level network of farmers, involving new ideas for green building throughout its stores, giving its millions of hours of community service and creating huge opportunities for its partner and employees. In 2020 Starbuck’s goal was to hire 10,000 plus refugees and reduce the environmental impact of its cups and engage its employees in environmental leadership[i]. Today there are many socially responsible companies whose brands are known for their CSR programs, such as Ben & Jerry's ice cream and Everlane, a clothing retailer[ii].
Provisions in Companies Act 2013
The CSR of Indian companies is mentioned with the provisions of Section 135 with Schedule VII to the Companies Act, 2013.
Section 135:- Corporate Social Responsibility.— (1) Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more or a net profit of rupees five crores or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be independent.
(2) The Board's report under sub-section (3) of section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
(3) The Corporate Social Responsibility Committee shall,—
(a) Formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
(b) Recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
(c) Monitor the Corporate Social Responsibility Policy of the company from time to time.
(4) The Board of every company referred to in sub-section (1) shall,—
(a) After taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website, if any, in such manner as may be prescribed; and
(b) Ensure that the activities are included in the Corporate Social Responsibility Policy of the company are undertaken by the company.
(5) The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:
Provided that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for Corporate Social Responsibility activities: Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.
CSR amendments under the Companies (Amendment) Act, 2019
Until now, if a company was unable to fully spend its CSR funds in a given year, it could carry the amount forward and spend it in the next fiscal, in addition to the money allotted for that year.
The CSR amendments introduced under the Act now require companies to deposit the unspent CSR funds into a fund prescribed under Schedule VII of the Act within the end of the fiscal year. This amount must be utilized within three years from the date of transfer, failing which the fund must be deposited into one of the specified funds.
The new law prescribes a monetary penalty as well as imprisonment in case of non-compliance. The penalty ranges from INR 50,000 (US$700) to INR 2.5 million (US$35,000) whereas the defaulting officer of the company may be liable to imprisonment for up to three years, or a fine up to INR 500,000 (the US $7,023), or both.
The government, however, is reviewing these rules after the industry objected to the strict provisions, especially concerning the jail terms for CSR violations, and is yet to operationalize them.
Whether CSR is a Corporate Responsibility or a Social Responsibility?
India is the first and only country that made CSR mandatory by an amendment to the Companies Act, 2013 in April 2014. Globally, businesses have been under pressure to reveal them as socially responsible personalities trying to create an impartial society. Government is willing to bring cultural transformation in the business because they can become more committed to social welfare and environmental conservation. That is why India became the first country to mandate and quantify CSR into legislation. Apart from this, the provisions also maintain the CSR sector wherein there are norms for punishments for companies and the people in-charge of CSR activities. This sets an example for those companies which are not willing to contribute towards CSR activities. The mandate has made the companies more committed to social causes and there is also an engagement with the local communities which will ensure inclusive development in the long run.
Companies are growing up their focus on Social Responsibility, whether it is advocating women’s rights, protecting the environment, or trying to destroy poverty, on local, national, or global levels. In general, socially responsible companies can attract more consumers and shareholders, which serve to positively affect their bottom line. Being a socially responsible company can bolster a company’s image and build its brand more popular. Social responsibility empowers employees to leverage the corporate resources at their disposal to do well. Companies can likewise witness an increase in their business if they enhance the local community. For example, banks which provide loans to the low-income household are apt to see an uptick in business, as a direct result. Socially responsible companies can attract employees who are eager to make a difference in society in addition to simply collecting a paycheck. Community-oriented companies often enjoy a leg up on their competition. For example, Tesla Inc. CEO Elon Musk has successfully attracted environmentally-minded consumers, with his line of cutting edge electric-powered cars and green automotive products[iii].
CSR is both a corporate and social responsibility of any company because there is certain law which binds a company for being socially responsible for the welfare of society at large, for sustainable development of the economy, for the protection of the environment, for their employees. With the help of social responsibility, a company can attract more efficient and effective employees and profitable shareholders and stakeholders for their growth and for making their effective goodwill in society. That is why CSR is both a corporate and social responsibility.
[i]Starbucks. "Starbucks 2019: Global Social Impact Report," pages 5-12. Accessed March 13, 2021.
[ii]Ben & Jerry's. "Socially Responsible Causes Ben & Jerry's Has Advocated for." Accessed March 13, 2021.
[iii]Tesla. “2018 Impact Report”, Page 7. Accessed March 13, 2021