Corporate Social Responsibility
CSR is the commitment by businesses 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.
The dimensions of the CSR triangular concept can be characterized as follows:
• The self-regulation approach is characteristic of most company-related initiatives. In this case, companies decide for themselves how far to engage in CSR and which CSR measures to implement. As the role of the state is limited, liability is limited, too.
• In legal regulation, the government is the most important player. This is reflected in multinational initiatives which are based on binding legal commitments, Individual codes of conduct for companies from one side of the spectrum, the legal instruments the other.
• Multi-stakeholder initiatives, such as the Global Compact or the OECD Guidelines for Multinational Companies, are located between the two extremes and can be defined conceptually as co-regulation approaches in which stakeholders are involved in a company’s CSR policy-making process. In this “third way”, NGOs, business associations, governmental organizations and multilateral institutions, among others, work together in a constructive manner to achieve complementary goals in the CSR process.
CSR can not only refer to the compliance of human right standards, labor and social security arrangements, but also to the fight against climate change, sustainable management of natural resources and consumer protection. The various practices followed by the corporate in different parts of the world differ significantly.
In the Developed nations, the basic needs of the population do not need so much support as in the under-developed nations. The demographies, literacy rate, poverty ratio and GDP of the country have significant role in determining the directions of CSR initiatives of an organization.
In the Asian context, CSR mostly involves activities like adopting villages for holistic development, in which they provide medical and sanitation facilities, build school and houses, and helping villages become self-reliant by teaching them vocational and business skills.
CSR provisions in India
CSR in India has traditionally been seen as a philanthropic activity. And in keeping with the Indian tradition, it was an activity that was performed but not deliberated. The practice of CSR in India still remains within the philanthropic space, but has moved from institutional building (educational, research and cultural) to community development through various projects. Also, with global influences and with communities becoming more active and demanding, there appears to be a discernible trend, that while CSR remains largely restricted to community development, it is getting more strategic in nature (that is, getting linked with business) than philanthropic, and a large number of companies are reporting the activities they are undertaking in this space in their official websites, annual reports, sustainability reports and even publishing CSR reports. The Companies Act, 2013 has introduced the idea of CSR to the forefront.
The Ministry of Corporate Affairs, Government of India has formally notified CSR provisions under the Section 135 of Companies Act 2013 and the related rules effective from 1st April 2014. As per the provisions of section 135, a company with turnover of INR 1000 crore or more or a net-worth of INR 500 crore or more or net profit of INR 5 crore or more in any financial year shall constitute a CSR Committee and would be required to spend at least 2% of their average net profits of the past three years on CSR activities. If for any reason a company is unable to do so, they would be required to explain the reason for that. An annual report on CSR activities must be included in the Board Report of a company spending on CSR.
The contribution of any State setup funds, social business projects has been removed. Further, it seems that the concept of shared value proposition has been ruled out, for instance, a company cannot choose a project which also support their business object. If a water purifier company do CSR in the area of providing safe drinking water and run a campaign to create awareness regarding safe drinking water, this will have a shared value proposition. Such company also derived some value for its future business prospects. The ambit of the Act does not specifically cover foreign companies, but Rules clearly includes foreign companies having its branch or project office in India.
The Companies Act has considerably widened the ambit of CSR activities which now includes:
• Poverty eradication
• Promotion of education, gender equality and women empowerment
• reducing child mortality and improving maternal health
• Combating AIDS/HIV, malaria and other diseases
• Ensuring environmental sustainability
• Employment-enhancing vocational skills and social business projects
• Relief and funds for socio-economic development such as for welfare of SC/ST, OBCs, minorities and women.
Clause 135 of the Companies Act, 2013 requires a CSR committee to be constituted by the board of directors. They will be responsible for preparing a detailed plan of the CSR activities including, decisions regarding the expenditure, the type of activities to be undertaken, roles and responsibilities of the concerned individuals and a monitoring and reporting mechanism. The CSR committee will also be required to ensure that all the income accrued to the company by way of CSR activities is credited back to the CSR corpus.