NEWS HIGHLIGHTS
Theme : Co-operative Federalism , Welfare Scheme
GS - 2
Ever since the establishment of the Corporate Social Responsibility (CSR) regime in India under Section 135 of the Companies Act 2013, CSR spending in India has risen from ?10,065 crore in 2014-15 to ?24,865 crore in 2020-21.
CSR is a concept that suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates a positive impact on society at large.
TABLE OF CONTENT
- Context
- Corporate Social Responsibility
- Is CSR helpful in achieving Social Justice
- Need to review CSR
- Recommendations by the high-level committee on CSR (2018)
- Road Ahead
Context : Ever since the establishment of the Corporate Social Responsibility (CSR) regime in India under Section 135 of the Companies Act 2013, CSR spending in India has risen from ?10,065 crore in 2014-15 to ?24,865 crore in 2020-21.
Corporate Social Responsibility :
- CSR is a concept that suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates a positive impact on society at large.
- CSR in India is based on the Gandhian concept of Trusteeship.
Is CSR helpful in achieving Social Justice :
- Corporate philanthropy: company donations to charity, including cash, goods, and services, sometimes via a corporate foundation.
- Community volunteering: company-organized volunteer activities, sometimes while an employee receives pay for pro-bono work on behalf of a non-profit organization
- Socially-responsible business practices: ethically produced products that appeal to a customer segment.
- Sustainable Goals: India having the most elaborated CSR mechanism and implementation strategy has started its journey to set a benchmark in attaining sustainability goals and stakeholder activism in nation building.
- Corporate social marketing: Company-funded behavior-change campaigns, Company-funded advocacy campaigns, donations to charity based on product sales.
Need to review CSR
- Flaw in the law: If a company spends an amount in excess of the minimum 2%, as stipulated, the excess amount is liable to be set off against spending in the succeeding three financial years. Ideally, companies should have been shown courage to spend more than this.
- Declining number: There was also a decline in the number of companies participating.
- Own trusts: many private companies have registered their own foundations/trusts to which they transfer the statutory CSR budgets for utilization. It is unclear if this is allowed under the Companies Act/CSR rules.
- Geographical bias: The first provision to Section 135(5) of the Act is that the company should give preference to local areas/areas around it where it operates.
- Spending on environment: Item (iv) of Schedule VII of the Act deals with broader environmental issues to create a countervailing effect. However, an analysis of CSR spending (2014-18)reveals that while most CSR spending is in education (37%) and health and sanitation (29%), only 9% was spent on the environment even as extractive industries such as mining function in an environmentally detrimental manner in several States
- Incomplete information: The Standing Committee on Finance had observed that the information regarding CSR spending by companies is insufficient and difficult to access. As per the ‘Technical Guide on Accounting’ issued by the Institute of Chartered Accountants of India, a company is only required to mention its CSR spends, non-spend, under-spend, and overspend in the ‘Notes to Accounts’.
Recommendations by the high-level committee on CSR (2018) :
- Strengthening the reporting mechanisms with enhanced disclosures concerning selection of projects, locations, implementing agencies etc.
- Bringing CSR within the purview of statutory financial audit with details of CSR expenditure included in the financial statement of a company
- Mandatory independent third-party impact assessment audits.
- CSR non-spend, underspend, and overspend should be qualified by the auditor in the audit report as a qualification to accounts, and not just as a note to accounts.
Road Ahead :
- Companies need to prioritize environmental restoration in the area where they operate, earmarking at least 25% for environment regeneration.
- All CSR projects should be selected and implemented with the active involvement of communities, district administration and public representatives.
- The MCA and the line departments need to exercise greater direct monitoring and supervision over CSR spend by companies through the line ministries (for public sector undertakings) and other industry associations (for non-public units) instead of merely hosting all information on the Ministry’s website.
FAQs :
1. What is CSR?
Answer : CSR is a concept that suggests that it is the responsibility of the corporations operating within society to contribute towards economic, social and environmental development that creates a positive impact on society at large. CSR in India is based on the Gandhian concept of Trusteeship.
2. How does CSR help achieve Social Justice?
Answer : Corporate philanthropy: company donations to charity, including cash, goods, and services, sometimes via a corporate foundation. Community volunteering: company-organized volunteer activities, sometimes while an employee receives pay for pro-bono work on behalf of a non-profit organization.