This Blog is written by Agastya Kaushik, a First-Year Law Student of ILS Law college

Introduction:

A company’s commitment to operate in a responsible manner concerning social issues, the economy, sustainability, and environmental health, along with its ultimate aim of profit-making, is known as Corporate Social Responsibility. It requires companies to take responsibilities extending beyond the scope of profit-making to have a favorable impact on social and environmental values. The introduction of Corporate Social Responsibility (CSR) in India came with Section 135 of the Companies Act, 2013, requiring CSR activities for certain companies. The legal obligation was an important change relative to the former voluntary character of CSR activities in India. In recent years, CSR has become considerably more important as firms more and more appreciate their contributions to the advancement of society. It includes various actions, such as ethical labor practices, decreasing carbon emissions, helping charitable causes, and supporting community growth. This blog analyzes the legal context regarding CSR in India and looks into the best practices companies ought to follow to improve social impact meaningfully and sustainably.

Key Aspects of Section 135 of the Companies Act:

Applicability: These CSR provisions concern only those firms that meet any of the following set of criteria in one financial year:

· A net worth of ₹500 crores or greater

· A turnover of ₹1,000 crores or greater

· A net profit of ₹5 crores or greater

CSR Committee: Those Companies meeting the above-said conditions must form a CSR Committee including not less than three directors and at least one independent director. It is an internal Committee in a business that is responsible for overseeing and coordinating CSR activities and ensuring that it is just not done for legal obligations but for societal change and growth.

CSR Policy: CSR policy is a document, outlining a company’s stance regarding the principles steps it takes strategies, and commitments.

CSR Expenditure: The budget that a company allocates and incurs for Corporate Social Responsibility (CSR) is an expense intended to meet legal standards. A provision states that they should use 2% of their average net profit over the last three financial years for initiatives related to corporate social responsibility. This guarantees social and environmental causes get fair shares of the companies’ profits.

Reporting: Reporting of information concerning the CSR activities, cost, and impact embarked on by a given company, this process brings accountability, makes stakeholders confident in the company and its attitude towards the social or environmental problem, and they get information on the effect of CSR activities or projects. When a company is unable to meet the CSR expenditure requirements it must also explain the reason.

Effective CSR Implementation Best Practices

The core characteristic of CSR is its ability to generate a favorable social-economic impact. Let us look at some of the best practices that firms can apply for the effective application of CSR.

Align CSR with Core Business Objectives: Organizations need to emphasize that their corporate social responsibility efforts are in sync with their principal business goals and values. This improves the corporate brand image and amplifies the association with its customers. A pharmaceutical firm could, for example, attempt to highlight healthcare programs.

Stakeholder Engagement: Partnerships with stakeholders from the planned area that involve employees, customers, local communities, and NGOs supply insights into the demands and expectations of the community, which makes it possible to create CSR projects that are pertinent, successful, and respectful of actual community issues.

Monitoring and Evaluation: A monitoring and evaluation framework gives corporate social responsibility efforts the potential to succeed and make a difference. It enables businesses to evaluate the results of their activities and to make the proper changes for forthcoming projects.

Transparency and Reporting: The provision of clear and transparent information regarding CSR activities together with their investments enhances stakeholder trust. It shows the organization's promise to ethical principles and its commitments to society. The joint work of independent audits in combination with third-party evaluations helps to improve transparency levels.

Amendments and Recent Changes

The Companies Amendment Act 2019, and the subsequent modifications have, respectively, brought greater clarity and tougher requirements for compliance in CSR. Under the provision, unspent CSR amounts ought to be transferred to a designated fund like the Prime Minister's National Relief Fund, unless they remain earmarked for continuing initiatives, by the end of the financial year (within six months).

Penalties for Non-Compliance: Missing the requirements for CSR may lead to financial repercussions. According to the changes made in 2020, companies that neglect CSR requirements can face a fine of twice what the necessary contribution is to the fund or up to ₹1 crore, whichever is lesser. This indicates the governmental objective of confirming compliance with CSR.

Conclusion

Corporate social responsibility in India has progressed from an optional to a necessary obligation, putting direct pressure on firms to proactively promote social betterment. The 2013 Companies Act states that corporate governance now includes CSR, which promotes responsible corporate behavior. Significant influence on communities and improved brand reputation and compliance can be achieved with operational CSR policies, committees, and associated expenditures. Observing legal requirements and following best practices provides businesses the ability to develop sustainable value, which helps to support social, economic, and environmental health. Overall, CSR succeeds in tying businesses to their social environment, motivating the kind of growth that is inclusive.

References:

[1] Companies Act 2013, s 135 (India).

[2] Companies (Amendment) Act 2019, s 21 (India)

[3] Companies (Corporate Social Responsibility Policy) Rules 2014 (India).

[4] Nadia Reckmann, 'What Is Corporate Social Responsibility?' (Business News Daily, 5 September 2023) https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html accessed on 22/9/24

[5] Press Information Bureau, ‘CSR is not a charity; it is an investment in our collective future: Shri Rao Inderjit Singh’ (PIB, 19 September 2023) https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1995896 accessed on 23/9/24