Corporate Social Responsibility
About:
- In respect to the company’s effects on the environment and social welfare, “corporate social responsibility” (CSR) refers to a business initiative to assess, accept responsibility for, and support positive social and environmental change.
- It makes efforts that surpass what regulations could require.
- The money should be refunded because it comes exclusively from the community.
What is required under the law?
- A company must have a net worth of at least Rs 500 crore, sales of at least Rs 1000 crore, and a net profit of at least Rs 5 crore in order to be compliant with the Companies Act of 2013.
- must devote at least 2% of its three-year average net profit to CSR projects that satisfy Schedule VII’s standards, as may be amended from time to time. The rules go into effect on April 1, 2014.
- Additionally, a foreign company’s branch and project offices in India are subject to the CSR obligations in accordance with the CSR Rules.
- The eligible company is also required to form a CSR Committee with three or more directors.
- A policy describing the duties to be carried out, resource allotments, and company-wide CSR policy monitoring must be developed and recommended to the Board by the CSR Committee.
- If no decisions regarding CSR spending were taken, the company must justify them. If the information is not disclosed or is omitted, there might be fines of up to 25 lakh rupees or possibly up to three years in prison.
- India is the first country in the world to formally mandate corporate giving.
What kinds of actions are allowed?
- CSR is a commitment to support initiatives that significantly improve the lives of the underprivileged through one or more of the following priority areas.
- Eradicating hunger, malnutrition, and poverty
- Promoting education, protecting the environment, and improving maternal and child health
- Protecting the nation’s heritage
- Action that supports the armed forces
- Promoting sports
- Supporting the Prime Minister’s National Relief financially
- Construction in slum areas, etc.
How does it benefit companies?
- Customers actively seek out companies that donate to charity causes. Consumers are aware of societal issues. CSR thus attracts customers.
- Competitive advantage – Businesses that can distinguish themselves from the competition by showing that they are more socially responsible than their rivals typically succeed.
- Employee morale is raised thanks to CSR initiatives since they give workers more confidence in the company’s compassion.
What impact does legislation have?
- More money spent – Since the law’s passage, the private sector has donated more than 250 billion rupees to charity, up from 33.67 billion in 2013.
- How mainstreaming charity can take CSR from the periphery to the boardroom. Businesses must now carefully examine the resources, timelines, and strategies needed to comply with their legal obligations.
- However, there are also negatives.
- Non-compliance: A survey revealed that 52 of the top 100 American companies failed to spend the required 2% of their annual revenues last year.
- A lesser percentage of people have reportedly donated more money by doing so to nonprofit organisations that afterwards reimburse the funds less a commission.
- Back then, philanthropic family-run conglomerates used charitable giving as a crucial reputation-builder. Now, all that has to be done is follow the law. Many companies that were giving more than 2% have reduced their contributions.
- One of the problems the corporate sector is having because of inequality is finding respectable charities to engage with. Larger, better-known organisations consequently receive a lot of financing at the expense of smaller ones.
- Smaller charities typically do not have the funding available to satisfy the administrative and operational demands of enterprises, which makes the problem worse.
- Due to the 2% law, there is also geographic bias, with businesses favouring projects that are close to where they are located. As a result, states with greater industrialization are acquiring control over less developed, distant regions that sorely need development support.
- Politics: In an effort to foster goodwill, some firms prefer to support government-led initiatives over independent ones.
What further has to be done?
- India needs widespread institutional change and social innovation, and necessary spending brings the nation a little bit closer to those objectives.
- It also discourages requests that companies change their operational methods.
- As part of CSR, a business should consider and cultivate its connections with stakeholders for the greater good, and it should demonstrate this commitment by putting the right business practises and initiatives into place.
- A formalised set of voluntary national regulations is required to define responsible business conduct and show that CSR goes beyond charitable giving.
