Corporate Social Responsibility: A Review
Authored By- Divya Surana
This topic is related to Company Law. Corporate social responsibility ensures the companies apart from making profit, are socially accountable for the development. In India, Corporate Social Responsibility has become mandatory for companies. This article talks about the status of Corporate Social Responsibility in India.
Ford Motor Co. “A good company delivers excellent products and services, and a great company does all that and strives to make the world a better place.”
There is no particular definition to define CSR. As companies are considered as an artificial person, then they are expected to have a social behavior, the behavior of addressing the social problems existing in the country. India has become the first country in the world to make CSR mandatory. Section 135 and Schedule VII of the Companies Act, 2013 deals with corporate social responsibility.
What is CSR?
CSR is the responsibility of corporate or big companies towards society. This responsibility can be fulfilled in many ways possible such as saving the environment, promoting education to poor children, generating employment for unemployed youth, promoting health care of the nation, women empowerment, etc. by investing the profits earned in these activities for the betterment of society.
Section 135, Companies Act, 2013:
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 an independent director.
Every company must ensure that at least 2 percent of net profit is earned (in terms of average profits earned) in 3 immediately preceding financial years. If the company fails to do so, then under section 134, it should specify the reasons in a report made by the board of the members of that company. The company must also give preference to the local areas for spending that amount in the name of CSR.
Schedule VII of the Companies Act, 2013:
It specifies what all activities can come under CSR, which means that where a company can spend the proportion of its profits for fulfilling the CSR.
• Eradicating hunger and poverty
• Gender equality and empowering women
• Reducing child mortality and improvement of mental health
• Combating human immunodeficiency
• Environmental sustainability
• Employment generation
• Social business project
• Contribution to PM care fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities, and women.
• Or, any other matters which may be prescribed.
And in 2019 a major change was introduced that spending on research & development is also considered as a new scope to spend for CSR.
Currently, the Ministry of Corporate Affairs has notified that the companies can invest in health care facilities during the pandemic to fight against the Covid-19 virus spread in the nation. This expenditure will also be counted under Corporate Social Responsibility. Before India made CSR mandatory, it was optional for companies to spend in the mentioned activities ‘voluntarily’.
According to surveys, Reliance India Limited is the country’s biggest CSR spending company between the years 2014-2018.
Mandating CSR is a burden on corporate or a privilege for society
As mentioned earlier CSR has become mandatory for Indian Companies after 2014. But, before making it mandatory big corporate houses used to spend voluntarily in social welfare activities such as waste management, providing education to poor children, collaborating with an NGO, water-saving, environment-friendly activities, budget on health, employment generation, and many more such activities. However, the other side can be that some of the corporate houses may take it as a burden because spending for social welfare or the development of the society is counted under philanthropist activities, and legislature or any organization cannot make it mandatory for the corporate even after paying many types of taxes. Business is mainly for profit maximization not for philanthropist activities all the time, it must depend upon the company, whether it is in a position or willing to spend on activities relating to social welfare or welfare of the state. The welfare of state or society is primarily the duty of the state and the state can neither expect nor force the corporate houses to do so.
Hence, we can say that mandating CSR is different from charity and never can be misunderstood with charity. Charity is done voluntarily whereas, corporate social responsibility is mandatory. Although, the purpose of the spending is that the welfare of society will happen.
We can conclude by saying that making CSR mandatory is a boon for the government. CSR is a method of the government to fulfill the expectations of society in a better way, especially for a developing nation it is quite necessary. CSR includes incurring expenses towards generating the positive socio-environmental externalities as opposed to profit maximization. After adding CSR as a new scope to spend, there will be more promotion of “made in India”. New dimensions of production will be reached out easily and hence, it will give economic benefits.