CSR

INTRODUCTION

The concept of Corporate Social Responsibility (CSR) rests on the philosophy of give and take.
As the corporate entities utilize valuable resources from the society in the form of raw
materials, human resources etc., for its operations, the corporates should act as trustees of the
society and must give back something for the welfare of the society. In common parlance, CSR
is a term broadly used for defining the responsibilities of corporate world towards the society
& environment. While the term CSR is not novel in this corporate world but its scope and
meaning has endured major changes from considering it as a mere voluntary charitable activity
in comparison with the obligations of the Corporate towards the outer world. There are many
large corporate groups who have been actively involved in the CSR activities but regrettably,
the number is relatively less. With the objective of inciting more corporate groups to contribute
in the process of development of the society by way of CSR, the Government of India has
actually implemented the concept of CSR in the new Companies Act 2013. On February 27,
2014, the Government of India has notified the guidelines for CSR spending under Section 135
Companies Act, 2013 and Schedule VII of the Companies Act as well as the provisions of the
Companies (Corporate Social Responsibility Policy) Rules, 2014 (CSR Rules) which has come
into effect from 1 April 2014.

Section 135 brought by new act through the notification of 27th February 2014 made it
compulsory to adhere CSR norms within India. The act takes into its purview public, private
and others if they meet any one the following requirements-

1. “Net worth- Rs 500 Cr or more.

2. Annual Turnover- Rs 1000 Cr or more.

3. Annual Net Profit- Rs 5 Cr or more”.

If a company fulfils any of the above given requirements, than they are required to form a CSR
committee with minimum of three directors one being independent director. This committee is
responsible for making policy for implementing CSR initiatives according to 7th Schedule of
the act. After ensuring proper implementation the committee is also required to submit annual
report of all these activities undertaken in a year. The Board of Directors are obligated to
consider the suggestions put forward by this committee regarding any CSR activity.

Corporate Social Responsibility (CSR) is defined as commitment of business to economic

development with contribution to the quality of life of their employees, local community and
society at large. It is gaining worldwide value as a business tool and social effort towards
development. It encompasses the role of the business sector in protecting the natural
environment as well as protecting basic human rights, labour standards, and other related
welfare activities in its sphere of influence.
CONCEPT OF CORPORATE SOCIAL RESPONSIBILITY

Democracies are built upon the spirit of accountability and transparency. Although the ideals
that we generally associate with a welfare state such as answerability, shared responsibility,
integrated and wholesome development rarely find mention in what the common man
perceives as the cut-throat corporate dimension, this lack of association is no better than an
illusion in contemporary generations that have made “sustainability” their buzzword. In
reality, trust is grossly underrated and underappreciated as one of the foundational bases of
business, corporate relations and corporate governance. The concept of corporate social
responsibility is, in essence, nothing but a means of nurturing and promoting this trust
between corporations, the governments, and society. It is a proof of goodwill and
consciousness on the part of businesses and the part they play in sustaining the very
ecosystem that they thrive in and profit off. Corporate Social Responsibility has manifold
aspects and is a dynamic and evolving concept and defining it is no mean task.1 However, it
may be studied through its history, its dimensions, the various models, the place accorded to
it in the legal system, as well as its contemporary relevance—both internationally and in the
Indian context.

Defining Corporate Social Responsibility

According to Michel Hopkins “Corporate Social Responsibility is concerned with treating the
stakeholders of a company or institution ethically or in a responsible manner. ‘Ethically or in
a responsible manner’ refers to treating key stakeholders in a manner deemed acceptable
according to international norms.”

According to Bowen, “Corporate Social Responsibility refers to the obligations of business to

pursue those policies, to make those decisions or to follow those lines of action which are
desirable in terms of the objectives and values of our society.”

According to Frederick, “Social responsibility in the final analysis implies a public posture
towards society‘s economic and human resources and a willingness to see that those
resources are used for broad social ends and not simply for the narrowly circumscribed
interests of private persons and firms.”

According to Friedman, “There is one, and only one, social responsibility of business – to use
its resources and engage in activities designed to increase its profits so long as it stays within
the rules of the game which is to say, engage in open and free competition without deception
or fraud.”

According to Carroll, “The social responsibility of a business encompasses the economic, legal
ethical and discretionary expectations that society has of organizations at a given point in
time.”

According to Crowther and Rayman Bacchus, “CSR in its broadest definition is concerned with
what is – or should - be – the relationship between the global corporation, governments and
individual citizens whilst in its more local context it is concerned with the relationship
between a corporation and its local society in which it resides or operates, or with the
relationship between a corporation and its stakeholders.”

According to Baker, “CSR is about how firms manage business processes to produce an overall
positive impact of the firm on society.”

European Union has defined CSR thus “A concept whereby companies integrate social and
environmental concerns in their business operations and in their interaction with their
stakeholders on a voluntary basis.”
According to Business for Social Responsibility (BSR) “Corporate social responsibility is
operating a business in a manner which meets or excels the ethical, legal, commercial and
public expectations that a society has from the business.”

Need for Corporate Social Responsibility

Corporate Social Responsibility or CSR makes for eminent business sense as well when one
considers the knock-on effect that social and environmental responsibility brings to the
businesses. For instance, corporations exist in a symbiotic relationship with their
environments (the term environment refers to all the components of the external
environment and not to ecological environment alone) where their exchange with the larger
environment determines to a large extent how well they do in their profit seeking
endeavours. When one considers the fact that the RBV or the Resource Based View of the
firm is all about how well the firm exists in harmony with its external environment and how
this exchange of inputs and outputs with the environment determines the quality of its
operations, it can be inferred that socially responsible business practices are indeed in the
interest of the firm and the argument against imposing hidden social taxes on the firms by
undertaking socially responsible business practices might not hold good in the current
business landscape.

Indeed, the world since the days of Friedman has changed so much that socially responsible
business practices ought to be the norm rather the exception and the various readings
surveyed for this paper do seem to indicate that it is high time for businesses to engage in
responsible behaviour.

However, there is a tendency to treat CSR as yet another cost of business and hence be
business like about the practice. So, mainstreaming the idea might not bring the desirable
effect unless the media, the businesses, and the citizens themselves understand what is at
stake and behave accordingly. Corporatizing the idea of CSR might not be the intended
outcome of the proponents.

and the advocacy groups that promote this idea. Rather, a change in the mindset and attitude is
what these groups have in mind when they push for socially responsible practices.3

It has been mentioned elsewhere that CSR as a concept and as a paradigm ought to be woven
into the DNA of the corporations and when the very fabric resonates with the threads of social
responsibility; the goals of conscious capitalism and compassionate corporations would be
realized.

Importance of Corporate Social Responsibility

The term corporate social responsibility gives a chance to all the employees of an
organization to contribute towards the society, environment, country and so on. We all
live for ourselves but trust me living for others and doing something for them is a different
feeling

altogether. Bringing a smile to people’s life just because your organization has pledged to
educate the poor children of a particular village not only gives a sense of inner satisfaction but
also pride and contentment. One should never forget the importance of society and environment
in our lives. It is indeed high time when we also start thinking about people around us who are
less privileged and fortunate than us. Corporate social responsibility gives an opportunity to
organizations to work towards the betterment of the society and make it a better place to live.

Corporate social responsibility goes a long way in creating a positive word of mouth for
the organization on the whole. Doing something for your society, stake holders, customers
would not only take your business to a higher level but also ensure long term growth and
success. Corporate social responsibility plays a crucial role in making your brand popular not
only among your competitors but also media, other organizations and most importantly people
who are your direct customers. People develop a positive feeling for a brand which takes the
initiative of educating poor children, planting more trees for a greener environment, bringing
electricity to a village, providing employment to people and so on. You really do not have to
invest much in corporate social responsibility activities. One should not undertake CSR
activities only to gain publicity but because you believe in the cause. There are many
organizations which tap remote villages, some of which are even unheard as an initiative of
corporate social responsibility.

Corporate social responsibility also gives employees a feeling of unparalleled happiness.

Employees take pride in educating poor people or children who cannot afford to go to
regular schools and receive formal education. CSR activities strengthen the bond among
employees. People develop a habit of working together as a single unit to help others. In fact
they start enjoying work together and also become good friends in due course of time. They
also develop a sense of loyalty and attachment towards their organization which is at least
thinking for the society.

Aspects of Corporate Responsibility

In 1979, Archie Carroll originally gave his (now, well known) pyramid of corporate
responsibility. This pyramid clearly illustrated the inter-related dimensions of responsibility in
a cohesive and simple geometric diagram that was easily comprehensible.4

Economic Responsibility

The beauty of the Carroll’s pyramid lies in its recognition of practicality without losing sight
of necessary ideals. The idea that the core job of a business is to make profit hence finds
reflection in this diagrammatic scheme. Even though, on the face of it, this accomplishment
may not seem as important, it acquires renewed significance in context of the long-standing
debate about the role of businesses in society. The primary opposition may be succinctly
expressed in the words of renowned economist Milton Friedman who wrote in 1970 that “the
social responsibility of business is to increase its profits” and “the business of business is
business”. Although, this is an extreme view that fails to strictly hold true in today’s times, it
is still pertinent in outlining the fundamental role of a business. The economic responsibilities
of a business to do well financially is the primary task entrusted to it by its shareholders failing
which its fulfilment of other auxiliary responsibilities does not bear much weight.

Legal Responsibilities

As part of a civil society, corporations and businesses like all other entities and persons, are
required to function within a legal framework. Herein, we find the second layer of corporate
responsibility as outlined by Carroll, that is, a business’ responsibility to abide by the laws,
rules and regulations, as are framed by the Government and applicable to them in their area of
operation. Needless to say, no company may function sustainably beyond the purview of said
laws.

Ethical Responsibilities

The third layer of corporate responsibility in the pyramid is where the shape of corporate social
responsibility begins to materialize. A company’s ethical responsibilities refer to those
responsibilities that arise beyond legal requirements and more due to a sense of indebtedness
or from the ‘heart’ of the business, so to speak. This is what identifies a company as a socially
responsible, trustworthy company that meets not only its economic obligations but also certain
ethical and moral expectations that are imposed upon it by society. For instance, it is this theme
of reparations upon which the calculation of Green GDP is based. A reasonable presumption
is made that in carrying on its business, a company will not leave its surroundings in worse
condition than when it found it.

Philanthropic Responsibilities

This is the last and topmost layer of the aforementioned pyramid. Philanthropic responsibility
describes what a company chooses to do entirely out of its own volition and not as a result of
any external or internal pressures such as, say, societal expectations, or company image;
although, fulfilling one’s philanthropic responsibilities often plays a huge role in improving
the company’s image and standing. The main point of distinction between ethical and
philanthropic responsibility is that, where ethical responsibility stems from certain expectations
placed on the business, philanthropic responsibilities stem entirely out of the business’ good
intentions and desire to improve its incubatory environment, or even more simply, from its
desire to help people. In that sense, it is as voluntary as it can be.
Triple Bottom Line Theory

Elkington (1998) coined the term ―Triple Bottom Lineǁ (TBL) to represent the idea that
businesses don‘t have the addition of economic value as one single goal, but they also aim at
adding environmental and social value, in order to achieve sustainability. Such triple bottom
line is formed by the following concepts. The Triple Bottom Line (Triple p) theory is rapidly
gaining recognition as a framework for measuring business performance. It refers to anyone
who is influenced, either directly or indirectly, by the actions of the firm. The original bottom
line is about profit, such that increasing revenues without increasing costs improves the bottom
line. Profitability, which is of central concern to shareholders, is one element of the economic
dimension, but not all of it. Decisions should not be made only on financial reasons but on
questions such as community investment, environmental impact, business ethics and human
right, in other words the triple bottom line; People, Planet and Profit.5

Environmental perspectives (planet) is concern the effective management of physical resources

so that they are conserved for the future, and suggest a need to address a number of critical
business problems, such as the impact of industrialization on biodiversity, the continued use of
non-renewable resources such as oil, steel and coal, as well as the production of damaging
environmental pollutants.

Economic perspectives (profit) is the concept of economic sustainability comprises the

economic performance of the corporation itself, and also the firm‘s attitudes towards and
impacts upon the economic framework in which it is inserted.

Social Perspectives (people) is comprises the issue of social justice, aiming at developing a
more just an equitable world, whether between customers, workers, or man and women. This
perspective on sustainability is relatively new and has emerged during the 1990s.

The 3 Ps of the Triple Bottom Line

According to TBL theory, companies should be working simultaneously on these three bottom
lines:

• Profit: This is the traditional measure of corporate profit—the profit and loss (P&L)
account.
• People: This measures how socially responsible an organization has been throughout
its history.
• Planet: This measures how environmentally responsible a firm has been.

Profit

In the context of the triple bottom line, profit can mean more than just how much money a
company makes. A company must ensure it earns its income in ethical, fair manners. This
includes soliciting business partners and vendors with which it aligns philanthropically. It also
defines how a company develops its strategy or financial operating plan. For instance, profit
also ties to a company's responsibility to pay its lenders, creditors, and employees what is due
to them and to have a sense of financial responsibility for these obligations.
Some users of the triple bottom line may also say profit refers to not only a company's profit
but the profit of those around the company. This specifically refers to the community in which
the business operates. This may include:

Ensuring the company is paying its fair share of local, state, or federal income taxes on a timely
basis

Making sure the company is fostering economic wealth within its community by shopping local
or utilizing small businesses.

Committing to financially investing in the community through partnerships, developments, or

corporate sponsorships.

People

In the context of triple bottom line, people refers to every individual that is in touch with a
company. This includes but is not limited to:

Employees. This means ensuring workers receive a fair wage in a safe environment that
encourages professional development.

Vendors. This means ensuring a diverse set of suppliers are used and prioritizing small
businesses or minority-owners when appropriate.

Customers. This means ensuring customers have fair access to products and their feedback
regarding equity or safety are considered.

Traditionally, a company would prioritize investors or shareholders. Triple bottom line shifts
the focus to individuals potentially not financially invested in the company but still tangentially
involved with its operations. Now, instead of attempting to create value by only increasing
investor returns, triple bottom line strives to create value by encouraging volunteerism of its
employees or support or business success of small suppliers, for example.

Planet

The largest deviation from purely financial reporting relates to reporting on environmental
impacts. Often, a company must be forced between a lower-cost option or a more
environmentally-friendly alternative. A company may also choose between a less favorable
alternative; for example, eco-friendly transit will likely be slower than aircraft.

Instead of reporting a company's positive changes to the planet, it is often much easier to assess
the impacts of the alternatives elected by the company. Imagine a company that redesigned its
distribution channels to reduce its energy use; such an activity would be reported as saving a
certain amount of greenhouse gas emissions.

Examples of Companies That Subscribe to TBL or Similar Concepts

Today, the corporate world is more conscious than ever of its social and environmental
responsibility. Companies are increasingly adopting or ramping up their social programs.
Consumers want companies to be transparent about their practices and to be considerate of all
stakeholders. Many consumers are willing to pay more for clothing and other products if it
means that workers are paid a living wage and the environment is being respected in the
production process.

The number of firms—of all types and sizes, both publicly and privately held—that subscribe
to the triple-bottom-line concept, or something similar, is staggering. Here are a handful of
these companies:

Ben & Jerry's

Ben & Jerry's is the ice cream company that made conscious capitalism central to its strategy.
As stated on its website, "Ben & Jerry's is founded on and dedicated to a sustainable corporate
concept of linked prosperity." The company opposes the use of recombinant bovine growth
hormone (rBGH) and genetically modified organisms (GMOs) and fosters myriad values such
as fair trade and climate justice.

LEGO

The LEGO Group (privately held; Billund, Denmark) has formed partnerships with
organizations like the nongovernmental organization (NGO) World Wildlife Fund. In addition,
LEGO has made a commitment to reducing its carbon footprint and is working towards 100%
renewable energy capacity by 2030.

Starbucks

Starbucks Corporation (SBUX), has been socially and environmentally focused since its
inception in 1971. The company has hired more than 30,000 veterans since 2013 and is
committed to hiring 5,000 more per year going forward

Indian perspective:

The triple bottom line (TBL), also known as "people, planet, profit", stands for measuring
organisational success on three parameters- social, ecological and economic. A TBL or a CSR
report has gained traction with ratification of the UN since 2007. CSR started as a risk
management approach when companies came under scrutiny for practices such as child labour
and exploitation of poor farmers in developing nations. It has now become core to strategy and
the bottom line.

India’s Scorecard

In India, large family owned companies have a history of CSR primarily in the area of social
capital and more specifically in primary education, poverty and malnutrition – Tatas, and
Birlas, historically, have invested in community welfare by building hospitals, temples and
schools. With the success of the Grameen bank in Bangladesh, banks in India are active in
micro-financing. Primary education has been the focus for Shell and Pratham – supported by
several Indian businesses. Unilever India and Infosys are involved in tackling malnutrition.
And ITC is making technology available to farmers for making better informed decisions on
buying, selling and harvesting.

What is conspicuous by its absence is initiatives in the areas of sustainability and environment
protection. While alleged criticism against emission, use of fossil fuels, deforestation may
stick, there are two things that are redemptive features. One, our per capita consumption of
most products is too low to impact the environment. Second, we recycle anything and
everything from old newspapers to used whisky bottles – unfortunately not always ethical as
those bottles are refilled with cheap liquor and sold as Scotch. Also, the second hand economy
is huge for almost any product I can think of. Recycling is in our DNA. Everything can be
repaired, re-serviced – from clothes to appliances. Most developed countries would benefit
from such an industry – imagine the environmental damage done by dumping of one year old
PCs, mobile phones, appliances, music system and so on.
CORPORATE SOCIAL RESPONSIBILITY POLICY

According to sub-section (4) of section 135 the Board of every company which falls under the
criteria of sub-section (1) shall after taking into consideration the recommendations of the CSR
Committee approve the CSR Policy of the company and disclose its contents in its report and
also place it on the website of the company. The Rules further elaborated that the CSR Policy
shall include a list of CSR projects or programs which a company plans to undertake specifying
the modalities for execution of such projects or programs and implementation schedules for
the same. The CSR Policy must also contain the monitoring process of such projects or
programs.

As per clause (e) of the rule 2, ‘CSR Policy relates to the activities to be undertaken by the
company as specified under Schedule VII of the Act and expenditure thereon excluding the
activities undertaken in pursuance of normal course of business of a company.

The Board should therefore, ensure that the activities included in the CSR Policy are those
related to the activities mentioned in Schedule VII of the Act. Further, it must ensure that the
activities specified in the CSR Policy are carried out by the company.

CSR Policy shall specify the surplus arising out of the CSR projects or programs or activities
and shall not form part of the business profit of a company.

CSR EXPENDITURE

According to sub-section (5) of the section 135 of the Act the Board of a company which fulfills
the criteria mentioned under sub section (1) of the section 135 shall ensure that the company
spends in every financial year at least two percent (2%) of the average net profits made during
three immediately preceding financial years of the company in pursuance of the CSR Policy
formulated by its CSR Committee.

‘Average net profit’ is to be calculated as per the provisions of section 198 of the Act.
As per clause (f) to rule 2 “Net Profit” means the net profit of a company as per its financial
statement prepared in accordance with the applicable provisions of the Act, but shall not
include the following, namely :-

(i) any profit arising from any overseas branch or branches of the company whether operated
as a separate company or otherwise; and

(ii) any dividend received from other companies in India, which are covered under and
complying with the provisions of section 135 of the Act.

This rule 2 further elaborates that net profit in respect of a financial year for which the relevant
financial statements were prepared in accordance with Companies Act, 1956 shall not be
required to the recalculate as per Companies Act, 2013.

In case of a foreign company covered under the provisions, net profit means the net profit of
such company as per the profit and loss account prepared in accordance with the provisions of
clause (a) of sub-section (1) of section 381 read with section 198 of the Act.
It has been further clarified that the expenditure incurred by foreign holding company for CSR
activities in India will qualify as CSR spend of the Indian subsidiary if, the CSR expenditures
are routed through Indian subsidiaries and if the Indian subsidiary is required to do so as per
section 135 of the Act.

Rule 7 provides that CSR Expenditure shall include all expenditures incurred in connection
with the projects or programs or activities undertaken as part of the CSR Policy approved by
the Board, including capital contribution to such projects or programs but shall not include any
expenditure on any item not in conformity or in connection with any activity which fall within
the preview of Schedule VII of the Act.

Expenses incurred by companies in pursuance of the requirement of any Act/Statute or

regulations (such as labour laws, land acquisition laws, etc.) would not count as CSR
expenditure under the Act. However, expenditure on administrative overheads in building CSR
capacities can be factored into CSR cost where the expenditure does not exceed 5% of total
CSR expenditure of company in one financial year.

TYPES OF CSR ACTIVITIES UNDER SCHEDULE VII OF THE COMPANIES ACT

2013

The following are the types of CSR activities in India that the qualifying listed companies under
the Companies Act 2013 can contribute to:

(i) Eradicating Hunger, Poverty And Malnutrition

This can be done by promoting health care and sanitation in rural areas. This can also be a
contribution to the Swach Bharat Kosh which has been set-up by the Central Government.
Blood donation camps can also be done as a part of a company’s CSR initiative.

(ii) Promoting Education

This can be inclusive of providing education to children and essential vocational skill training
that enhance employment or special education among women, elderly and the differently-
abled.

(iii) Promoting Gender Equality.

Women empowerment programmes can be launched by setting up affordable hostels for

women. Establishing old age homes, daycare centres and other facilities for senior citizens is
another option. Orphanages can also be set up and managed by the CSR committee.

(iv) CSR Initiatives Related To The Environment

Contributions can be made towards environmental sustainability. Activities that help in

maintaining the ecological balance, protection of flora and fauna, promote animal welfare,
conservation of natural resources and maintaining quality of soil, air and water including
contribution to the Clean Ganga Fund set-up by the Central Government.

(v) Protection Of National Heritage, Art And Culture:

This can include the restoration of heritage sites, buildings of historical importance and works
of art. Public libraries can be set up as well.

BOARD’S RESPONSIBILITY TOWARDS CSR

• To approve the CSR Policy after taking into account the recommendations made by CSR
committee for the company.

• To ensure that the activities that are included in the CSR Policy are undertaken by the
company and are in accordance with Schedule VII of the Act.

• To ensure that the company speeds at least 2% of the average net profits in pursuance of its
CSR Policy.

• To disclose the composition of CSR Committee in the Board’s Report.

• To disclose the details of the CSR Policy developed and implemented by the company in CSR
in Board’s Report (clause (o) of the sub-section (1) of the section 134).

• The content of the policy and CSR activities are to be placed on the company’s website (Rule
9).

Penal Provisions for Defaults in CSR Compliance

Parliament recently approved and passed the Companies (Amendment) Bill, 2019, which was
meant to amend the 2013 Companies Act. This Act comprised of a variety of provisions and

guidelines, which included, among other things, the laws associated with CSR or Corporate
Social Responsibility.

Any company which met any of the following criteria would fall within the ambit of CSR.
Some of these criteria have been listed below:

The company must have a net worth of at least ₹500 crore.

It must alternatively have a turnover of more than ₹1,000 crore.
It must have a net profit per year of ₹5 crore or more.

A company which met one or more of these benchmarks would have to contribute a minimum
of two percent of the net profit earned in the three preceding financial years to activities
deemed “socially important” under the Companies Act.

The new 2019 Amendment Bill has fundamentally altered the nature of CSR in this country.
The amendments have also ensured that companies that refuse to abide by CSR regulations
risk criminal charges and the associated liability.
Amendment of 2019
According to this amendment, Now Section 135 requires those companies to fall under the
mandate who have not completed three financial years and falls under the category of CSR
mandate. Now it requires them to give 2% of their net profit for CSR for last preceding 3 years
or the year from which it incorporated. Also, the companies are now required to transfer the
unspent amount in funds like PM Relief Fund within 30 days of the end of 3rd financial year.
This new amendment gave power to central government to ensure the compliance of CSR
mandate.

Changes introduced by Corporate Social Responsibility Amendment Act, 2020

According to the Companies Act of 2013, any company with an overall income of Rs. 500
crores or more than, the income of Rs. 1000 crores or even more, as well as a net income of
Rs. 5 crores or more, is required to establish corporate social responsibility committee
meetings during the fiscal year and allocate 2% of its average net profit over the 3 financial
years prior to the implementation of its corporate social responsibility policy. According to
the circular issued by the Ministry of Corporate Affairs amending the Companies Act, 2013,
companies having an annual obligation of up to Rs. 50 lakhs are exempt from the requirement
to form corporate social responsibility committees. Businesses will also deduct an excess
amount of future corporate social responsibility liabilities if they pay anything over their
corporate social responsibility liability during the financial year.

Companies that violate Section 135(5) or Section 135(6) of the Companies Act of 2013 are
subject to the following penalties:
1. A fine of twice the amount that should have been transferred to the Fund as specified in
Schedule VII of the Companies Act of 2013 or the ‘Unspent Corporate Social Responsibility
Account’, as applicable, or one crore rupees, whichever is less;

2. Any officer of the company who is in default will be fined one-tenth of the amount that
must be transferred by the corporation to any fund listed in Schedule VII of the Companies
Act, 2013, or the unspent corporate social responsibility account, depending on the situation,
or two lakh rupees, whichever is less.

The following actions are specifically excluded from corporate social responsibility:
1. Activities that the corporation conducts as part of its business
2. An organisation’s operations which are carried out outside of India.
3. Contributions made, directly or indirectly, to a political party.
4. Activities that primarily benefit the company’s personnel.

Additionally, there are certain modifications to the definitions of several terms and phrases
as well as some duties outlined in the Act that will be taken into consideration by businesses
and the government.

Also, there are certain other guidelines that are applicable, as follows:
 1. The phrase ‘corporate social responsibility strategy’ is changed to ‘a paper explaining a
company’s approach to selecting, executing, and monitoring its corporate social responsibility
operations’.
2. Make a category for ‘ongoing ventures’ which are ongoing projects that firms undertake
over an extended period of time (three years or less) to fulfill their corporate social
responsibility obligations, excluding the fiscal year in which the initiative began.
3. Government permission to accumulate any unspent corporate social responsibility amount
in a ‘National Unspent Corporate Social Responsibility Fund’. According to the Companies Act,
2020, this amount will be utilised to execute corporate social responsibility initiatives.

Changes introduced by Corporate Social Responsibility Rules, 2021

In 2021, The Companies (Corporate Social Responsibility Policy) Rules, 2014 were revised by
the Ministry of Corporate Affairs. These regulations are now referred to as the Companies
(Corporate Social Responsibility Policy) Amendment Rules 2021. The Companies (Corporate
Social Responsibility Policy) Rules 2014 updated these rules to promote compliance and
transparency. Numerous changes are introduced by Corporate Social Responsibility Rules are
as follows-

Administrative expenses

Following the modification, ‘administrative overheads’ now solely pertain to the costs
incurred by the business for ‘general management and administration’ of its corporate social
responsibility initiatives. It excludes all other costs that are directly incurred for planning,
supervising, executing, and evaluating a specific corporate social responsibility activity from
the definition of administrative overheads.

In layman’s words, it indicates that all direct costs associated with a certain corporate social
responsibility project or initiative will not be included in the administration expense.

Also, the board must make sure that administrative expenses do not amount to more than
5% of the company’s overall corporate social responsibility spending for the fiscal year.

Permit to the international organisations

An organisation that has been designated as an international organisation and to which the
provisions of the Schedule to the United Nations (Privileges and Immunities) Act, 1947 apply
is referred to as an international organisation. This organisation has been so designated by
the central government according to Section 3 of the United Nations (Privileges and
Immunities) Act, 1947.

The international organisation has been permitted by the central government to evaluate,
implement, and supervise any corporate social responsibility projects or programs.

Changes in Rule 5
According to Rule 5, businesses must set up a corporate social responsibility committee. A
yearly action plan must be developed by the corporate social responsibility committees in
accordance with the company’s corporate social responsibility policy, and it must be
recommended to the board of directors.
The yearly implementation plan should include the following, as per the suggestion of the
company’s corporate social responsibility committee, and can be modified at any moment
during the fiscal year:

1. Implementation deadline and approach of fund allocation;

2. the mechanism by which the activities in the program are being executed;
3. a list of corporate social responsibility initiatives that have been accepted;
4. a system for handling and analysing the project’s progress; and
5. the specific details of the requirements for each program and independent analysis of the
program that the organisation is undertaking.

Changes in the process of implementation of corporate social responsibility under Rule 4

‘Corporate social responsibility activities’ under Corporate Social Responsibility Policy Rules,
2014 are changed to ‘corporate social responsibility implementation’ in Rule 4 under the
Corporate Social Responsibility Rules, 2021. A corporation must carry out its corporate social
responsibility implementation operations in accordance with the modified rules either
directly or via other authorities and agencies, which may be:

1. A registered public trust or,

2. a legally recognized society,
3. by the business itself,
4. by the national or state governments.
5. A business may also seek the assistance of any organisation created by an Act of Parliament,
a State legislature,
6. or a Section 8 corporation, a public trust that has been registered,
7. or a registered society that has been in operation for at least three years with a proven
track history of corporate social responsibility implementation.
In accordance with Rule 4(5) of the revised rules, the board is responsible for ensuring
that the funds are exclusively used for the approved purposes and that, in the event of any
continuing projects, the project is implemented in accordance with the agreed timescales.
The board is empowered to make changes under the new regulations to ensure the successful
execution of corporate social responsibility initiatives.

Changes in the corporate social responsibility fund management under Rule 7

As per the amended Rule 7–

Surplus corporate social responsibility amount management
The board must ensure that any excess resulting from corporate social responsibility
operations is reinvested into the same program or moved to the unallocated corporate social
responsibility fund and later on allocated in compliance with corporate social responsibility
policy and the company’s annual plan of action, or such surplus amount can be deposited to
a fund indicated in Schedule VII, within 6 months of the closing of the fiscal year.

Management of excess fund requirements

The Committee must ensure that every surplus rupee is spent towards corporate social
responsibility initiatives only. Such spending must be settled in the next three fiscal years,
with the condition that any surplus from corporate social responsibility efforts, if any, is
excluded from the excess funds that can be offset. The company’s board must pass a
resolution to implement the same.

Changes in provisions regarding the acquisition of capital assets

If a company has bought any asset before the commencement of the Corporate (Corporate
Social Responsibility Policy) Amendment Rules, 2021, it must comply with the necessities
mentioned in the rules within 180 days of the commencement of the regulations. However,
with the board’s approval and a reasonable justification, the 180-day deadline may be
extended by 90 days.

Changes in reporting of corporate social responsibility as per Rule 8

It is mandatory for all organisations with an average corporate social responsibility
commitment worth ten crore rupees or more over the course of the three fiscal years to
evaluate the effectiveness of their corporate social responsibility initiatives. The annual report
on corporate social responsibility must have an annex containing the impact assessment
reports, and these reports must also be presented to the company’s board of directors.
Additionally, a corporation conducting an impact assessment is allowed to record
expenditures for corporate social activities of up to 5% of the overall corporate social
responsibility expenditure of Rs. 50 lakhs, or whichever is less.

Also, the following additional disclosures must be made:

1. Impact assessment,
2. The sum eligible for settlement,
3. Corporate social responsibility expenditures made in relation to or unrelated to ongoing
projects,
4. Administration costs,
5. Unused funds that were used for ongoing projects or projects other than ongoing projects.
ISSUES AND CHALLENGES OF CORPORATE SOCIAL RESPONSIBILITY IN
INDIA

ISSUES OF CSR

Many companies think that corporate social responsibility is a peripheral issue for their
business and customer satisfaction more important for them. They imagine that customer
satisfaction is now only about price and service, but they fail to point out on important changes
that are taking place worldwide that could blow the business out of the water. The change is
named as social responsibility which is an opportunity for the business. Some of the drivers
pushing business towards CSR include:12

1. The Shrinking Role of Government

In the past, governments have relied on legislation and regulation to deliver social and
environmental objectives in the business sector. Shrinking government resources,
coupled with a distrust of regulations, has led to the exploration of voluntary and non-
regulatory initiatives instead.

2. Demands For Greater Disclosure

There is a growing demand for corporate disclosure from stakeholders, including

customers, suppliers, employees, communities, investors, and activist organizations.

3. Increased Customer Interest

There is evidence that the ethical conduct of companies exerts a growing influence on
the purchasing decisions of customers. In a recent survey by Environics International,
more than one in five consumers reported having either rewarded or punished
companies based on their perceived social performance.

4. Growing Investor Pressure

Investors are changing the way they assess companies' performance, and are making
decisions based on criteria that include ethical concerns. The Social Investment Forum
reports that in the US in 1999, there was more than $2 trillion worth of assets invested
in portfolios that used screens linked to the environment and social responsibility.

5. Competitive Labour Markets

Employees are increasingly looking beyond paychecks and benefits, and seeking out
employers whose philosophies and operating practices match their own principles. In
order to hire and retain skilled employees, companies are being forced to improve
working conditions.
CHALLENGES OF CSR

1. Lack of Community Participation in CSR Activities

There is a lack of interest of the local community in participating and contributing to CSR
activities of companies. This is largely attributable to the fact that there exists little or no
knowledge about.

CSR within the local communities as no serious efforts have been made to spread awareness
about CSR and instill confidence in the local communities about such initiatives. The situation
is further aggravated by a lack of communication between the company and the community at
the grassroots.

2. Need to Build Local Capacities

There is a need for capacity building of the local nongovernmental organizations as there is
serious dearth of trained and efficient organizations that can effectively contribute to the
ongoing CSR activities initiated by companies. This seriously compromises scaling up of CSR
initiatives and subsequently limits the scope of such activities.

3. Issues of Transparency

Lack of transparency is one of the key issues brought forth by the survey. There is an

expression by the companies that there exists lack of transparency on the part of the local
implementing agencies as they do not make adequate efforts to disclose information on their
programs, audit issues, impact assessment and utilization of funds. This reported lack of
transparency negatively impacts the process of trust building between companies and local
communities, which is a key to the success of any CSR initiative at the local level.

4.Non-availability of Well Organized Non-governmental Organizations

It is also reported that there is non availability of well organized non-governmental

organizations in remote and rural areas that can assess and identify real needs of the community
and work along with companies to ensure successful implementation of CSR activities. This
also builds the case for investing in local communities by way of building their capacities to
undertake development projects at local levels.

5. Visibility Factor

The role of media in highlighting good cases of successful CSR initiatives is welcomed as it
spreads good stories and sensitizes the local population about various ongoing CSR initiatives
of companies. This apparent influence of gaining visibility and branding exercise often leads
many nongovernmental organizations to involve themselves in event-based programs; in the
process, they often miss out on meaningful grassroots interventions.

6. Narrow Perception towards CSR Initiatives

Non-governmental organizations and Government agencies usually possess a narrow outlook

towards the CSR initiatives of companies, often defining CSR initiatives more donor-driven
than local in approach. As a result, they find it hard to decide whether they should participate
in such activities at all in medium and long run.

7. Non-availability of Clear CSR Guidelines

There are no clear cut statutory guidelines or policy directives to give a definitive direction to
CSR initiatives of companies. It is found that the scale of CSR initiatives of companies should
depend upon their business size and profile. In other words, the bigger the company, the bigger
is its CSR program.13

CASES OF CORPORATE SOCIAL RESPONSIBILITY INITIATIVES IN INDIA

1. Tata Power Company Limited

India actively participates in corporate social responsibility initiatives related to poverty,

gender equality, and education, among other issues. The following businesses engage in
considerable corporate social responsibility activities.

Tata Power has made a major leap in the CSR ranking by securing a spot in top 10 as against
its 57th rank in the last year. The electric utility company spent Rs. 3.45 crore on CSR in 2020-
21. Its CSR initiatives are categorized into five thrust areas: financial inclusion, education,
health & sanitation, water, livelihood & skill building.

Tata Power has always undertaken various initiatives with an aim to improve quality of life
and ensure holistic development of its surrounding communities. The company deploys
development initiatives to incubate, implement and multiply diverse community-based projects
and interventions, to help build a better and sustainable society through Tata Power Community
Development Trust (TPCDT). The underlying goal of the interventions is to transform the lives
of the community through result oriented participatory approach.

The company’s Adhikaar programme is an interlinked socio-economic and scheme-based CSR

initiative that aims to inform, enable and empower marginalised communities. Teaming up
with the Rockefeller Foundation, the Tata Power Renewable Microgrid Limited (TPRMG) was
set up to enable access to reliable and renewable electricity for 25 million Indians. The program
was awarded with gold at 9th ACEF Asian Leaders Forum and Awards 2020 for ‘Excellence
in CSR’.

2. ITC Limited

ITC’s sustainability initiatives are driven by the belief that an organisation needs to serve a
larger societal purpose keeping national priorities in focus. The Triple Bottom Line
commitment of the Company to simultaneously build economic, social and environmental
capital has orchestrated a symphony of efforts that address some of the most challenging
societal issues including widespread poverty and environmental degradation.
In the last financial year, the company’s Social Forestry program greened 30,439 acres of land.
The company was instrumental in reaching 0.33 lakh children through its education program.
It provided skills to 12,470 youth during the year under vocational training programs. It
supported construction of 640 individual household toilets in 28 districts.

3. Wipro Limited

ITC’s waste recycling programme, ‘Well Being Out of Waste (WOW)’, was responsible for
collection of the quantum of dry waste collected during the year was about 70,900 MT from
1,067 wards.

In total, the company spent Rs.353.46 crores on its CSR initiaitves in FY 2020-21.

Wipro implements its CSR programs happens through multiple channels, majority of them
being through Wipro Foundation. The company spent Rs. 251 crores for CSR in the last
financial year.

During the last 12 months, Wipro has supported more than 1,561 projects covering
humanitarian aid, integrated healthcare support, and livelihoods regeneration, cumulatively
reaching over 10 million by its COVID-19 response. Under this, it has reached food, dry
rations, and personal hygiene kits to over 10.2 million people, distributed 330 million meals,
helped over 8.2 million people in livelihood regeneration and supported more than 500 non-
profits involving in delivering humanitarian and healthcare aid.

The company’s education programs were instrumental in reaching over 1.1 lakh students across
14 states through means like mohalla classes, distribution of worksheets, books and other
supplies.

4. Infosys Limited

Infosys Limited is an early adopter of CSR in India. It has been undertaking most of its CSR
initiatives through Infosys Foundation, which was established in 1996, way before CSR was
mandated in the country. In FY 2020-21, the company spent Rs. 325.32 crores on its CSR
initiatives.

Over the years, the company has been focusing on sustainable business practices encompassing
economic, environmental and social imperatives that not only covers its business but also the
communities around it. The company’s CSR is not limited to philanthropy, but it includes
holistic community development, institution-building and sustainability-related initiatives

In the last financial year, the company launched Infosys Headstart with an aim to enabling
digital skills at scale, in alignment with its ESG Vision 2030. Infosys Headstart is a platform
that includes learning content developed by Infosys and leading content providers. It has been
identified as a flagship intervention to empower people, communities, and society. Through
this initiative, Infosys plans to empower over 10 million people with digital and life skills by
2025.

5. Godrej Consumer Products Limited

Godrej Consumer Products Ltd. (GCPL) spent Rs. 34.08 crore on CSR initiatives in FY 2020-
21. The company’s CSR initiatives reached over 2.77 lakh people from the most vulnerable
communities.

During the last financial year, GCPL diverted 63 per cent of its CSR budget to initiate medium
to long-term livelihood recovery programmes to support over 9000 nano entrepreneurs.

In addition to this, GCPL achieved zero waste-to-landfill and water positivity in the last
financial year. The company is 100 per cent Extended Producer Responsibility compliant. It
takes back the post-consumer plastic packaging waste equivalent to the plastic packaging it
sends out.

The company made it among the top 15 in India in the leadership index of the Climate
Disclosure Project. It scored an ‘A’ rating in climate disclosure, securing a place among top 25
per cent of all global companies.

6. Tata Chemicals Limited

Tata Chemicals is one of the leading Sustainability Champions over the past few years. The
company has launched multiple initiatives and projects to conserve the environment and
engages with local communities toward building an ecosystem that is sustainable and eco-
friendly. The Company spent Rs. 21 crores on its CSR programs in FY21.

The company aided 6,878 farmers with capacity building, field demonstration and livestock
management through digital and physical interactions in the last financial year. Additionally,
it also provided support to rural women artisans of Okhai and transformed the region into a
marketplace connecting 25,190 artisans across India to customers. Under its greening
programme the company has planted 1.15 lakh mangroves across various sites along with
conservation of local plant biodiversity at Mithapur.

Overall, through its CSR initiatives the company was able to impact the lives of 2 lakh people
in the last financial year.
CONCLUSION

Corporate Social Responsibility has been developed and incorporated in the veins of the
corporate body due to its essence having a positive effect on the society as well as the
organization. Its inception lies in the old traditions of social concern, social benefit and charity
for the welfare and upliftment of the common masses. It has been developed as a concept
derived from industrial revolutions and economic globalization.

In India, before the enactment of Companies Act, 2013 CSR expenditure was at the discretion
of the companies but the Supreme Court from 1950 till 2013 required and demanded companies
to mandatorily contribute and the same has been directed by Supreme Court in various cases
such as National Textile Workers v. P.R. Ramkrishna (AIR 1983 SC 75); Chiranjeetlal v. UOI
(AIR 1951 SC 41).

The amount to be spent in every financial year should be at least 2% of the average net profits.
Section 135(5) of the act provides that average net profit shall be calculated in accordance with
section 198 of the Companies Act, 2013. A company may also collaborate with other
companies for undertaking CSR activities but in those condition CSR committees of respective
companies have to report separately on such projects or programs.

CSR Expenditure is given under schedule 7 of the Companies Act, 2013 as to what would be
included as an expenditure and what type is it. SEBI (Listing Obligation and Disclosure
Requirements) Regulation, 2015 also regulates and requires that top five hundred listed entities
based on the market capitalization have to put in their business report describing the initiatives
taken by them from an environmental and governance perspective. Corporate Governance
entails an imperative factor to which promotes its application in the corporate society and that
is called “Transparency”. It allows the corporate beneficiaries to sustain strong and balanced
economic development whilst keeping their surrounding and the social nature of their
transactions and operations in good light.

CSR is not new to India; companies like TATA and BIRLA have been imbibing the case for social
good in their operations for decades long before CSR become a popular cause. Inspite of having such
life size successful examples, CSR in India is in a very nascent stage. It is still one of the least understood
initiatives in the Indian development sector. It is followed by a handful of public companies as dictated
by the very basis of their existence, and by a few private companies with international shareholding as
this is the practice followed by them in their respective foreign country.

Corporate responsibility is the best strategic as well as financial path that most businesses can
follow. For most businesses there are both compelling reasons to be responsible and compelling
statistics that validate that responsible businesses do better according to traditional financial
metrics.