CORPORATE SOCIAL RESPONSIBILITY

The idea of corporate social responsibility operates on the principle of ‘quid pro quo’ –
something in exchange for something. Corporate social responsibility enables businesses to
participate in a variety of socially responsible initiatives.

Corporate social responsibility has grown as an important pillar in India over the past few
years on both a legal and socioeconomic level. Corporate social responsibility initiatives in
India and other countries have produced several durable results. Despite this, many people
see it as a liability and a deterrent.

Even though corporate objectives have expanded beyond sales and profits, many people
disagree with the notion that corporate social responsibility mostly has a negative impact on
small firms.

Over the decades, the idea of corporate social responsibility has experienced numerous
transformations. The capacity to significantly influence society and subsequently enhance the
operation of a business and the economy is highly valued. Every company has a
responsibility that goes beyond turning a profit.

According to the United Nations Industrial Development Organisation, Corporate Social

Responsibility is a concept of management “whereby companies integrate social and
environmental concerns in their business operations and interactions with their stakeholders.”
As per the organisation, corporate social responsibility is the process by which a business
maintains an equilibrium between its financial, ecological, and ethical obligations. They
termed this process a ‘triple bottom line’ approach. The essence of the process of corporate
social responsibility is that, while maintaining this equilibrium, the corporation also addresses
the expectations and ambitions of different stockholders as well as stakeholders.

As per Kotler and Lee, corporate social responsibility is “an obligation to improve
community well-being through business practices, discretionary and contribution of corporate
resources. To support social causes and to fulfil commitments towards corporate social
responsibility, corporations undertake various corporate social initiatives such as eradicating
hunger, malnutrition, promoting education, etc.”

As per the World Business Council for Sustainable Development –

“Corporate social responsibility is the continuing commitment by business to behave

ethically and contribute to economic development while improving the quality of life of the
workforce and their families as well as of the local community and society at large”.

TYPES OF CORPORATE SOCIAL RESPONSIBILITY

Among numerous types of corporate social responsibility, there are four major types of
corporate social responsibility –

Environmental corporate social responsibility

The primary goal of this kind of corporate social responsibility is to lessen the negative
consequences that business operations have on the environment. Achieving a sustainable
production process includes making efforts like adopting eco-friendly equipment and other
procedures that cause little or no harm to the environment. In order to reduce the damage
resulting from the use of carbon fuels, it also includes encouraging the use of non-renewable
sources of energy.

Corporate social responsibility concerning community welfare

Typically, businesses that promote community welfare work together with non-profit
institutions. The goal is to provide funding for these organizations so they can carry out
specific duties and initiatives aimed at raising community members’ socio-economic status.
Businesses should also ensure financial accountability. They ought to pay their taxes on time
and contribute to the community. This guarantees the health of the business and the economic
ecosystem.

Human resource corporate social responsibility

Every individual working in the corporation is a resource for the business. Businesses must
give priority to their personnel’s wellbeing and personal growth. Businesses can achieve this
by compensating their workers with higher salaries, larger incentive schemes, liberal
maternity and paternity policies, etc. Employee retention and morale are increased by
businesses that use ethical labour practices.

Philanthropic corporate social responsibility

Corporations that fall under this category provide money to people in need and organisations
in an effort to raise their quality of living and strengthen their financial situation. The
majority of businesses adopt this form of corporate social responsibility. Most of the time,
businesses give monetary assistance directly, but occasionally they also collaborate with a
charitable organisation.

Ethical/human rights social responsibility

Ethical responsibility refers to a company’s commitment to operate their business in an

ethical manner that upholds human rights principles, such as fair treatment of all
stakeholders, fair trade practices and equal pay.

To champion ethical responsibility, many businesses will speak up in the name of human
rights injustices such as child labor, racial or gender discrimination and the fight for a higher
minimum wage.

Much like with responsibility to the environment, there are ways to endorse ethics at your
company by involving employees in the process.
SECTION 135 OF COMPANIES ACT 2013

Section 135 of the Companies Act, 2013 ("Act") provides that certain companies must
mandatorily contribute a certain amount towards CSR activities. As per the Act, 'Corporate
Social Responsibility' means and includes but is not limited to:

 Projects or programs relating to activities specified in Schedule VII to The Act.

 Projects or programs relating to those activities which are undertaken by the Board of
Directors of a company in ensuring the recommendation of the CSR Committee of the
Board as per declared CSR Policy along with the conditions that such policy will
cover subjects specified in Schedule VII of the Act.

CSR Applicability in India

The provisions of CSR applies to every company fulfiing any of the following conditions in
the preceding financial year:

 Net worth of more than Rs.500 crore

 Turnover of more than Rs.1000 crore
 Net profit of more than Rs.5 crore

The Board of Directors of every company for which the CSR provisions apply must ensure
that the company spends in every financial year at least 2% of its average net profits made
during the immediately preceding three financial years as per its CSR policy. If the company
has not completed three financial years since its incorporation, it must spend 2% of its
average net profits made during the immediately preceding financial years as per its CSR
policy.

CSR Committee Applicability

Every company to which CSR provision are applicable must constitute a Corporate Social
Responsibility (CSR) Committee.The CSR Committee should consist of three or more
directors, out of which at least one director must be an independent director. An unlisted
public company or a private company shall have its CSR Committee without any independent
director if an independent director is not required. A private company having only two
directors on its Board shall constitute its CSR Committee with two directors.

Importance of Corporate Social Responsibility

 CSR is an immense term that is used to explain the efforts of a company in order to
improve society in a significant manner. Below reasons reflect why CSR is important:
 CSR improves the public image by publicising the efforts towards a better society and
increasing their chance of becoming favourable in the eyes of consumers.
 CSR increases media coverage as media visibility throws a positive light on the
organisation.
  CSR enhances the company’s brand value by building a socially strong relationship
with customers.
 CSR helps companies to stand out from the competition when companies are involved
in any kind of community.

Role of Board of Directors

The role of the Board of Directors in implementing CSR is as follows:

 After considering the recommendations made by the CSR Committee, approve the
CSR policy for the Company.
 The Board must ensure only those activities must be undertaken which are mentioned
in the policy.
 The Board of Directors shall make sure that the company spends in every financial
year, a minimum of 2% of the average net profits made during the three immediately
preceding financial years as per CSR policy.
In case a company has not completed three financial years since its incorporation, the average
net profits shall be calculated for the financial years since its incorporation. The Board’s
Report shall disclose:
 CSR Committee’s composition
 The contents of CSR Policy
 In case CSR spending does not meet 2% as per CSR Policy, the reasons for the
unspent amount, and details of the transfer of unspent amount relating to an ongoing
project to a specified fund (transfer within a period of six months from the expiry of
the financial year).

Fines and Penalties for Non-Compliance

In case a company fails to comply with the provisions relating to CSR spending, transferring
and utilising the unspent amount, the company will be punishable with a penalty of Rs.1
crore or twice the amount required to be transferred by the company to the CSR fund
specified in Schedule VII of the Act or the Unspent Corporate Social Responsibility Account,
whichever is less.

Further, every officer of such company who defaults in compliance will be liable to pay Rs.2
lakh or one-tenth of the amount required to be transferred by the company to CSR fund
specified in Schedule VII or the Unspent Corporate Social Responsibility Account,
whichever is less.