A Comprehensive Guide to Corporate and Social Responsibility (CSR)

The Companies Act 2013 makes Corporate and Social Responsibility compliance mandatory for all companies, including public, private, foreign or section 8 companies, if they have a particular net worth, profit or turnover. The Ministry of Corporate Affairs (MCA) regulates this Act. The Act necessitates that companies must formulate a clear CSR policy and report their CSR activities with MCA annually. 

In this blog post, we will guide you through corporate social responsibility in India, including its meaning, features, types of CSR, corporate social responsibility activities, rules, etc. 

What is Corporate and Social Responsibility?

Corporate social responsibility definition is, “a business model used by companies to make a concerted effort to operate in ways that benefit the society and environment rather than degrading them.” By adopting CSR initiatives, companies contribute towards improving society and build a positive brand image for themselves.

CSR activities include philanthropy, supporting underserved communities, environmental initiatives, reducing carbon footprint, socially and environmentally conscious investments, etc. Companies that implement CSR initiatives can attract investors and consumers who want to support companies that contribute to society and the environment.

CSR is a mandatory requirement for certain companies since 1st April, 2014, under Section 135 of the Companies Act 2013. The Act compels such companies to partake in CSR activities that contribute to India’s social, economic and environmental development. 

There are many corporate social responsibility examples in India. In the fiscal year 2022-23, Tata Chemicals allocated INR 160 million to CSR initiatives. The company, during FY 23, collaborated with 5,245 farmers. It provided them with training and support in several areas like livestock management and organic farming. This helped to improve farm productivity and ultimately, the incomes of farmers. 

Hindalco is another great CSR example in India. Hindalco made an INR 360.4 million investment in CSR projects for the fiscal year 2022–2023. Important topics including access to water, healthcare, and education were covered by Hindalco's CSR initiatives. 

Corporate Social Responsibility Features

Some features of the corporate social responsibility include the following:

• CSR showcases the company’s commitment for the society and the environment.

• Given that it requires time and money, it poses a challenge for the management of the company. However, it also helps it by improving consumer loyalty and company image, and in certain situations, by lowering taxes.

• CSR is a way through which companies balance between natural and human resources as well as consumer capitalism, which aims to make money with the least amount of effort and expenditure.

• It helps protect biodiversity and natural resources that have not yet been properly utilized in the system of mass consumption.

• It encourages social inclusion, human growth, and employee rights.

• It is a decision made by the management of the company and can be enforced by self-regulation or the Act as a response to environmental, social, or climate concerns. 

Types of CSR

There are four main CSR types in total: environmental responsibility, ethical responsibility, economic responsibility and philanthropic responsibility. Each type of CSR has been explained below:

Environmental Responsibility

This CSR type involves organizations taking active measures for the promotion of natural conservation and sustainability. Many consumers and clients express interest in businesses that utilize sustainable packaging or donate a portion of their sales proceeds to environmental charities. 

To implement environmental responsibility, companies can reduce the use of single-use plastic and control greenhouse gas emissions. They can also take other initiatives such as donating to relevant environmental causes and fund research on sustainable materials, environmental-friendly manufacturing, etc. Further, they can adopt environmentally-friendly and sustainable processes in their business’ daily operations. 

For instance, a company can plant 1 tree whenever a client buys a product from them. Or it can incentivize recycling of their product after it is no longer needed.

Philanthropic Responsibility

Philanthropic responsibility is one of the major types of CSR. It involves donating a chunk of the company’s profits towards a social cause. Businesses fulfill philanthropic CSR responsibilities by dedicating a part of their earnings to non-profit organizations and charitable trusts that align with their values.

Some companies may also create charitable organizations of their own to focus on a particular cause. By participating in such CSR activities, companies help the society and the environment to improve by aiding research, creating awareness or showcasing support for underprivileged communities. The companies can also engage their employees in such activities, so they can also contribute to a certain cause.

Here is an example of philanthropic responsibility. Sometimes, finding the cure for diseases like cancer requires a lot of money and resources for research progress and the scientists may not have them. However, if a company donates a percentage of its profits for research on a new cancer drug, it can contribute towards advancing the healthcare industry.

Economic Responsibility

Economic responsibility can be described as a blend of philanthropic, ethical and environmental responsibilities. Companies that practice economic responsibility adopt actions that are advantageous to both the company and the community. 

Companies frequently practice this responsibility by combining their financial decisions with their company values while keeping the community's welfare in mind. Decisions made by such companies are more compassionate and not solely motivated by financial gain.

Here is an example of economic responsibility. A company that manufactures things might decide to only package its goods in environmentally friendly ways. They might only use paper bags, and not plastic bags for packaging goods. To make this procedure cost-effective, the business must assess expenses and work with suppliers. It would help establish a connection with clients and represent the business as environmentally concerned. Such business decisions engage customers, demonstrate the company's dedication to the environment, and represent its values. 

Ethical Responsibility

Companies promote ethical responsibility by establishing fair and just operational policies. They ensure that all the employees get equal access to opportunities. Their guidelines are non-discriminatory in nature, and hence, they do not discriminate against any employee, team leader, supplier, investor or customer based on their religion, caste, gender, culture or heritage.

The ethical responsibility-driven policies aid in creating an inclusive culture in the company and reflect on the operations it does. To define how they conduct business and who they interact with, certain organizations may also establish ethical standards. These standards encourage different viewpoints in problem-solving and assist the organization in making choices holistically.

For instance, a company seeking supplies for its manufacturing facility can decide not to buy them from a business that exploits needy employees by providing them with salaries that are way lower than industry rate. Rejecting such a supplier could contribute to lowering the occurrence of salary exploitation. 

By choosing not to collaborate with such a business, the company maintains its values. The ethical values of a company are incorporated in its policies and are imparted to its employees.

Corporate Social Responsibility Rules in India

Ideally, every company should instill corporate and social responsibility in their business. However, for certain companies in India, it is mandatory. The following are the rules for corporate social responsibility in India:

• CSR regulations require the companies to fulfill corporate social responsibility requirements if they meet any (one) the following criteria:

• Net worth of more than Rs. 5 billion 

• Turnover of more than Rs. 10 billion 

• Net profit of more than Rs. 50 million 

• Companies must spend a minimum of 2% of their average net profit from the preceding 3 financial years on corporate social responsibility activities.

• All the eligible companies must approve a CSR policy, which must be disclosed in their board’s report as well as their website.

• They must ensure that all the activities stated in the CSR policy take place in reality. 

• Companies that are subject to CSR regulations must create a CSR Committee consisting of at least three directors out of which one is an independent director.

• They must file Form CSR-1 electronically with the registrar to register with the central government.

• The Board of Directors is responsible for ensuring that CSR funds are used properly. If the required amount on CSR activities isn’t spent, the board must specify the reason for the same in their report. Also, they must transfer the unspent amount to a fund listed in Schedule VII of the Companies Act. However if the unspent funds are for an ongoing project, then this rule isn’t applicable.

Who shall form the CSR Committee?

The Corporate Social Responsibility Committee is created by the Board of Directors of a company. Every company to which the CSR provisions are applicable must form a CSR committee. Here are some things to keep in mind for CSR committee and its formation:

• The CSR committee should consist of three or more directors. At least one of them must be an independent director.

• A CSR committee, in an unlisted company or a private company that doesn't need an independent director, shall have two or more directors. 

• The CSR committee, in case of a foreign company, must consist of a minimum of two persons out of which one must be a resident in India authorized to accept services of notices and other documents on the company’s behalf. Further, the other person shall be nominated by the foreign company.

• The committee should meet at least twice in a year.

Permissible CSR Activities Under Companies Act

The company’s board of directors must make sure that the activities included in the CSR policy of the company are listed in the Schedule VII of the Companies Act. The corporate social responsibility activities specified in the Schedule VII are listed in the following table:

Any of the aforementioned permissible activities shall be included in the CSR policies of companies to ensure compliance with the corporate social responsibility act i.e., Companies Act 2013.

Conclusion

Corporate Social Responsibility is a business model which showcases a company’s commitment to carry out its business in an ethical manner. Although all the companies must incorporate CSR in their business functioning, for certain companies, it is actually a mandatory requirement. The CSR is governed by the Companies Act 2013. All the companies mandated to engage in CSR activities must ensure their activities fall within the purview of Schedule VII of the Companies Act.

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Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.