A management principle known as "Corporate Social Responsibility" encourages companies to integrate

A management principle known as “Corporate Social Responsibility” encourages companies to integrate social and environmental concerns into their daily operations and interactions with stakeholders. Generally speaking, CSR refers to a company’s efforts to balance its commitments to economic, environmental, and social goals while also meeting stakeholder and shareholder expectations (sometimes known as the “Triple-Bottom-Line Approach”). In this regard, it’s critical to make a distinction between CSR, which can be a notion for strategic company management, and philanthropy, sponsorships, or charitable giving. Even if the latter can also significantly reduce poverty and will directly improve a company’s reputation and brand, the concept of CSR unquestionably extends beyond those things.

The following are the main CSR concerns: environmental management, eco-efficiency, responsible sourcing, stakeholder engagement, labour standards and working conditions, employee and community interactions, social justice, gender equality, human rights, good governance, and anti-corruption measures.

According to the Companies Act of 2013, profit-making companies must contribute at least 2% of their three-year annual average net earnings to Corporate Social Responsibility (CSR) initiatives. On April 1, 2014, the CSR provisions went into force.

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

• Promoting health care which includes sanitation and preventive health care
• Protection of national heritage, art and culture, including buildings and sites and artworks of historical importance.
• Promotion and development of traditional arts and handicrafts.
• Establishment of public libraries, orphanages and hostels, old age home, and daycare centres along with construction of buildings for them, their maintenance and operation.
• Activities to provide safe drinking water.
• Activities to maintain soil, air and water quality.
• Conservation of natural resources.
• Ensuring ecological balance.
• Conservation of flora, fauna, animal welfare, agricultural forestry.
• Contribution to the PM CARES Fund, or any other fund established by the central government, for the socio-economic development, relief, and welfare of the schedule caste, tribes, other underprivileged groups, minorities, and women
• During the Covid-19 period, MCA in GC no. 10/2020 clarified that spending for COVID-19-related activities would be valid within the scope of CSR. (Ref: https://www.mca.gov.in/Ministry/pdf/Covid_23032020.pdf)

According to Section 135 of the Companies Act, those CSR activities which only benefit the employees of the company and their families will not be considered CSR activities. Programmes like marathons / awards / charitable contributions / advertising / sponsorship of TV programmes will not be eligible for CSR expenditure. Budgets for CSR are allocated for societal benefit, not for the benefit of any political party. Any financial contribution, whether direct or indirect, to a political party, is not regarded as CSR activity.

Companies (CSR Policy) Amendment Rules, 2022:

According to the Companies Act of 2013, certain classes of profitable businesses must devote at least 2% of their average net profit over the previous three fiscal years to CSR initiatives within a given fiscal year. Companies are encouraged to form a CSR committee if they have any funds in their unused corporate social responsibility accounts. According to a formal announcement released by the Ministry of Corporate Affairs, the government has made changes to the regulations governing corporate social responsibility (CSR) in order to achieve this. (Ref: https://egazette.nic.in/WriteReadData/2022/238956.pdf)

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 has amended the Rules majorly concerning the following facets:

Omission of Rule 3(2)

Prior to the amendment, under section 135(1) of the Firms Act, 2013 (“Act, 2013”), such companies that would cease to be covered by the said section were also required to continue with section 135 compliance, such as incurring CSR spending, forming committees, and so on, for up to three financial years. This rule 3(2) requirement has been omitted. It should be noted that this clause was already superfluous following the amendments made to section 135(1) by the Companies (Amendment) Act of 2017, which changed the time frame for which the thresholds needed to be checked from “any” of the previous financial year to “immediately preceding financial year.”

Insertion of the second proviso to Rule 3(1)

Given that the necessity of monitoring CSR operations will continue to be necessary for money spent from the unspent CSR account, the CSR Committee must continue and cannot be dissolved as long as there is any money remaining in the company’s unspent CSR account.

CSR activities by the company or through Rule 4(1)

A corporation might choose to carry out CSR initiatives on its own or designate an implementation agency to operate on its behalf. A new class of entity that may function as an implementing agency has been added by the MCA through this amendment. Currently, a corporation can carry out its CSR initiatives through:

a company established under section 8 of the Act, or a registered public trust or a registered society, exempted under sub-clauses (iv), (v), (vi) or (via) of clause (23C) of section 10 or registered under section 12A and approved under 80 G of the Income Tax Act, 1961 (43 of 1961) established by the company, either singly or along with any other company; or having an established track record of at least three years in undertaking similar activities.

Entities that fall within the aforementioned clause (23C) are sub-clauses (iv) Charitable purposes, (v) any trust or institution for public religious purpose, (vi) university or other educational institution, or (via) hospital or other institution of section 10 of the Income Tax Act, 1961.

Book expenditure towards impact assessment Rule 8(3)

The previous limit was 5% of the total CSR expenditure for that financial year or fifty lakh rupees whichever is less. This has been changed to 2% of the total CSR expenditure for that financial year or fifty lakh rupees whichever is higher.

Format of annual report on CSR: ANNEXURE -II

In accordance with the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021, the template for the annual report on CSR has become rather detailed. By eliminating the obligation to explain the specifics of each project, the same has now been rationalized (ongoing and others). There are a few more adjustments made to the order of the material.

Substitution of no. 1 and the entries relating thereto in the e-form CSR–1

Changes have been made in the entries of serial number 1 in Nature of Entity in Form CSR-1 for Registration of Entities for undertaking CSR Activities.

Conclusion:

The funds in CSR must be applied to the welfare and greater good of society. Companies should prepare a CSR Report on a regular basis to tell their stakeholders about their social and environmental commitments and initiatives. The CSR Report’s primary goals are to promote transparency and give businesses the tools they need to assess the effects of their actions on the environment, society, and the Indian economy.

The government should monitor the prescribed expenditure made by businesses and the development of the numerous CSR projects that businesses have undertaken to ensure that CSR activities are strictly implemented throughout India.