This paper predominantly enumerates the role of Corporate Social responsibilities in the present scenario, its evolution, impact of Clause 135 of Companies Act, 2013, Role of CSRs in SMEs and also it’s Global Impact.
- Clause 135, Companies Act, 2013
- Companies (CSR Policy) Rules, 2014
The 3rd Intl. Workshop on NL-based Software Engineering
Corporate social responsibility - Aadhit B Balaji
1. T h e I n s t i t u t e O f
C h a r t e r e d
A c c o u n t a n t s O f I n d i a
[ I C A I ]
N a t i o n a l C o n v e n t i o n
a t K o l k a t t a
E I R C o f I C A I & W I C A S A
B O A R D O F S T U D I E S
7 / 2 6 / 2 0 1 4
Aadhit Balaji B
This paper predominantly enumerates the
role of Corporate Social responsibilities in
the present scenario, its evolution, impact of
Clause 135 of Companies Act, 2013, Role of
CSRs in SMEs and also it’s Global Impact.
- Clause 135, Companies Act, 2013
- Companies (CSR Policy) Rules, 2014
Corporate Social
Responsibility
3. Corporate Social Responsibility 2014
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Introduction:
India is a largest growing economy in the world with abundant opportunities
and resources. This largest scaling up economy is known for its largest poverty
as well as largest undernourished children. These wide dissimilarities and
inequalities has prevailed through many decades due to social unrest.
The concept of CSR has wholly re-altered the economic parameters of success,
ie., creating wealth and jobs. Their market position has traditionally been a
function of financial performance and profitability.
Stakeholders (employees, community, suppliers and shareholders)
today are redefining the role of corporate taking into account the corporate
broader responsibility towards society and environment, beyond economic
performance, and are evaluating whether they are conducting their role in an
ethical and socially responsible manner.
As a result of this shift (from purely economic to ‘economic with an added
social dimension’), many forums, institutions and corporates are endorsing the
term Corporate Social Responsibility (CSR).
Let’s completely analyse the CSR’s impact and role in the corporate, as well as
role of Government and regulatory bodies that assist and provide guidelines
for planning and strategising the same by effective means and resources, while
remaining aligned with the requirements of the Companies Act, 2013.
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The Global Aspect – CSR:
CSR has profoundly emerged with the many definitions and view across the
world. As there is no universally accepted definition by any regulatory body or
management gurus’. Though the thought has been invited and definitions have
fostered the essence of CSR. Although the roots of CSR lie in philanthropic
activities (such as relief work, charity, donations, etc) of corporations, globally,
the concept of CSR has evolved and now encompasses all related concepts
such as;
Triple bottom line
Corporate citizenship
Philanthropy
Business responsibility
Corporate sustainability
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Major Definitions –
The totality of CSR can be best understood by three words:
‘corporate,’ ‘social,’ and ‘responsibility.’ In broad terms, CSR relates
to responsibilities corporations have towards society within which they are
based and operate, not denying the fact that the purview of CSR goes much
beyond this. CSR is comprehended differently by different people.
World Business Council for Sustainable Development defines CSR as
“the continuing commitment by business to contribute to economic
development while improving the quality of life of the workforce and their
families as well as of the community and society at large.”
Management Definitions:
By considering the evolution of CSR from the early 1950’s, there have been a
numerous debates on the views regarding the CSR.
Peter Drucker – Famous Management Guru:
“If u find an executive who is ready to take on social responsibilities, then fire
him fast.”
Companies Act, 2013 – Clause 135 & Companies (Corporate Social
Responsibility Policy) Rules, 2014:
“Corporate Social Responsibility Policy (CSR)” means and includes but it is not
limited to
(i) Projects and programmes related to activities specified in Schedule
VII of the act, or
(ii) Projects or programmes relating to activities undertaken by the
Board of Directors of a company in pursuance of recommendations of
the CSR Committee of the board as per declared CSR policy of the
company subject to Sch.VII of the act
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CSR – Hierarchy Model:
The evolution of CSR in India has followed a chronological order of four
thinking approaches, though the stakeholder model came into existence during
1990s as a consequence of realisation that with growing economic profits,
businesses also have certain societal roles to fulfil. The model expects
companies to perform according to “triple bottom line” approach. The
businesses are also focusing on accountability and transparency through
several mechanisms.
Benefits of a CSR programme in a Global Aspect:
A Good CSR practices can only bring in greater benefits by fostering the below
aspects, (two main)
Attracting and retaining employees – Increasing the employee morale
and sense of belonging to the company
Enriching the corporate reputation – positive image and branding
benefits are created to place the company as a responsible corporate
citizen in the world market.
Ethical Model
(1930-1950s)
Statist Model (1950-
1970s)
Liberal Model (1970-1990s)
Stakeholder Model (1990s - to Present)
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Some of the Principles and guidelines recognised by various
institutions across the globe - to enhance the larger concept of
sustainability or business responsiveness.
1. United Nations Global Compact
2. International Labour Organisation
3. Institute of Social and Ethical Accountability – AA1000
4. Social Accountability International – SA 8000 standard (First Auditable
social responsibility standard)
5. Organisation of Economic Co-operation and Development
(OECD Guidelines)
6. ISO 26000 – Social responsibility
7. Social Return on Investments – SROI
8. London Benchmarking Group Model
Clause 135, Companies Act, 2013 & Companies (CSR Policy) Rules,
2014
In India, the concept of CSR is governed by clause 135 of the Companies Act,
2013, which was passed by both Houses of the Parliament, and had received
the assent of the President of India on 29 August 2013.
The provisions relating to CSR, within the Act is applicable to companies;
Companies
Act, 2013 -
CSR
Provisions
Annual
Turnover of
1000 Crore or
more
NetWorth of
500 Crore or
more
Net Profit of 5
Crore or more(Or)(Or)
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The new rules, which will be applicable from
fiscal year 2014-2015 onwards, also require
companies to set-up a CSR committee
consisting of their board members, including at least
one independent director.
The Act encourages companies to spend at least 2%
of their average net profit in the previous three years
on CSR activities. The ministry’s draft rules, that have
been put up for public comment, define net profit as
the profit before tax as per the books of accounts,
excluding profits arising from branches outside India.
Highlights of CSR Provisions:
Surplus arising out of CSR activities will have to be
reinvested into CSR initiatives, and this will be over
and above the 2% figure
• The company can implement its CSR activities
through the following methods:
- Directly on its own
- Through its own non-profit foundation set- up
so as to facilitate this initiative
- Through independently registered non-profit
organisations that have a record of at least three
years in similar such related activities
- Collaborating or pooling their resources with
other companies
• Only CSR activities undertaken in India will be
taken into consideration
• Activities meant exclusively for employees
and their families will not qualify
• A format for the board report on CSR has
been provided which includes amongst others,
CSR – Schedule VII of the
Act, eligible activities.
- Environmental
Sustainability
- Social Business
projects
- Contribution to Prime
Ministers Relief Fund
and such other
prescribed funds
- Promotion of
Education
- Eradication of
extreme hunger and
poverty
- Gender Equity and
women
empowerment
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activity-wise , reasons for spends under 2% of the average net profits of the
previous three years and a responsibility statement that the CSR policy,
implementation and monitoring process is in compliance with the CSR
objectives, in letter and in spirit. This has to be signed by either the CEO, or the
MD or a director of the company
Clarifications On CSR Provision u/s 135, Companies Act, 2013.
[Dated 18th
June 2014]
In Order to clear the doubts on the activities undertaken and expenditures
incurred by the company, the Ministry has issued clarifications on the
provisions under Section 135 of the Companies Act, 2013 and the Companies
(Corporate Social Responsibility Policy) Rules, 2014, as well as activities to be
undertaken as per Schedule VII of the Companies Act, 2013.
Activities undertaken in pursuance of the CSR policy must be
relatable to the Schedule VII of the Companies Act, 2013, and the
entries should be interpreted liberally so as to capture the essence of
the subjects. These are broad-based and are intended to cover a wide
range of activities.
CSR activities should be undertaken by the companies in project or
programme mode. One-off events such as marathons, awards,
charitable contribution, advertisement, sponsorships of TV
programmes etc. would not be qualified as part of CSR expenditure.
Expenses incurred by companies for the fulfilment of any Act or
Statute of regulations (such as Labour Laws, Land Acquisition Act etc.)
would not count as CSR expenditure under the Companies Act.
Salaries paid by the companies to regular CSR staff as well as to
volunteers of the companies can be factored into CSR project cost as
part of the CSR expenditure.
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.
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Contribution to Corpus of a Trust or society or section 8 companies
etc. will qualify as CSR expenditure as long as
(a) The Trust/ society/ section 8 companies etc. is created exclusively
for undertaking CSR activities or
(b) Where the corpus is created exclusively for a purpose directly
relatable to a subject covered in Schedule VII of the Act.
Illustrative Example (By applying provisions relating to CSR):
ABC Company India Ltd
FINANCIALS (INR Crore)
Net Profit in FY 2011-12 1000
Net Profit in FY 2012-13 2000
Net Profit in FY 2013-14 3000
Net Profit in FY 2014-15 4000
CSR Spending on FY 2014-15 100
% of Net Profit of FY 14-15 spent on
CSR
(100/4000)*100
2.5%
Average Net Profit of FY 2011-
12,2012-13, 2013-14.
(1000+2000+3000)/3
2,000
2% Average Net Profit of FY 2011-
12,2012-13, 2013-14.
(2/100)*2000
40
Actual CSR spending as % of Average
Net Profit of FY 2011-12,2012-13,
2013-14.
(100/2000)*100
5%
Average Net Profit of FY 2012-13,
2013-14, 2014-15.
(2000+3000+4000)/3
3,000
CSR spending required in FY 2014-15
(2/100)*3000
60
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CSR – Role of Board & CSR Committee:
The CSR committee shall institute a transparent monitoring mechanism for the
implementation of the CSR projects or programmes or activities undertaken by
the company.
The Companies act, 2013, has provided detailed guidance regarding the
formation of CSR committees by injecting the responsibilities of its formation,
Policy Framework, effective policy implementation and adequate over the
control on the expenditures, to the Board of Directors of the company. The
below hierarchy model will clearly jot down the same.
Networth >= 500 Crore
(or)
Turnover > =1000
Crore
(or)
Netprofit > =5 Crore
Role Of
Directors
- Form a CSR Committee
- Approving a CSR policy also
Additions & Deletions.
- Implementation
- 2% Expenditure
- Disclosure Aspects
- Business Responsibility Report.
CSR
Committee
- Three or more directors with
atleast one Independent director
- Formulate and recommend a CSR
policy to the board
- Recommend activities and the
amount to be incurred
- Monitor the CSR from time to
time
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CSR – Triple Bottom Line (People – Planet – Profit):
CSR – Expenditures:
CSR expenditure shall include all expenditures including contribution to corpus,
for projects or programmes relating to CSR activities approved by the Board on
the recommendation of its CSR Committee, but does not include any
expenditure on an item not in the conformity or not in the line with activities
which fall within the purview of Schedule VII of the Act.
Providing Support to
organisations for
Social Cause
Water & Energy
Consumption,
Protection of
trees and
Pollution and
Waste
management
Road Accidents
Communicable Diseases
Water Pollution
Pollution Control
Energy Issues
Global Warming
Respect and Humanity
Supporting the educational
efforts of the schools
Employee volunteerism
Natural Disaster
Illiteracy
Support to Schools
Employability Skill
development
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CSR – Reporting:
The new Act requires that the board of the company shall, after taking into
account the recommendations made by the CSR committee, approve the CSR
policy for the company and disclose its contents in their report and also
publish the details on the company’s official website, if any, in such manner as
may be prescribed. If the company fails to spend the prescribed amount, the
board, in its report, shall specify the reasons.
Business Reporting Responsibility – BRR:
The other reporting requirement mandated by the government of India,
including CSR is by the SEBI (Securities and Exchange Board of India) which
issued a circular mandating the top 100 listed companies to report their
Environmental, Social and Governance (ESG) initiatives. These are to be
reported in the form of a BRR as a part of the annual report. SEBI has provided
a template for filing the BRR. Business responsibility reporting is in line with
the National Voluntary guidelines (NVG) published by the Ministry of
Corporate Affairs. Provisions have also been made in the listing agreement to
incorporate the submission of BRR by the relevant companies. The listing
agreement also provides the format of the BRR. The BRR requires companies
to report their performance on the nine National Voluntary guidelines (NVG)
principles. Other listed companies have also been encouraged by SEBI to
voluntarily disclose information on their Environmental, Social and Governance
(ESG) performance in the BRR format.
CSR and SMEs
Small and Medium enterprises, as the name purports the contribution of their
role in the economy is predominant. Their share towards employability of the
workforce as well as the output is more than 40% of the total.
Therefore it must be supplemental for the government to expect the SMEs to
also contribute towards the CSR activities by injecting a clause, Net profit more
than 5 Crores INR, which might involve most of the SMEs in the ambit of the
CSR clause 135, of Companies act, 2013
With the introduction of the new Companies Act, 2013, the SME’s approach to
CSR has to be modified while keeping operational costs low. One viable
alternative is to pool resources with other SMEs in the cluster and create joint
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CSR programmes managed by a single entity. This collaboration can be formed
within the units in a cluster as they interact with the same communities and
have already established associations that cater to the business needs of the
units.
Advantages of Collaboration for CSR activities:
- Reduces the operational Cost
- Undertake Long-term projects
- Learning from Experiences
- Better reach and implementation
- Enhances the transparency and straightforwardness
- Better resources as an single SME cannot provide huge involvement in
CSR activities
- Enriching the professional approach
Taxation Aspects:
The act and rules are silent regarding the tax exemptions towards
the expenditure that are mandated by the same act and rules. Clarity
towards the same are expected to be published and clarification in
removal of doubts will be issued, accordingly, if any.
Present Scenario:
According to Indian Institute of Corporate Affairs, a minimum of 6,000 Indian
companies will be required to undertake CSR projects in order to comply with
the provisions of the Companies Act, 2013 with many companies undertaking
these initiatives for the first time. Further, some estimates indicate that CSR
commitments from companies can amount to as much as 20,000 crore INR.
Building a society which provides equal access to opportunities negates
disparities and, is a collective responsibility. This Act presents a unique
opportunity to stand up to the challenge. It is a call for action.
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Some of the well known socially responsible
companies that have been engaged in the CSR
expenditures even before the provisions were
enacted:
- Reliance Industries
- Oil and Natural Gas Corporation
- Tata Steel
- State Bank of India
- ICICI Bank
- Indian Tobacco Company
- Indian Oil Corporation
- Larsen & Turbo
-------------------------Thank You------------------------
Actual CSR Spending
Requirement for the FY
2014-15:
- 6000 Crores
(Approx.) CSR
Expenditure to be
incurred during FY
2014-15 as per the
Companies Act,
2013 for top 100
listed companies