The Companies Bill 2012 has thrownup several opportunities andchallenges. This analysis promotesunderstanding on the provisions andrecommends next steps.Getting Ready forUpcoming Act onCorporate SocialResponsibilityWhat shouldCompanies & NGOsdo?SAFRG Research Unit; June 2013
“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013Page1Getting Ready for UpcomingAct on Corporate SocialResponsibility (CSR)1. Understanding CSR provisions in the Company Bill2012i. Relevant Parts of the Bill- the sections 134, 135, Schedule III andSchedule VII of the Companies Bill 2012 deal with CSR. The sections 134 and 135are part of Chapter IX on Accounts of Companies.ii. Mandatory Reporting- the Section 134, under subsection 3, clause (o),states that there shall be attached to (Financial) statements laid before a companyin general meeting, a report by its Board of Directors, which shall include the detailsabout the policy developed and implemented by the company on corporate socialresponsibility initiatives taken during the year.iii. Which companies are covered- the section 135 provides further detailson the corporate social responsibility initiatives. Under its subsection (1) it definesthe companies for whom formation of a Corporate Social Responsibility Committeeof the Board is mandatory- every company having net worth of INR 500 crore (INR 5billion) or more, or turnover of INR 1,000 crore (INR 10 billion) or more or a net profitof INR 5 crore (INR 50 million) or more during any financial year.iv. Composition of CSR Committee- it will consist of 3 or more directors,out of which at least one director shall be an independent director. This compositionneeds to be disclosed in the mandatory reporting mentioned in sub point ii.v. Role of the CSR Committee- formulate and recommend to the Board aCSR Policy, the amount of expenditure to be incurred and monitoring of the Policyfrom time to time.vi. Role of the Board- approval of the policy recommended by CSR Committee;disclose content of the Policy in its report and company website. The board also hasto ensure that the company undertakes activities as per CSR Policy and spends inevery financial year at least the referred amount in the law.
“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013Page2vii. Referred amount for CSR- every financial year the company shouldspend at least 2 percent of the average net profits of the company made during thethree preceding financial years.viii. Preferred Geography for Application of Funds- as per the Bill,the company shall give preference to the local area and areas around it where itoperates for spending the amount earmarked for CSR activities.ix. Which Activities may be included in CSR Policy- in ScheduleVII of the Bill there are 9 specified and 1 provisional generic category of activities:a. Eradicating extreme hunger and povertyb. Promotion of educationc. Promoting gender equality and empowering womend. Reducing child mortality and improving maternal healthe. Combating human immunodeficiency virus, acquired immune deficiencysyndrome, malaria and other diseasesf. Ensuring environmental sustainabilityg. Employment enhancing vocational skillsh. Social business projectsi. Contribution to the Prime Ministers National Relief Fund or any other Fundset up by the Central Government or the State Governments for socio-economic development and relief and funds for the welfare of the ScheduledCastes, the Scheduled Tribes, other backward classes, minorities and womenj. Such other matters as may be prescribed.x. Where can you see the amount of expense on CSR- inSchedule III of the Bill, General Instructions for Preparation of Statement of Profitand Loss , it is stated that the company shall have to disclose by way of notes in theProfit and Loss Statement the amount of expenditure incurred on CSR activities.xi. What if the company fails to spend the referred amounton CSR- in such case the company will have to specify the reasons for notspending the amount in the Mandatory Reporting mentioned in sub point ii.2. Frequently Asked Questionsi. Is CSR Mandatory or Not- The companies that have turnover/networth/net-profit as described above, mandatorily need to have a CSR Committeeand a CSR Policy. The board of the company has to ensure that 2% of net-profit is
“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013Page3spent on CSR. Such companies also have to report mandatorily about their CSR. Incase the company fails to spend it can report the reasons in above mentionedreport. However, since the report would be publically available, the companies willbe continuously under the scrutiny of various stakeholders and will have to perform.They cannot consistently default, which makes CSR mandatory to a large extent.ii. Does it include all companies or only the listed ones- Thesection 135 dealing with CSR states that it is applicable for every company withspecified turnover/net worth/ net profit. However, the composition of CSRCommittee mandates inclusion of an independent director. The independentdirectors under the Company Law are compulsory only for the public listedcompanies. Therefore it certainly applies for public listed companies meeting theturnover/net worth/ net income criterion, but for other companies clarity is stillneeded.iii. Will the companies be able to spend this kind of money-as per the ‘CSR 10 India Index 2012’, the top 10 companies, which could bebellwether for CSR spending, currently spend less than 50% of what they need to innext couple of years. Therefore, the task looks difficult but companies will have toramp up their infrastructure. Please see ‘What should Companies do?’iv. Will the NGOs be able to absorb the money- the NGOs will alsohave to ramp up their infrastructure to deliver. It could be a blessing in disguise asNGOs never had enough resources to invest in increasing efficiency andeffectiveness. Please see ‘What should NGOs do?’v. What happens if my cause is not in the list- the list in theCompanies Bill 2012 while specifying activities under CSR states- ‘activities whichmay be included by companies in their Corporate Social Responsibility Policies’;and the listed activities are largely as specified in UN Millennium DevelopmentGoals. So the list does not appear to be binding but suggestive in nature. Moreover,if one sees the new guidelines for Central Public Sector Enterprises, they alsorecognise ‘preservation and promotion of heritage, art, music and culture in keepingwith Indian tradition’ as a CSR activity.3. What should Companies do?The companies would have to do a lot as the CSR spends are slated to increaseseveral folds. Some basic steps are listed below:i. Draw up a core CSR team and organize capacity building program to bring peopleup to date.
“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013Page4ii. Appoint a CSR Committee of the Board, if it does not exist already. Engageindependent directors that have strategic and hands-on development experience.iii. Develop/Modify the CSR Policy. Central Public Sector Enterprises have mergedtheir CSR and Sustainability effort. This could be a direction to follow, so as to bringunified impact.iv. Gear up the CSR infrastructure - staff, advisors, consultants that can help instrategizing, planning, monitoring, evaluation and implementation. Monitoring andimpact assessment preferably should be done by external experts to maintainobjectivity.v. Network with credible non-profit organisations to leverage their expertise andcapacities.vi. Choose few projects but go for in-depth and long-term support, so that social impactis visible and can be credibly reported upon.4. What should NGOs do?The NGOs also need to gear up if they want to leverage corporate funds/resources forcreating further impact. Some basic steps are listed below:i. Develop a CSR ready infrastructure proactively- staff, advisors, consultants that canhelp in implementing the program in a Project Management mode- with identifiedsteps, anticipated impact, indicators, timeline, people responsible etc. NGOs shouldnot wait for the CSR funds to come knocking and start working on it immediately.ii. Build capacities of existing staff on seeking and implementing CSR funds. Thecapacities of corporate partnerships staff will have to be different now than before.They would need to be more process oriented and strategic. Since CSR becomesan agenda at the level of board, staff will need capacity building in aspects likecommunications, strategic thinking and negotiations (not necessarily financial).iii. Develop products for corporations that show larger social impact than just activities,pictures, stories and so on. The products should be in line with the CSR policies ofthe partnering companies. These should also be measurable and scalable.iv. Invest in reporting and communication resources. Often NGOs in India do excellentwork but are not good in this aspect, which in the newer scenario is equallyimportant.v. Invest in good program management, accounting and reporting systems, asincreased transparency at ‘Donor Company’ will only increase demands fortransparency at the NGOs end.
“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013Page55. Base Documents for Analysisi. The Companies Bill 2012, as passed by Lok Sabha on 18/12/2012ii. Guidelines on Corporate Social Responsibility and Sustainability for Central PublicSector Enterprises; effective from April 01, 2013iii. CSR 10 India Index 2012iv. UN Millennium Development Goals6. About SAFRGSAFRG is a not-for-profit think tank on Corporate Social Responsibility (CSR) andPhilanthropy in South Asia. It builds capacities, conducts research and promotesdialogue on these issues. Thousands of NGOs and CSR professionals have benefitedfrom SAFRGs programmes since 1989. SAFRG board and advisory group comprisesof leading names from NGO and CSR world in India and internationally. For moredetails visit www.safrg.org or write to email@example.com / firstname.lastname@example.org