Corporate Social Responsibility
A common concern raised in the post-1991 economic reforms era, is that of the private sector in general and the industrial giants in particular, appropriating vast amounts of finances, practicing crony capitalism and the gravest of them all, the government allowing the same for its own interests.
A process, therefore, has been introduced, whereby members of an industry, trade or sector of the economy monitor their own adherence to legal, ethical, or safety standards, rather than have an outside, independent agency such as a third-party entity or governmental regulator monitor and enforce those standards. It is called industry self-regulation.
Corporate Social Responsibility (CSR) is precisely a type of the same. It is also known with other names such as Corporate Conscience and Corporate Citizenship. It aims to contribute to societal goals of a philanthropic, activist, or charitable nature or by engage in or support volunteering or ethically-oriented practices.
India is the first country in the world that has made CSR mandatory, following an amendment to the Companies Act, 2013 in April 2014. Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.
Section 135 of the Companies Act, 2013 deals with CSR. Sub-section (1) of Section 135 reads as follows:
Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.
It would be expedient on the Committee to formulate a CSR policy, recommend the amount of expenditure to be incurred on the same and monitor the policy from time to time. The company would be required to spend 2 percent of its average net profits of three years on CSR. It may collaborate with other companies for undertaking the CSR activities, provided such companies are in a position to report separately on such activities.
Originally, the expenses towards CSR were not eligible for deduction in the computation of taxable income. However, the Government had been considering a re-evaluation of this provision through the Companies (Amendment) Act, 2019. The Amendment now also requires companies who do not completely spend their CSR funds, to disclose the reasons for the same in their annual report.
According to present provisions, any amount unspent for any ongoing project, is to be transferred within a period of 30 days from the end of the financial year to a special account opened by the company in any scheduled bank as ‘Unspent Corporate Social Responsibility Account’, and such amount shall be spent by the company pursuant of its obligation towards the CSR policy within a period of 3 financial years from the date of such transfer.
Application of Act to foreign companies: Section 379 of the Companies Act, 2013 reads as follows:
Where not less than fifty per cent. of the paid-up share capital, whether equity or preference or partly equity and partly preference, of a foreign company is held by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, or by one or more citizens of India and one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate, such company shall comply with the provisions of this Chapter and such other provisions of this Act as may be prescribed with regard to the business carried on by it in India as if it were a company incorporated in India.
Such foreign companies are also required to, in every calendar year, prepare a balance sheet and profit and loss account in such form, containing such particulars, and including or having annexed or attached thereto such documents as may be prescribed. The same balance sheet is required to contain an Annexure regarding their report on CSR.
Whereas CSR is quite beneficial to society, it also helps the company in question, because it helps the company assess its impact on society. It begins with an assessment of five crucial factors of each business, listed as follows:
· Customers: Their demands and requirements.
· Suppliers: Their capacity.
· Environment: Possible effects.
· Communities: A Unique Selling Proposition may be developed for each.
· Employees: Taking collective business interests into consideration.
CSR should be sustainable, in the sense that the business goals of an organization are not affected with the upholding of social activities.
Companies now have specific departments and teams that develop specific policies, strategies, and goals for their CSR programs and set separate budgets to support them.
What shall not qualify as CSR Expenditure: The CSR projects or programs or activities that benefit only the employees of the company and their families, activities undertaken by the company in pursuance of its normal course of business, one-off events such as marathons/awards/charitable contribution/advertisement/sponsorship of TV Programmes, etc. shall not be considered as CSR activities.
Trends in CSR in India: Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly.
· According to KPMG India CSR Reporting Survey 2018, companies in India spent ₹7536.3 crore in 2017–2018, a 47% rise compared to 2014–15.
· The cumulative expenditure by top 100 companies from 2014–15 to 2017–18 is about ₹26,385 crore.
· The average amount spent per company has gone up to ₹76.1 crore as compared to ₹58.8 crore during 2014–15, up 29%.
· The survey further said that the total unspent amount has reduced from ₹1,738 crore in 2014–15 to ₹989 crore during 2017–18.
· Santhosh Jayaram, Partner and Head, Sustainability and CSR Advisory, KPMG in India, said, “The governance around CSR has improved to a great extent. The CSR spend is increasing over the years and more private companies are crossing the 2 per cent threshold.”
· The Prime Minister’s Relief Fund saw an increase of 139 percent in CSR contribution over last one year.
· State-wise, Maharashtra, Gujarat, Rajasthan, Uttar Pradesh and Karnataka are the top five states from an expenditure perspective, the survey added.
· The education sector received the maximum funding (38 percent of the total) followed by hunger, poverty, and healthcare (25 percent), environmental sustainability (12 percent), rural development (11 percent).
COMPANIES INVOLVED IN CORPORATE SOCIAL RESPONSIBILITY
· The Tata Group conglomerate in India carries out various CSR projects, most of which are community improvement and poverty alleviation programs.
· Through self-help groups, it has engaged in women empowerment activities, income generation, rural community development, and other social welfare programs.
· In the field of education, the Tata Group provides scholarships and endowments for numerous institutions.
· The group also engages in healthcare projects, such as the facilitation of child education, immunization, and creation of awareness of AIDS.
· Other areas include economic empowerment through agriculture programs, environment protection, providing sports scholarships, and infrastructure development, such as hospitals, research centers, educational institutions, sports academy, and cultural centers.
· Ultratech Cement, India’s biggest cement company is involved in social work across 407 villages in the country aiming to create sustainability and self-reliance.
· Its CSR activities focus on healthcare and family welfare programs, education, infrastructure, environment, social welfare, and sustainable livelihood.
· The company has organized medical camps, immunization programs, sanitization programs, school enrolment, plantation drives, water conservation programs, industrial training, and organic farming programs.
MAHINDRA & MAHINDRA
· Indian automobile manufacturer Mahindra & Mahindra (M&M) established the K. C. Mahindra Education Trust in 1954, followed by Mahindra Foundation in 1969 with the purpose of promoting education.
· The company primarily focuses on education programs to assist economically and socially disadvantaged communities.
· Its CSR programs invest in scholarships and grants, livelihood training, healthcare for remote areas, water conservation, and disaster relief programs.
· M&M runs programs such as Nanhi Kali focusing on education for girls, Mahindra Pride Schools for industrial training, and Lifeline Express for healthcare services in remote areas.
· ITC Group, a conglomerate with business interests across hotels, FMCG, agriculture, IT, and packaging sectors has been focusing on creating sustainable livelihood and environment protection programs.
· The company has been able to generate sustainable livelihood opportunities for six million people through its CSR activities.
· Its e-Choupal program, which aims to connect rural farmers through the internet for procuring agriculture products, covers 40,000 villages and over four million farmers.
· Its social and farm forestry program assists farmers in converting wasteland to pulpwood plantations.
· Social empowerment programs through micro-enterprises or loans have created sustainable livelihoods for over 40,000 rural women.
SECTORS WHEREIN CSR COULD WITNESS IMPROVEMENTS.
Technology Incubators: In order to understand the meaning of this term, it is important to understand the meaning of the term “business incubator”.
· A business incubator is a company that helps new and start-up companies to develop by providing services such as management training or office space.
· It may be an academic institution or a venture capital firm which invests in a new or expanding business. Only firms that are deemed to have high growth potential, or which have demonstrated high growth (in terms of number of employees, annual revenue, or both) attract venture capital firms.
· A technology incubator, therefore, is a type of business incubator focused on supporting start-ups which use modern technologies as the primary means of innovation.
Sports: In this sector, companies spend on training and building infrastructure for Olympic and rural sports. Whereas the actual spend on CSR was ₹6,180 crore, the sports sector, in the fiscal year of 2017, witnessed only ₹122.71 crore being allocated to sports.
Armed Forces: Companies can play a huge role in contributing to the welfare of war widows and war veterans, who are often not very skilled in civil jobs. The skill development program for war veterans can help them settle in the civil world smoothly and can make them confident to stand on their own feet. In a written reply to the Lok Sabha, the Minister of State for Finance and Corporate Affairs Anurag Thakur revealed that from 2014–15 to June 2019, whereas a grand total of ₹52,533 crore has been spent on CSR only ₹81.5 crore were spent on Armed Forces.
· Providing them with employment is another thing that corporates can do for the welfare of the veterans and their families.
· Companies could also provide financial assistance to the disabled, non-pensioners and infirm ex-servicemen.
CRITICISM AND SUPPORT FOR CORPORATE SOCIAL RESPONSIBILITY
An American economist, Milton Friedman, once argued that a corporation’s purpose is to maximize returns to its shareholders and that obeying the laws of the jurisdictions within which it operates constitutes socially responsible behavior. Supporters maintain that CSR is the way to bridge the income inequality gap to an extent.
Some critics claim that CSR must be voluntary as mandatory social responsibility programs regulated by the government interferes with people’s own plans and preferences, distorts the allocation of resources and increases the likelihood of irresponsible decisions. Supporters, however, claim that better governmental regulation and enforcement, rather than voluntary measures, help keep the genuineness of the CSR expenditure under check.
Whereas the concerns raised by the critics of Corporate Social Responsibility are warranted, a minimum degree of State oversight may make the process more effective inasmuch as the genuineness of expenditure and transformation of expenditure to results on ground are taken into consideration.