Corporate Social Responsibility: Issues & Development

Corporate Social Responsibility: Issues & Development

Are CSR contributions to agriculture properly tracked?

Note4Students

From UPSC perspective, the following things are important :

Mains level: Sustainable Agriculture; Significance of CSR;

Why in the News?

Ten years ago, India became the first country to legally mandate Corporate Social Responsibility (CSR). The section 135 of the Companies Act 2013 establishes the rules governing CSR. 

  • According to the National CSR Portal, ₹1.84 lakh crore in CSR funds was disbursed between 2014 and 2023.

About CSR: 

Corporate Social Responsibility (CSR) is a business practice where companies contribute to social, economic, and environmental betterment, addressing societal needs alongside their profit-making objectives.

  • In India, the minimum percentage of a company’s net profit that must be spent on corporate social responsibility (CSR) is 2%.

Sectoral division of CSR: 

  • Education: Receives the highest CSR share (33%-40%) for building schools, scholarships, infrastructure, and vocational training.
  • Health Care: Allocates 20%-30% of CSR funds to hospitals, health camps, sanitation, and disease prevention.
  • Environmental Sustainability: Accounts for 5%-10% of CSR funds, with projects in biodiversity conservation, waste management, and renewable energy.

CSR’s Role in Agriculture

  • Claims 10%-15% of CSR funds, targeting infrastructure, agricultural practices, and livelihood support.
  • Since the enactment of the Companies Act in 2013, which mandates CSR spending, a total of Rs 1.84 lakh crore has been disbursed in CSR funds from 2014 to 2023. 
    • These funds have increasingly targeted sustainability initiatives within agriculture, with 23% of surveyed companies prioritizing “environment and sustainability” in their CSR activities.
  • Over 90.8% of farmers involved in CSR programs reported improvements in income or risk reduction due to these initiatives.  

How much of an impact does Agriculture have on India’s GDP? 

  • Agriculture contributes approximately 15% to 18.2% of India’s GDP, reflecting a decline from 35% in 1990-91 due to rapid growth in the industrial and service sectors. The average annual growth rate of the agricultural sector has been around 4% over the last five years. (acc to pib data)
  • Agriculture remains crucial for employment, providing livelihoods for about 42% of the population, which is significantly higher than the global average of 25%.

What are the key requirements to improve agricultural sustainability?

  • Investment in Infrastructure: There is a pressing need for capital investment in infrastructure development, including irrigation systems, cold storage, and transportation networks to reduce post-harvest losses and improve market access.
  • Technological Advancements: Adoption of modern agricultural practices and technologies is essential. This includes better seed varieties, efficient irrigation methods, and sustainable farming techniques to enhance productivity.
  • Environmental Sustainability Initiatives: Projects focusing on water conservation, energy-efficient irrigation, and agroforestry are critical for maintaining ecological balance while improving agricultural output.

What hinders CSR’s potential for agriculture?

  • Lack of Clear Reporting Mechanisms: One of the main obstacles is the absence of robust frameworks to track and categorize CSR funding specifically directed towards agricultural initiatives. Current reporting practices do not emphasize agriculture-related CSR activities adequately.
  • Diverse Allocation Categories: CSR activities can fall under multiple categories (e.g., gender equality, and environmental sustainability), making it difficult to isolate funds specifically aimed at agricultural sustainability. This lack of specificity hampers effective monitoring and impact assessment.
  • Need for Distinct Sector Identification: To maximize CSR contributions to agriculture, it is crucial to identify agriculture as a distinct sector within CSR activities. This would streamline funding processes and enhance transparency and accountability in how funds are utilized for agricultural development.

Way forward: 

  • Establish Agriculture as a Separate CSR Category: Need to create a distinct sector for agriculture in CSR reporting to streamline funding, improve transparency, and enable targeted monitoring of agriculture-focused initiatives.
  • Implement Comprehensive Reporting Frameworks: The government should develop robust mechanisms for tracking CSR funds specifically allocated to agricultural projects, ensuring clear categorization and facilitating better impact assessments.

Mains PYQ:

Q With a consideration towards the strategy of inclusive growth, the new Companies Bill, 2013 has indirectly made CSR a mandatory obligation. Discuss the challenges expected in its implementation in right earnest. Also discuss other provisions in the Bill and their implications. (UPSC IAS/2013)

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Corporate Social Responsibility: Issues & Development

[pib] CIL ASHIS Scheme

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CIL ASHIS Scheme; CSR Initiatives

Why in the News?

Coal India Limited (CIL) has launched a CSR initiative named CIL ASHIS to provide scholarships to children who lost their parents to COVID-19 and were unable to continue their studies.

What is CIL ASHIS Scheme?

  • The CIL ASHIS Scheme, launched by Coal India Limited (CIL), stands for Ayushman Shiksha Sahayata.
  • The scheme aims to provide financial support for the education of children who lost their parents to COVID-19, ensuring they can continue their studies and achieve their dreams.

Features of the CIL ASHIS Scheme

  • Each eligible child receives a scholarship worth ₹45,000 per year.
  • The scholarship is provided for a period of 4 years.
  • The scheme targets 1,645 children who have been identified as needing assistance.
  • Compassionate Appointment for:
    • Dependents of CIL employees who lost their lives while in service.
    • Beneficiaries need to apply for compassionate appointments through CIL’s established procedures.

PYQ:

[2024] With reference to Corporate Social Responsibility (CSR) rules in India, consider the following statements:

  1. CSR rules specify that expenditures that benefit the company directly or its employees will not be considered as CSR activities.
  2. CSR rules do not specify minimum spending on CSR activities.

Which of the statements given above is/are correct?

(a) 1 only

(b) 2 only

(c) Both 1 and 2

(d) Neither 1 nor 2

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Corporate Social Responsibility: Issues & Development

Environmental-Social-Governance (ESG) Framework

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CSR and ESG frameworks and other such initiatives

Mains level: CSR and ESG corporate governance and responsibility

CSR

What’s the news?

  • The growing importance of Corporate Social Responsibility (CSR) and Environmental-Social-Governance (ESG) frameworks in the business world.

Central Idea

  • In recent years, Corporate Social Responsibility (CSR) has evolved from a mere obligation into a potent tool for companies to contribute to society and the environment. Concurrently, the ESG disclosures gained prominence as a means to showcase energy conservation efforts and align with global commitments to combat climate change.

What is Corporate Social Responsibility (CSR)?

  • CSR refers to the practice of companies and businesses taking on initiatives and actions that contribute positively to society, the environment, and various social causes beyond their core profit-making activities.
  • CSR has become a legal requirement for certain companies under the Companies Act of 2013 in India.

CSR

What is Environmental-Social-Governance (ESG)?

  • The ESG framework assesses a company’s performance and impact in three key areas: environmental sustainability, social responsibility, and corporate governance.
  • ESG goes beyond traditional financial metrics to measure a company’s efforts and policies related to issues such as energy conservation, carbon footprint reduction, diversity and inclusion, employee well-being, community engagement, ethical business practices, and more.

The significance of ESG

  • Addressing Climate Change: ESG provides a structured approach for businesses to tackle environmental issues, particularly climate change. It helps companies mitigate risks, enhance sustainability, and contribute to global climate goals.
  • Social Responsibility: ESG encompasses social aspects such as diversity, employee well-being, and community engagement. Prioritizing these areas fosters ethical practices and positive relationships with stakeholders.
  • Strong Governance: The “G” in ESG underscores effective corporate governance, which promotes transparency, accountability, and ethical business conduct. This builds investor trust and long-term sustainability.
  • Financial Performance: Companies emphasizing inclusion and diversity tend to achieve financial goals more consistently. Additionally, ESG integration enhances resilience during crises and supports innovation.
  • Meeting Stakeholder Expectations: ESG aligns with consumer and investor preferences for environmentally and socially conscious practices. Companies embracing ESG attract responsible consumers and investors.
  • Regulatory Compliance: ESG disclosure requirements are evolving, reflecting their increasing importance. Adhering to ESG standards positions companies to comply with changing regulations.
  • Long-Term Value: ESG contributes to long-term value creation by managing risks, fostering stakeholder relationships, and positioning companies for sustainable growth.

The confluence of ESG and CSR and their advantages

  • Enhanced Sustainability: By aligning sustainable business goals with the established CSR framework, companies can expedite the transition to environmentally friendly and socially responsible practices. This alignment ensures that sustainability becomes a central tenet of the company’s operations.
  • Multi-Stakeholder Approach: Implementing both ESG and CSR requires the collaboration and shared vision of internal and external stakeholders. This approach fosters better communication, cooperation, and effective execution of CSR initiatives, which benefits the company’s overall impact.
  • Boosted Brand Recognition: The combination of ESG and CSR efforts enhances a company’s brand image, portraying it as environmentally conscious, socially responsible, and committed to ethical practices. This positive perception resonates with customers and stakeholders alike.
  • Risk Mitigation: Effective CSR practices coupled with ESG considerations help companies manage risks associated with environmental and social factors. This proactive approach minimizes potential negative impacts on the business’s reputation and bottom line.
  • Supply Chain Optimization: The confluence of ESG and CSR prompts companies to rethink and optimize their supply chains, from procurement to production. This transformation encourages environmentally friendly practices and reduces the overall environmental footprint.

Case Studies: Embodied Synergy

  • Global giants such as Google and the luxury brand Chanel exemplify the positive outcomes of blending CSR and ESG principles.
  • Google’s substantial investment in an energy-efficient supply chain significantly boosted its brand while catalyzing its green transition.
  • Similarly, Chanel’s partial stake acquisition in a natural fiber manufacturer demonstrates a commitment to sustainable supply chain practices.
  • These examples illustrate the potential of combining CSR and ESG for transformative impact.

What are the concerns raised?

  • Transition Costs: The transition from traditional to sustainable business practices can be accompanied by high costs. Integrating ESG principles and expanding CSR initiatives might require substantial investments in infrastructure, technology, and employee training, which could strain financial resources.
  • Risks and Uncertainties: Certain environmental or social initiatives might not yield immediate returns or could face opposition from stakeholders.
  • Smaller Businesses: The smaller businesses might find it challenging to prioritize ESG given their limited resources. Balancing ESG considerations alongside day-to-day operations could be more difficult for smaller enterprises compared to larger corporations.
  • Legitimacy of Self-Regulation: CSR is legally mandated in India but is self-regulated and voluntary in some regions, like the EU, UK, and US. Some experts raise concerns about the legitimacy of private self-regulation compared to regulation imposed by legislative bodies.

Way forward

  • Advocating Regulatory Mandates for ESG: Push for regulatory mandates for ESG similar to CSR to ensure a structured approach. Collaborate to define legal integration, especially for smaller businesses.
  • Incentivizing ESG Investments: Reforms in economic policies and taxation can offer incentives like tax concessions, spurring ESG investments for sustainable practices.
  • Comprehensive Policy Frameworks: Implement organization-wide policy frameworks, embedding sustainability into all decisions, ensuring accountability, and facilitating regulatory compliance.
  • Holistic Integration: Infuse CSR across supply chains, led by transparent, larger corporations setting standards for others.
  • Digital connectivity and financial inclusion: with a projected 40 percent of the population transitioning to urban life by 2030, the aspirations of rural regions are harmonizing with urban benchmarks. However, the translation of intentions into action necessitates addressing crucial imperatives such as digital connectivity and financial inclusion.
  • Unified Approach: Blending CSR and ESG aligns business goals with sustainability, benefiting consumers, investors, employees, and society overall.

Conclusion

  • The amalgamation of CSR and ESG provides a dynamic route towards sustainable growth. This synergy encapsulates responsible corporate citizenship and offers a transformative pathway to address challenges collectively. By harmonizing these two pillars, businesses contribute to a future where progress is intertwined with responsibility, promising a thriving world for all.

Also read:

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Corporate Social Responsibility: Issues & Development

Rise of the Environmental, Social and Governance (ESG) Regulations

Note4Students

From UPSC perspective, the following things are important :

Prelims level: ESG

Mains level: Read the attached story

esg

Central idea: Regulators and corporations worldwide now measure businesses on ESG criteria. ESG criteria is crucial for investors to assess a company’s risk profile accurately. India is still in the nascent stage of ESG laws and regulations.

What is ESG?

  • ESG Regulations are a set of standards used by investors to evaluate a company’s environmental and social impact, as well as its corporate governance practices.
  • They require companies to be transparent about their environmental and social performance, as well as their governance structure.
  • ESG factors are increasingly being used by investors to make investment decisions, and ESG ratings are becoming an important metric for companies seeking to attract investment.
  • The ESG regulations differ by country, but many require companies to disclose information on environmental and social issues, as well as on their governance practices.
  • ESG regulations are becoming increasingly important as investors and consumers demand greater transparency and accountability from companies.Top of FormBottom of Form

Features of ESG Mechanism

  • Environmental factors: These include a company’s impact on climate change, greenhouse gas emissions, pollution, waste management, and natural resource conservation.
  • Social factors: These include a company’s impact on society, such as labor practices, human rights, community relations, customer satisfaction, and product safety.
  • Governance factors: These include a company’s management structure, board diversity, executive compensation, shareholder rights, and business ethics.
  • ESG ratings and metrics: Companies are evaluated based on ESG ratings and metrics, which can help investors assess a company’s overall sustainability and ethical impact.
  • ESG investing: ESG investing refers to investing in companies that meet certain ESG criteria, with the aim of generating financial returns while also having a positive impact on society and the environment.
  • ESG reporting: Many companies are now required to disclose their ESG performance and report on their sustainability practices, in order to meet regulatory requirements and respond to growing investor demand for transparency and accountability.Top of FormBottom of Form

Corporate Social Responsibility: ESG-like mechanism in India

  • India has a robust corporate social responsibility (CSR) policy that mandates that corporations engage in initiatives that contribute to the welfare of society.
  • This mandate was codified into law with the passage of the 2014 and 2021 amendments to the Companies Act of 2013.

How ESG differs from CSR?

  • ESG regulations differ from CSR regulations in their process and impact
  • For example, the U.K. Modern Slavery Act requires companies with business in the U.K. and with annual sales of more than £36 million to publish their efforts in identifying and analysing the risks of human trafficking, child labour and debt bondage in their supply chain.
  • It seeks to establish internal accountability procedures, evaluate supplier compliance, and train supply chain managers regarding these issues
  • The EU’s Sustainable Finance Disclosure Regulation requires financial market participants to disclose how they have integrated sustainability risks into their investment decision-making processes
  • There are scores of such regulations at the state, national and transnational level.

Why is ESG relevant in India?

Ans. Existing mechanisms serve ESG purpose

  • India has long had a number of laws and bodies regarding environmental, social and governance issues, including the Environment Protection Act of 1986.
  • It has quasi-judicial organisations such as the National Green Tribunal, a range of labour codes and laws governing employee engagement and corporate governance practices.
  • These initiatives established guidelines that emphasise monitoring, quantification and disclosure, akin to ESG requirements found in other parts of the world.

ESG for Indian companies

Here are some key considerations for Indian companies in relation to ESG:

  • Compliance with global ESG regulations: Compliance in the US, UK, EU and elsewhere is critical for Indian companies to take full advantage of the growing decoupling from China and play a more prominent role in global supply chains and the global marketplace overall.
  • Due diligence: This will play a key role in ESG risk management, which means going beyond questionnaires and conducting deeper assessments that may include looking at company records, interviewing former employees, and making discreet visits to observe operations to ensure that measures to comply with international ESG standards are in effect.
  • Revamp organizations: ESG due diligence should be supported within the company with detailed procedures for assessing risks and controls for assuring that no corners are cut. Companies that wish to maximise their opportunities in the global economy need to embrace these new requirements and adjust their organisations accordingly.

Way forward

  • Encouraging and incentivizing companies: To adopt ESG practices voluntarily through education, training and awareness-raising programs.
  • Developing national guidelines and standards for ESG: To promote consistency and comparability of ESG performance data among Indian companies.
  • Tailor-made Policy catering to domestic needs: Implementing ESG regulations that are tailored to the specific needs and challenges of Indian companies, with a focus on promoting transparency, accountability and stakeholder engagement.
  • Facilitating access to capital for companies that demonstrate strong ESG performance: By establishing ESG-focused investment funds and credit facilities.
  • Promoting international collaboration and harmonization of ESG standards: To facilitate global trade and investment while ensuring that ESG risks are appropriately addressed.

Conclusion

  • Overall, a comprehensive and collaborative approach is needed to ensure that Indian companies can effectively manage ESG risks and opportunities and contribute to sustainable development.

 

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Corporate Social Responsibility: Issues & Development

Corporate Social Responsibility(CSR) & Social Justice

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CSR

Mains level: corporate governance

SocialContext

  • Since the establishment of the Corporate Social Responsibility (CSR) regime in India under Section 135 of the Companies Act 2013, CSR spending in India has risen from RS.10,065 crore in 2014-15to Rs.24,865crore in 2020-21.But there is no data to verify whether this increase is commensurate with the increase in profits of Indian and foreign (having a registered arm in India) companies.

What is Corporate Social Responsibility (CSR)?

  • Voluntary spending: Corporate social responsibility (CSR) is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices.
  • Ministry Corporate Affairs: The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs, Government of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by the companies registered with it.
  • Companies Act, 2013: The Corporate Social Responsibility concept in India is governed by Section 135 of the Companies Act, 2013 (‘Act’), Schedule VII of the Act and Companies (CSR Policy) Rules, 2014 wherein the criteria has been provided for assessing the CSR eligibility of a company, Implementation and Reporting of their CSR Policies.

Social

How CSR helps in achieving social justice?

  • Sustainable Goals: India having the most elaborated CSR mechanism and implementation strategy has started its journey to set a benchmark in attaining sustainability goals and stakeholder activism in nation building.
  • Corporate philanthropy: company donations to charity, including cash, goods, and services, sometimes via a corporate foundation.
  • Community volunteering: company-organized volunteer activities, sometimes while an employee receives pay for pro-bono work on behalf of a non-profit organization
  • Socially-responsible business practices: ethically produced products that appeal to a customer segment.
  • Corporate social marketing: Company-funded behaviour-change campaigns, Company-funded advocacy campaigns, donations to charity based on product sales.

Why there is need to review the CSR?

  • Declining number: There was also a decline in the number of companies participating in CSR 25,103 in FY2019 to 17,007 in FY2021.
  • Flaw in the law: If a company spends an amount in excess of the minimum 2%, as stipulated, the excess amount is liable to be set off against spending in the succeeding three financial years. Ideally, companies should have been shown courage to spend more than this.
  • Own trusts: many private companies have registered their own foundations/trusts to which they transfer the statutory CSR budgets for utilisation. It is unclear if this is allowed under the Companies Act/CSR rules.
  • Geographical bias: The first proviso to Section 135(5) of the Act is that the company should give preference to local areas/areas around it where it operates. This is logical. However, a report by Ashoka University’s Centre for Social Impact and Philanthropy says that 54% of CSR companies are concentrated in Maharashtra, Tamil Nadu, Karnataka, and Gujarat(receiving the largest CSR spends) while populous Uttar Pradesh and Madhya Pradesh receive little.
  • Spending on environment: Item (iv) of Schedule VII of the Act deals with broader environmental issues to create a countervailing effect. However, an analysis of CSR spending (2014-18)reveals that while most CSR spending is in education (37%) and health and sanitation (29%), only 9% was spent on the environment even as extractive industries such as mining function in an environmentally detrimental manner in several States
  • Incomplete information: The Standing Committee on Finance had observed that the information regarding CSR spending by companies is insufficient and difficult to access. As per the ‘Technical Guide on Accounting’ issued by the Institute of Chartered Accountants of India, a company is only required to mention its CSR spends, non-spend, under-spend, and overspend in the ‘Notes to Accounts’.

SocialWhat are the suggestions to improve the mechanism of CSR?

  • Centralized platform: There is a need to curate a national level platform centralised by the MCA where all States could list their potential CSR admissible projects so that companies can assess where their CSR funds would be most impactful across India with, of course, preferential treatment to areas where they operate.
  • India Investment Grid: Invest India’s ‘Corporate Social Responsibility Projects Repository’ on the India Investment Grid (IIG) can serve as a guide for such efforts. This model would be very useful for supporting deserving projects in the 112aspirational districts and projects identified by MPs under the Government’s Sansad AdarshGram Yojana.
  • Increase environment spending: Companies need to prioritise environment restoration in the area where they operate, earmarking at least 25% for environment regeneration.
  • Public participation: All CSR projects should be selected and implemented with the active involvement of communities, district administration and public representatives.
  • Transparency: Recommendations by the high-level committee in 2018 should be incorporated in the current CSR framework to improve the existing monitoring and evaluation regime. These include strengthening the reporting mechanisms with enhanced disclosures concerning selection of projects, locations, implementing agencies, etc.; bringing CSR within the purview of statutory financial audit with details of CSR expenditure included in the financial statement of a company, and mandatory independent third party impact assessment audits.
  • Monitoring by government: The MCA and the line departments need to exercise greater direct monitoring and supervision over CSR spend by companies through the line ministries (for public sector undertakings) and other industry associations(for non-public units) instead of merely hosting all information on the Ministry’s website.

SocialConclusion

  • Corporate social responsibility is an effective tool to address the social and income inequality. Present legal arrangements are toothless and based on voluntary actions. For an effective change CSR spending should be made more transparent and accountable.

Mains Question.

Q.Present arrangement of CSR is not yielding the desired result. Enlist the current weakness in CSR spending Suggest the changes needed for efficient implantation of CSR.

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Corporate Social Responsibility: Issues & Development

CSR needs positive reforms to support NGO’S

Note4Students

From UPSC perspective, the following things are important :

Prelims level: particulars of funding

Mains level: corporate governance

CSRContext

  • The evolving role of CSR in funding NGOs

What is NGO?

  • A non-governmental organization is an organization that generally is formed independent from government. They are typically non-profit entities, and many of them are active in humanitarianism or the social sciences; they can also include clubs and associations that provide services to their members and others.

What is CSR?

  • Corporate social responsibility CSR is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices.

Why NGO’s are important?

  • When COVID-19 spurred a nationwide lockdown in India in 2020, a grave need for localised social support emerged. Giving, both private and public, flowed to NGOs working towards combating pandemic-induced challenges such as loss of livelihood for vulnerable communities, food banks, and health and medical support.

CSR key fact

All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

CSRIssues with CSR funding to NGO

  • No organization development: CSR funders mostly contribute little or no money to organisational development and limit what they pay for indirect costs to a fixed rate often below 5%. 2020 primary research showed that NGOs’ indirect costs range from 5% to 55%, depending on their mission and operating model, much as a corporate’s sales and administration costs vary significantly by industry and product.
  • Regulatory framework: These practices are partly a consequence of CSR funders’ focus on regulatory compliance amendments to the CSR law in 2021 include substantial financial penalties for noncompliance.
  • Errors on safety: Many CSRs make errors on safety with the unintended consequence of leaving an NGO with unpaid bills or worse still, drawing on its scarce core funding from other donors to pay for these essential costs.

CSRHow to improve CSR governance?

  • Increase transparency: Transparency is the ultimate trust-builder, and should be considered a guiding principle for any socially responsible company. This concept should apply to goals, ongoing initiatives, and ultimate progress or results.
  • Focus on equity: Equity is a vital lens through which to evaluate business practices and CSR strategy, at both a micro and macro level. Not only is ensuring that program furthers social and racial justice a cornerstone of the very essence of corporate responsibility, but study after study establishes that improved diversity and inclusion leads to better outcomes for everyone from increased innovation and competitiveness, to stronger ethics and team culture.
  • Deepen community connections: Deepening your organization’s connection to those on the other side of your CSR projects will have far-reaching benefits. These could likely include developing a more impactful program, as you strengthen your understanding of the needs of the community served.
  • Encourage creativity: Creativity as a principle may feel out of place in a discussion of how to improve CSR. Yet it’s a concept increasingly invoked in philanthropic thought leadership, and for good reason.

Conclusion

  • The idea is to move beyond signing cheques to recognising that, ultimately, what’s good for Indian society is also good for business.

Mains question

Q. why the role of CSR is becoming important in NGO funding? What are the issues with CSR? Discuss the way forward.

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Corporate Social Responsibility: Issues & Development

Govt’s clarifications on CSR Expenditure

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CSR Expenditure rules

Mains level: CSR

The Ministry of Corporate Affairs has clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

What is Corporate Social Responsibility (CSR)?

  • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
  • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

CSR in India

  • India is the first country in the world to make corporate social responsibility (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.

All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

What is the recent clarification?

  • The MCA has clarified that excess Corporate Social Responsibility (CSR) expenditure prior to FY21 cannot be set off against future CSR expenditure requirements.
  • Corporate donations to government schemes cannot be counted as CSR.
  • The ministry has also clarified that companies have to ensure that funds transferred to implementing agencies are actually utilized for them to be counted towards mandatory CSR expenditure.

Impact of the move

  • This clarification may impact donations to state government schemes which are often done for the sake of managing relationships with the government.

Earlier changes

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Corporate Social Responsibility: Issues & Development

Amendment to the CSR Rules

Note4Students

From UPSC perspective, the following things are important :

Prelims level: Not Much

Mains level: CSR, SSR

The Corporate Affairs Ministry has amended the rules for Corporate Social Responsibility (CSR) expenditure to allow companies to undertake multi-year projects, and also require that all CSR implementing agencies be registered with the government.

Q.What do you mean by CSR? Discuss the role of CSR activities in social transformation.

What is Corporate Social Responsibility (CSR)?

  • CSR is a type of business self-regulation that aims to contribute to the societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically-oriented practices.
  • It rests on the ideology of “give and take” i.e. to take scarce resources from the environment for running a business, and in turn to contribute towards economic, social, and environmental development.

CSR in India

  • India is the first country in the world to make corporate social responsibility (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.

All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.

What are the new amendments?

  • The amended CSR rules allow companies to set off CSR expenditure above the required 2 percent expenditure in any fiscal year against required expenditure for up to three financial years.
  • There lies an ambiguity whether the rule would apply for expenditure undertaken prior to the amendment.
  • The government is thus allowing corporates that have in good faith incurred excess CSR expenditure in the past to set it off against future CSR expenditure requirements.

Other key changes

  • The amended rules require that any corporation with a CSR obligation of Rs 10 crore or more for the three preceding financial years would be required to hire an independent agency to conduct an impact assessment of their entire project with outlays of Rs 1 crore or more.
  • Companies will be allowed to count 5 percent of the CSR expenditure for the year up to Rs 50 lakh on impact assessment towards CSR expenditure.

What are the changes required for implementing agencies?

  • The new amendment restricts companies from authorizing either a Section 8 company or a registered public charitable trust to conduct CSR projects on their behalf.
  • A Section 8 company is a company registered with the purpose of promoting charitable causes, applies profits to promoting its objectives, and is prohibited from distributing dividends to shareholders.
  • Further, all such entities will have to be registered with the government by April 1.

Impact of the move

  • The change would impact CSR programs of a number of large Indian companies that conduct projects through private trusts.
  • It would mean such private trusts would either have to be converted to registered public trusts or stop acting as CSR implementing agencies.

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Corporate Social Responsibility: Issues & Development

Covid-19 donations to CM Relief Fund won’t qualify as CSR

Note4Students

From UPSC perspective, the following things are important :

Prelims level: CSR and its regulation

Mains level: CSR/SSR activities and their impacts on social transformation

The corporate affairs ministry has clarified that COVID-19 donations to CM Relief Fund won’t qualify as CSR contributions.

Contributions considered under CSR

  • According to the ministry, contributions made to the State Disaster Management Authority to combat COVID-19 would qualify as CSR expenditure.
  • The contributions by companies to PM-CARES Fund to tackle the pandemic would be considered as CSR.
  • Ex-gratia payments made to temporary, casual and daily wage workers by companies will be considered as CSR expenditure under the company’s law, provided that such payments are over and above disbursement of wages.
  • The contribution towards ‘Chief Minister’s Relief Fund’ or ‘State Relief Fund for COVID-19’ would not be considered as spending towards CSR work.

Note: Please remember or make note of the various contributions complying for CSR.


Back2Basics: CSR in India

  • India is the first country in the world to make corporate social responsibility (CSR) mandatory, following an amendment to the Companies Act, 2013 in April 2014.
  • Prior to that, the CSR clause was voluntary for companies, though it was mandatory to disclose their CSR spending to shareholders.
  • Businesses can invest their profits in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.
  • Under the Companies Act, 2013, certain classes of profitable entities are required to spent at least 2 per cent of their three-year average annual net profit towards CSR activities.
  • Under Section 135 of the Companies Act, 2013, every company having net worth of at least ₹500 crore, turnover of ₹1,000 crore or more, or a minimum net profit of ₹5 crore during the immediately preceding financial year, has to make CSR expenditure.

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