CSR: What is Corporate Social Responsibility?

Medical camps, healthcare campaigns, installation of solar panels, promotion of sports & culture and many more are several examples of CSR commonly seen in daily life. Corporate social responsibility or CSR in India refers to the initiatives, including philanthropic activities undertaken by companies to contribute to our country's social, economic, and environmental development. 

India is the only country in the world with a legislature on mandatory CSR. The biggest corporations in the country are mandated to spend 2% of their net profits under CSR as per Company’s Act 2013.

Which companies should have CSR in India?

The Companies Act of 2013 made it mandatory for companies with a certain level of turnover or profits to spend 2% of their average net profit over the preceding three years on CSR activities. This Act also mandates companies to set up a CSR committee of at least three directors, including one independent director & to report on their CSR initiatives in their annual reports.

• Under the 2013 Act, the following companies in India are needed to undertake CSR activities which include foreign companies having a branch office, project office or liaison office in India:

1. Companies with a net worth of Rs. 500 crores or more

2. Companies with a turnover of Rs. 1,000 crores or more

3. Companies with a net profit of Rs. 5 crores or more.

• CSR activities in India comprise a wide range of activities like education, skill development programs, healthcare and sanitation initiatives, community development projects, and environment & disaster relief efforts. 

• Many companies also engage in other philanthropic activities, such as donating to charities and social causes.

• India and other countries have introduced regulations requiring companies to spend a certain percentage of their profits on CSR activities. Compliance with these regulations can help companies avoid penalties and legal consequences.

4. CSR activities also help build brand value & reputation alongside economic development, creating employment opportunities etc.

Companies doing CSR activities in India

CSR has a positive impact on the environment & society and helps the company build reputation & brand value. The concept of CSR has been gaining momentum in India & many companies have started taking it very seriously. Many big companies in India are actively involved in CSR activities. Few examples are:

1. Tata Group: Tata Group is one of India's largest conglomerates and is renowned for its philanthropic activities. Tata Group’s charitable arm, the Tata Trusts have undertaken a wide range of initiatives in areas like education, healthcare, rural development & disaster relief.

2. Reliance Industries: Reliance Industries is one of India's largest private sector companies having strong grip on CSR. The company has undertaken initiatives in many areas like education, healthcare, rural development, and environmental sustainability.

3. Infosys: Infosys is India’s one of leading IT companies with a strong hold over education and skill development. The company has set up the Infosys Foundation, which undertakes initiatives in areas like education, healthcare, and rural development.

4. Wipro: Wipro is another leading IT company in India, with a strong grip on environmental sustainability. The company has undertaken initiatives to reduce its carbon footprint, conserve water & promote renewable energy.

5. HDFC Bank: HDFC Bank is one of India's leading private sector banks, undertaking initiatives in several areas like education, healthcare, and environmental sustainability. The bank has set up the HDFC Bank Parivartan program, that primarily focuses on skill development & livelihood generation in rural areas.

Apart from these, many other big and small companies are also active in the country's social, economic, and environmental development.

Which company has the highest CSR in India?

It's difficult to identify a single company with the highest CSR in India, as CSR is a broad and diverse field, and many companies have implemented successful CSR initiatives. However, a few of the top 10 companies leading in CSR activities for FY 2021-22 are:

1. Reliance Industries Limited – 737 Crore Rupees

2. HDFC Bank Limited – 733.86 Crore Rupees

3. Tata Consultancy Services Limited – 716 Crore Rupees

4. Oil And Natural Gas Corporation Limited – 436.02 Crore Rupees

5. Infosys Limited – 396.7 Crore Rupees

6. ITC Limited – 354.27 Crore Rupees

7. Indian Oil Corporation Limited – 323.14 Crore Rupees

8. NTPC Limited – 281.8 Crore Rupees

9. Tata Steel limited – 266.57 Crore Rupees

10. ICICI Bank Limited – 261.73 Crore Rupees

CSR violations by Companies in India

There have been several CSR violations by Indian companies in recent years. Here are few examples:

1. Vedanta Resources violation: In 2010, the Indian govt. launched an investigation into Vedanta Resources, a UK-based mining company, for violating environmental & human rights regulations. It was accused of polluting rivers and destroying forests in the state of Orissa, displacing thousands of indigenous people from their land.

2. Tata Motors violation: In 2006, Tata Motors faced protests and legal challenges over its plan to build a car factory in Singur, West Bengal. Farmers and local activists stated that the state government had forcibly acquired the land without adequate compensation, and that the project would harm the environment and displace thousands of people leading to the abandonment of this project.

3. Coca-Cola violation: In 2004, the company was forced to shut down a bottling plant in Plachimada, Kerala, following protests by local communities over the depletion of groundwater & contamination of soil and water sources. Hence, the Coca-Cola Company faced allegations of depleting groundwater and polluting the environment in many parts of India. 

4. Nestle violation: In 2015, Nestle faced a major controversy over its Maggi noodles, which were found to contain high levels of lead and MSG (monosodium glutamate), a flavour enhancer. The incident led to a nationwide call for a ban on its sale in several states. The Indian government also fined Nestle for violating food safety regulations.

5. Union Carbide violation: The most popular and devastating disaster of India, the 1984 Bhopal gas tragedy, in which thousands of people died, and environment was damaged due to a gas leak from a pesticide plant owned by Union Carbide Corporation (now part of Dow Chemicals), is one of the most infamous cases of CSR violations in India as the incident lacked a lot of adequate safety measures.

What is the Companies (Corporate Social Responsibility Policy) Rules, 2014?

• Schedule VII of the Act provides an illustrative list of a company's CSR activities. 

• The Corporate Social Responsibility (CSR) provisions are governed under Section 135 of the Companies Act, 2013, read with the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Schedule VII. 

• Expenditure on CSR activities was made mandatory in 2014 & since then, several amendments have been introduced to these.

• Currently, these Rules, which were last amended by the Ministry of Corporate Affairs (“MCA”) in January 2021, have been amended by the MCA in September, 2022.

This 2022 amendment was the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022. Under this amended 2022 rules, the following changes have been made:

1. Establishment of a CSR committee for unspent CSR amount

Subject: Insertion of new proviso after the proviso to sub-rule 1 of Rule 3

Companies must establish a CSR committee to monitor the execution of their CSR commitments & funds in their “Unspent Corporate Social Responsibility Account”. Companies may keep these unused funds for CSR, but it must be used within three years. Its utilisation is to be monitored by the CSR committee. The Amendment Rules have also taken away the relaxation given to companies not to form a CSR committee.

2. Change in Expenditure for Impact Assessment

Subject: Amendment in clause c of sub-rule 3 of Rule 8:

Previously, the CSR Rules authorised up to 5% of overall CSR expenditures, or rupees 50 lakh, whichever was less for impact assessment. But this amendment provide that the cost of social impact assessments, considered as CSR spending, cannot be greater than 2% of all CSR expenditures for the applicable financial year or rupees 50 lakh, whichever is higher. The amendment allows major impact assessment spending in the event of substantial CSR projects.

3. Amendment in format for the annual report on CSR activities to be included in the board’s report of a company

Subject- Revised format for an annual report on CSR activities

The Amendment provide for a new format for the annual report on CSR activities (annual report is discussed above in this article). All companies must provide the following information in the annual report:

• Brief explanation of its CSR policy;

• Information about the members of the CSR committee like name of the director, his/her designation, number of meetings of CSR Committee held & number of meetings of attended by the director

• Web links to the company's website where the CSR Committee's membership, CSR policy, and CSR projects approved by the board are listed

• Executive summary and web links for the impact assessments of CSR projects.

Companies must now even disclose in the annual report, information regarding the CSR amount allocated to ongoing projects and other than ongoing projects, particulars of excess amount for set-off, if applicable and unspent CSR amount for the preceding (previous) three financial years. If any capital assets were generated or bought as a result of the company's CSR spending during the financial year, the company must specify the number. Additionally, suppose the company fails to spend 2% of the average net profits of the three immediately preceding financial years for CSR. In that case, reasons for the same must be provided in the annual report.

4. Omission of sub-rule 2 of Rule 3

Previously, the CSR provisions ceased to be applicable to a company when it ceased to meet the criteria mentioned in Section 135(1) for three consecutive financial years. Under the new Rules, this provision has been taken away. Once the CSR provisions become applicable on a company, they will continue to be applicable.

5. Substitution of sub-rule 1 of Rule 4

The Board shall ensure that the CSR activities are undertaken by the company itself or through:

1. 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, established by the company, either singly or along with any other company.

2. a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government.

3. any entity established under an Act of Parliament or a State legislature.

4. 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, and having an established track record of at least three years in undertaking similar activities. 

Explanation under this provision- For the purpose of clause (c), the term “entity” shall mean a statutory body constituted under an Act of Parliament or State legislature to undertake activities covered in Schedule VII of the Act. 

Before this amendment of 2022, the above-mentioned clauses a, b, c, and d included only those companies established under the provisions of Section 8 of the Act, or registered public trusts or registered societies who were registered under Sections 12A and 80 G of the Income Tax Act, 1961 were eligible under the said rule. 

But, presently, the scope has been widened to include those companies established under section 8 of the Act, or registered public trusts or registered societies which are 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. 

Punishments for CSR violation

In India, the Companies Act of 2013 requires companies to spend a certain percentage of their profits on CSR activities in compliance with the CSR Rules of 2022. But, the failure to comply with these regulations can result in penalties and other consequences, which are:

1. Monetary Action: Companies which fail to spend the required amount on CSR activities can be fined up to 2% of their average net profits for the preceding three years.

2. Legal Action: The government can take legal action against companies that fail to comply with CSR regulations, including filing criminal charges or revoking the company's registration.

3. Damage to company’s reputation: Non-compliance with CSR regulations can harm a company's reputation, leading to loss of business, difficulty in attracting investors and employees & damage to brand value.

4. Blacklisting: Non- compliance with CSR regulations may result in the blacklisting of the companies by government agencies or barring them from participating in public procurement processes.

Hence, It is significant for companies to take CSR very seriously and comply with CSR regulations, as avoiding it can have serious legal consequences. CSR also helps in building trust with stakeholders and contributes to economic & sustainable development. Thus, making it crucial for the country’s upliftment.