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Why Corporate Social Responsibility?

Corporate Social Responsibility
Source: Google

What is Corporate Social Responsibility?

Corporate Social Responsibility (CSR) is a concept whereby organizations serve the interests of society by taking responsibility for the impact of their activities on customers, employees,
shareholders, communities and the environment in all aspects of their operations. Corporate social responsibility is not about just giving randomly but about bringing benefits to all the stakeholders, including customers, employees, and the community at large.
Corporate Social Responsibility is the way companies manage their businesses to produce an overall positive impact on society through economic, environmental, and social actions. Corporate social responsibility (CSR), also called corporate conscience, corporate citizenship, social performance, or sustainable responsible business/businesses. Business for its survival depends on long term prosperity of the society.

Why Corporate Social Responsibility is Important?

The CSR is important to the corporate to sustain in the environment:

  • Reduction in operative cost: Corporate social responsibility helps companies in a reduction in operating costs, this may include recycling, water conservation, energy efficiency, etc..
  • Increased Sales and Customer Loyalty: The customers also recognize those companies which are socially responsible. This results in increased sales and content customers.
  • Higher productivity and Quality: Company as an essential of its triple bottom line, focuses on improving the working conditions of it employees, people in its supply/distribution chain, which helps in increased productivity with better quality
  • Access to Capital: The companies with strong CSR have increased access to capital that might not otherwise have been available. Even the lending institutions are cautious and are considering this as an important parameter of granting loans.
  • Boost in Brand Image and Reputation: CSR is an essential brand-building tool used by companies to enhance their reputation amongst the stakeholders.
  • Poverty Alleviation: India is home to almost 1.4 billion people and the top 1% of its population owns 73% of the wealth. In spite of the plethora of welfare programs, the gap between the haves and have-not is one of the steepest in the world. The corporate sector’s core competency is the execution of projects. They have the talent and know-how to ensure maximum impact at minimum cost. CSR programs bring out change at the grassroots level by harnessing this operational efficiency. 

Also read about Consumer Protection Act 2019

Corporate Social Responsibility and Companies Act, 2013:

With the introduction of the new Act, there is a statutory obligation for the corporate to take initiatives
towards Social, Environmental, and Economic Responsibilities. The initiatives taken have to be reported to the company and other stakeholders appropriately. Section 135 of the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014 framed thereunder govern CSR in India.

As per rule 2(c) of the CSR Rules “Corporate Social Responsibility means and includes but is not limited to:
(i) projects or programs relating to activities specified in Schedule VII of the Act; or
(ii) projects or programs relating to activities undertaken by the board of directors of a company (Board) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company subject to the condition that such policy will cover the subjects enumerated in Schedule VII of the Act.”

Section 135 of the Act provides for the applicability of the CSR provisions on corporate. Sub-section (1) of section lays down that every company having
-the net worth of Rs. 500 Crore or more; or -turnover of Rs. 1000 Crore or more; or -net profit of Rs. 5 Crore
during any financial year shall be required to constitute a CSR Committee
of the Board consisting of three (3) or more directors, out of which at
least one(1) director shall be an independent director.

According to sub-section (5) of the section 135 of the Act, The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy:

Complete Provision can be read here.

Why Is Corporate Social Responsibility mandatory in India?

Many have abandoned the idea that CSR should be voluntary. The voluntary approach has been
widely criticized for the impossibility of sanctioning harmful practices and the lack of transparency and credibility of CSR reports. By following the voluntary approach, corporations are given too much freedom in implementing CSR practices, and they are not even compelled to make periodical reports on CSR implementation.

Because of the pressing needs of the Indian population, the Government of India is getting companies to help in the development process more proactively. If companies are not mandated, even though some companies make efforts to be socially responsible and contribute to social welfare, most of them are focused on obtaining profits and maximizing shareholder value.

Corporate Social Responsibilities by Indian Companies :

Corporate Social Responsibility
Corporate Social Responsibility
Source:ET
  • 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.
  • Reliance Ltd: In rural transformation, RIL made 75 percent of the villages covered under the program water secure, 75 percent of families under the program were made food secure, 80 percent increase in nutrition among children studying in Anganwadi schools, 77 percent farmers reported increase in farm income, 83 percent farmers reported reduction in input cost of farm implements, and 75 percent of fisherfolk reported better outcomes as a result of RIL advisory.
  • ONGC Ltd: The company exceeded its spending over the previous year. Of this, the company spent Rs 246 crores on health care which included a 300-bed hospital in Shivsagar district, Assam, part-financed a 455-bed Cancer hospital in Nagpur, operated 31 mobile medical units covering 371 villages in 9 states, and a new wing for pre and post-natal treatments in the 168-year old Lady Goschen Government Hospital in Mangalore. The company also spent Rs 246 crores on water and sanitation projects as part of the Swachh Bharat initiatives.

Conclusion:

Violation of CSR norms will attract fines for both the company and defaulting officers ranging from Rs 50,000 to Rs 25 lakh, with officers also liable for imprisonment of up to three years, as per the provisions in the Companies Amendment Act, 2019.

“It was easy for people to interpret that either we comply or we give an explanation and get away with it. Now that is not happening because Section 135 (of the Companies Act) is being amended to provide specific penal provision in case of non-compliance,”

UNION finance minister Nirmala Sitharaman

Considering the increasingly vast and complex business environment, CSR, plays a major role in various ways which include attracting and retaining employees in a such a way as to increase the morale of the employees along with creating a sense of belonging to the company and contributes towards enhancement of company’s own goodwill, positive image along with bringing competitive advantages.

This article is written by Mahima Rathod and edited by Rupreet Kaur Dhariwal.

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