Corporate Social Responsibility – Applicability and Implementation

Corporate Social Responsibility (CSR) refers to the ethical practices and obligations that companies have towards society and the environment. The concept of CSR has gained widespread acceptance in recent years, and many businesses have incorporated it into their operations. The purpose of this article is to discuss the applicability and implementation of CSR in modern business operations.

Quick Look

Corporate Social Responsibility (CSR) is mandated for Indian businesses by the Companies Act, 2013. Companies with a net value of Rs. 500 crore or more, a turnover of Rs. 1,000 crore or more, or a net profit of Rs. 5 crore or more are required under the act to spend at least 2% of their three-year average net profit on CSR activities. 

The execution of CSR activities is left to the company’s discretion, and they can choose to engage in activities such as education, healthcare, the environment, and social welfare. Companies must declare their CSR initiatives in annual reports and on their websites.

The Ministry of Corporate Affairs has also set up a National CSR Data Portal to track the implementation of CSR activities by companies.

Understanding Corporate Social Responsibility

The concept of CSR can be defined as a company’s responsibility to contribute to sustainable development by delivering economic, social, and environmental benefits for all stakeholders. This definition implies that CSR involves not only meeting legal requirements but also acting in the best interests of society and the environment. CSR initiatives may include charitable donations, community service, environmental conservation, employee welfare, and ethical business practices.

Corporate Social Responsibility (CSR) is a type of international private business self-regulation that strives to contribute to philanthropic, activist, or benevolent societal goals through volunteering or ethically oriented operations.

CSR is a voluntary commitment that businesses take to guarantee that their business activities benefit society and the environment. It entails accepting responsibility for the company’s operations’ influence on consumers, employees, shareholders, communities, and the environment. Education, healthcare, the environment, and social welfare are examples of CSR activities. CSR has grown over time, and it now encompasses environmental responsibility, emphasizing the necessity of sustainable sourcing and decreasing the company’s carbon footprint.

CSR is commonly considered at the organizational level as a strategic activity that contributes to the reputation of a brand. As a result, for social responsibility efforts to be successful, they must be clearly aligned with and integrated into a business model.

Importance of Corporate Social Responsibility

CSR is a broad phrase that is used to describe a company’s efforts to benefit society in any way. The following reasons demonstrate the significance of CSR:

• CSR enhances the public image by publicizing efforts to create a better society and raising the likelihood of becoming favourable in the eyes of consumers.
• CSR boosts media coverage since favourable media coverage benefits the organization.
•  CSR increases the value of a company’s brand by forging socially strong relationships with customers.
•  When businesses are involved in any type of community, CSR helps them stand out from the competitors:

Applicability of Corporate Social Responsibility

CSR is applicable to all businesses, regardless of their size or industry. Every organization has a social responsibility to ensure that its operations are sustainable and contribute positively to society. CSR is especially relevant for companies that have a significant impact on the environment, such as those in the oil and gas, mining, and manufacturing industries. Companies in these industries must adopt environmentally friendly practices to minimize their impact on the environment and ensure the sustainability of natural resources.

Corporate Social Responsibility Committee Applicability

The following are the applicability of Corporate Social Responsibility Committee:

• Every company to whom CSR standards apply must have a Corporate Social Responsibility (CSR) Committee.
• The CSR Committee should be composed of three or more directors, one of whom must be an independent director.
•  If an independent director is not necessary, an unlisted public company or a private corporation may form a CSR Committee without one.
•   A private firm with only two directors on its Board must form a CSR Committee of two directors.
• In the case of a foreign firm, the CSR Committee must consist of at least two people, one of whom must be a person resident in India who is authorized to take notices and other documents on behalf of the foreign company.
• A corporation that has money in its Unspent Corporate Social Responsibility Account must form a CSR Committee and follow the CSR rules.

Implementation of Corporate Social Responsibility (CSR)

Implementing CSR requires a concerted effort on the part of the organization. The following steps can help companies implement CSR successfully:

• Conduct a CSR Audit: A CSR audit is an essential first step in implementing CSR. It involves analyzing the company’s operations and identifying areas where it can make a positive impact on society. The audit should cover all aspects of the business, including its supply chain, product development, marketing, and community engagement.

• Set CSR Goals: After conducting a CSR audit, the organization should set CSR goals. These goals should be specific, measurable, and aligned with the company’s overall mission and values. The goals should be achievable within a specified timeframe.

• Develop a CSR Strategy: The CSR strategy should outline how the organization plans to achieve its CSR goals. It should include specific initiatives and programs, along with a timeline for implementation. The strategy should be flexible enough to accommodate changes in the business environment and stakeholder expectations.

• Engage Stakeholders: Engaging stakeholders is critical to the success of CSR initiatives. Companies should involve stakeholders in the development and implementation of CSR programs. Stakeholders can provide valuable insights into the needs and expectations of the community and help identify areas where the company can make a positive impact.

• Monitor and Evaluate: Monitoring and evaluating CSR initiatives is essential to ensure that they are achieving their intended outcomes. The organization should establish metrics to measure the effectiveness of its CSR programs and regularly review progress against these metrics. This will enable the organization to identify areas for improvement and make necessary adjustments to its CSR strategy.

Corporate Social Responsibility Reporting

CSR reporting is the process of communicating a company’s CSR initiatives and their impact to its stakeholders. CSR reports typically include information on a company’s CSR policies, goals, and achievements, as well as the challenges that the company has faced in implementing its CSR initiatives.

CSR reporting is an important tool for companies to demonstrate their commitment to CSR and to build trust with their stakeholders. It provides stakeholders with an understanding of a company’s impact on social and environmental issues and helps them make informed decisions about whether to support the company.

The provisions for CSR Reporting are as follows:

• The Board’s Report for any fiscal year beginning on or after April 1, 2014, shall contain an annual report on CSR.
•  In the event of a foreign company, the balance sheet must include an Annexure including a CSR report.

Key Elements of CSR Reporting:

• Materiality: CSR reporting should focus on the issues that are most relevant to a company’s stakeholders and that have the greatest impact on society and the environment.
• Stakeholder Engagement: Companies should engage with their stakeholders throughout the CSR reporting process to ensure that the report reflects stakeholder expectations and concerns.
• Balance: CSR reporting should provide a balanced view of a company’s CSR initiatives, including both successes and challenges.
• Credibility: CSR reporting should be transparent and based on reliable data that has been independently verified.

Corporate Social Responsibility Policy

A CSR policy is a set of guidelines that a company adopts to ensure that its operations are socially and environmentally responsible. A well-defined CSR policy will outline a company’s values, goals, and commitments in relation to social and environmental issues. It will also specify the procedures and processes that the company will use to implement its CSR initiatives.

The CSR Policy elaborates on the actions and expenditures to be done by the Company as specified in Schedule VII to the Act. The operations should not be the same as what the corporation does in its normal course of business.

• The Board should post the contents of the CSR Policy on the company’s website.

• The company must carry out the actions specified in the policy.
• The Company may collaborate with other companies to carry out projects, programs, or CSR initiatives, and may report separately on such programs or projects.
• The CSR policy must keep track of the projects or programs.

The key areas that a CSR policy typically covers include:

• Environmental Sustainability: This refers to a company’s commitment to reduce its carbon footprint, conserve natural resources, and minimize waste.
• Ethical Labor Practices: This includes ensuring that employees are treated fairly and with respect, and that the company’s supply chain is free from exploitation and abuse.
• Community Involvement: This involves supporting local communities through charitable donations, volunteer work, and other forms of community engagement.
• Transparency and Accountability: This includes reporting on the company’s CSR activities and engaging with stakeholders to ensure that the company’s CSR efforts are aligned with stakeholder expectations.

Corporate Social Responsibility Expenditure

The Board of Directors of each company to which CSR applies shall ensure that the company spends at least 2% of its average net profits made during the three immediately preceding fiscal years, or, if the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, in accordance with its Corporate Social Responsibility Policy. 

If a firm’s expenditure is more than the requirements stipulated in a fiscal year, the excess amount may be set off against the requirement to spend for three immediately subsequent fiscal years and in the manner prescribed by the Companies Act, 2013.

• Transfer of Unspent Amount: If the company fails to spend such amount, the Board shall specify the reasons for not spending the amount in its report and, unless the unspent amount relates to any ongoing project, transfer such unspent amount to a Fund specified in Schedule VII within six months of the fiscal year’s end.

Fine and Penalties of Non-Compliance under Corporate Social Responsibility

If the corporation does not follow the CSR provisions, it may face legal consequences. If the company fails to spend the required amount or transfer the unspent amount to the respective account as stated above, it will face a penalty of twice the amount required to be transferred to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account or one crore rupees, whichever is less.

Furthermore, any officer of the company who is in default shall be subject to a penalty of one-tenth of the amount required to be transferred by the company to such Fund specified in Schedule VII, or the Unspent Corporate Social Responsibility Account, whichever is less, or two lakh rupees.

Activities to be included in Corporate Social Responsibility

The Board shall verify that a company’s CSR Policy activities are within the scope of the activities listed in Schedule VII. Some activities are included in Schedule VII as activities that firms may incorporate in their Corporate Social Responsibility Policies. These activities are associated with:

• Eradicating poverty, starvation, and malnutrition; promoting health care, including sanitation and preventive health care; and contributing to the Central Government’s Swachh Bharat Kosh initiative to promote cleanliness and make safe drinking water available.
• Education improvement, including special education and employment enhancing vocation skills among children, women, the elderly, and the differently abled, as well as livelihood enhancement projects.
• Improving gender equality, establishing houses and hostels for women and orphans, establishing old age homes, day care centres, and other services for elderly residents, and taking steps to reduce inequities experienced by socially and economically disadvantaged groups.
• Protecting environmental sustainability, ecological balance, flora and fauna protection, animal welfare, agro forestry, natural resource conservation, and maintaining soil, air, and water quality, which include a contribution to river Ganga rejuvenation.
• Protection of national history, art, and culture, including the repair of historical buildings and locations, as well as works of art; the establishment of public libraries; and the promotion and development of traditional arts and handicrafts.
• Measures to help veterans of the armed services, war widows and their dependents, veterans of the Central Armed Police services (CAPF) and the Central Para Military Forces (CPMF), and their dependents, including widows.
• Rural sports, nationally recognized sports, Paralympics sports, and Olympic sports all benefit from training.
• Contribution to the Prime Minister’s National Relief Fund (PM-CARES) or any other fund established by the Central Government for socioeconomic development providing relief and welfare to Scheduled Castes, Scheduled and backward classes, minorities, and women.
• Contribution to incubators or research and development initiatives in science, technology, engineering, and medicine supported by the Central Government, State Government, Public Sector Undertaking, or any Central Government or State Government agency.
• Projects for rural development.
•  Construction of slum areas.

Conclusion

In conclusion, CSR is an essential aspect of modern business operations that can benefit companies and society as a whole. By implementing CSR initiatives, companies can enhance their reputation, improve employee morale, and contribute to sustainable development. The key to successful CSR implementation is to develop a structured approach that involves identifying stakeholders, developing a strategy, allocating resources, communicating with stakeholders, and monitoring and evaluating progress.