Companies and their responsibility towards Corporate Social Responsibility

The European Union has defined Corporate Social Responsibility (“CSR“) as, “A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.”

In one of our last articles, Amendments to the Laws related to Corporate Social Responsibility in India, we had discussed the provisions of CSR under Section 135 of the Companies Act, 2013 (“Act“) and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules“). Section 135(1) of the Act provides that companies having net worth of Rs. 500 Crore or more or turnover of Rs. 1000 Crore or more or net profit of Rs. 5 Crore during the immediately preceding financial year are required to form a CSR committee of their board of directors. Such CSR committee assists in formulating and recommending a CSR policy as well as monitoring the same. Additionally, the board of directors of these companies are required to ensure that in every financial year a company spends at least two percent (2%) of the average net profits made by it in the previous financial year^[1] in pursuance of its CSR policy.

CSR Reporting

As per the CSR Rules, the board’s report pertaining to a financial year commencing on or after April 1, 2014 must include an annual report on CSR. If it’s a foreign company, the filed balance sheet should contain an annexure regarding the CSR report. Such report should be presented in the general meeting of the company^[2]. Further, the board of each company is required to disclose the contents of their respective CSR policy in the report and the same must be displayed on the website of the company. The CSR Rules contain an annexure which prescribes the format for the report on CSR activities which is required to be included in the board’s report.

Contribution by Companies towards CSR

In 2017, the Ministry of Corporate Affairs (“MCA“) provided statistics of the companies that had reported CSR in their annual reports (for the financial year 2015-2016). The below stated table (first table) reflects the CSR spending of the top twenty (20) companies as revealed by the MCA portal. The original table is available at the MCA website^[3] and contains information of a total of 5,097 companies which reported their respective CSR activities. Another set of data also revealed the state wise projects pertinent to CSR taken up by the companies. Additionally, as per the sector wise development data, the sectors that had majorly gained out of the CSR expenditure were sanitation and health related, education and rural development (as represented in the second table).

As per the records available on the MCA portal, there has been no update in providing the yearly reviews of the CSR expenditure post the financial year 2015-2016.

According to a survey conducted by KPMG, “India’s CSR Reporting Survey 2018”^[4] (“Survey Report“), Indian companies during the year 2017-2018 have spent seven thousand five hundred and thirty six point three crores (Rs. 7,536.7/- crores) on CSR. The Survey Report mentions that this amount is 47% higher as compared to the amount spent in 2014-2015 and that the number of companies that have spent less than 2% has also substantially come down by 37% to 33 companies in 2017-18 from 52 in 2014-15. The Survey Report also mentions the reasons that have been given by the companies for not spending the required percentage of amount. 44% of the companies have stated delay in implementation or exploring opportunities followed by 24% companies stating long term projects. The Survey Report also added that as per state-wise expenditure, Maharashtra, Gujarat, Rajasthan, Uttar Pradesh and Karnataka are the top five states contributing towards CSR.

Prominent Indian companies like GAIL, the Tata group, ITC group, Mahindra & Mahindra etc have been undertaking CSR activities for a long time even before CSR was made mandatory under the Act. This has also led to effective stakeholder engagement. The Tata group, through the Tribal Culture society, has worked for the tribal and the adivasis of Jharkhand and Jamshedpur. Through various initiatives like DISHA which aims at building the capacities of the adolescents, SPARSH which aims at promotion of sexual health and improve the status of girl child in India, the group has been actively contributing in building the society. GAIL has adopted ‘Swacch Bharat Abhiyaan’ and has championed the cause of sports by scouting and grooming talent from rural areas for the Olympics 2020 as part of the GAIL Raftar. ITC group assists the stakeholders at the grass root level by providing 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. The group’s social and farm forestry program assists farmers by converting wasteland to pulpwood plantations. Mahindra & Mahindra runs programs such as Nanhi Kali focusing on girl education, Mahindra Pride Schools for industrial training, and Lifeline Express for healthcare services in remote areas.

Monitoring of CSR activities

At present, there are no explicit regulations that require third party monitoring of CSR activities or the CSR expenditure. Recent amendments provided stringent penalties to ensure implementation of the CSR related provisions, however, the same has been put on hold by the Government.