Corporate social responsibility (CSR) has been always looked upon as a charitable philanthropic activity that a business is morally and ethically liable to perform as an act of contribution towards the betterment of the society. However, Harvard University described and elaborated on Corporate social responsibility (CSR) by stating that “Corporate social responsibility encompasses not only what companies do with their profits, but also how they make them.
It goes beyond philanthropy and compliance and addresses how companies manage their economic, social, and environmental impacts, as well as their relationships in all key spheres of influence: the workplace, the marketplace, the supply chain, the community, and the public policy realm.”
Since the concept Business has moral and ethical responsibility towards the society, in the light of the growing need for business to address societal issues, CSR has been made mandatory in the companies act, 2013.
How can a strong CSR program benefit your business?
CSR can benefit any business in multiple ways.
- Enhancing the reputation of your business : Goodwill, positive image and branding builds up the credibility factor for any type of business which in turn accelerates the growth and expansion of the company. Corporate social responsibility contributes in building up the goodwill of a company thus positioning them as one of the most desirable and responsible corporate entities.
- The inclusion of Community: Inclusion of community includes investing in the enhancement of quality life of the community backed by some Corporate social responsibility initiatives that are innovative by nature where in the community is incorporated in their supply chain. This has resulted in mutual benefits between society and the community
- Retention of Employees : Now a days retention of employees has become a big challenge for the companies at all levels. However, businesses involved in CSR activities are likely to experience high level of employee retention as it boosts up the morale of the employees and creates a sense of belonging for them.
CSR and Companies Act, 2013
As per the companies Act, 2013 section 135 clause, companies are mandated to form a CSR committee that have
- Networth of Rs 500 Crore or more.
- Turnover of Rs 1000 Crore or more.
- Net profit of Rs 5 Crore or more.
Furthermore, a CSR Committee is required to have three or more directors with at least one independent director. The committee will be formed by the board of directors wherein the disclosure of the constitution of the committee will be done in Board’s report. The CSR Committee will be responsible for
- Formulating CSR policy and recommending to board indicating the activities to be under taken as specified in schedule vii.
- Monitoring CSR Policy from time to time.
- Recommending the amount of expenditure to be incurred.
In the next step Board of Directors will
- Approve Corporate social responsibility (CSR) Policy.
- Ensure implementation of Corporate social responsibility (CSR) policy.
- Place the same on company’s website, if any.
- Ensure CSR spending amounting to at least 2% of the average net profit of the preceding three financial years.
- Board’s Report shall specify the reasons for not spending the specified amount.
- There is no penalty for failure to spend 2% of net profit on Corporate social responsibility.
The list of activities that can be undertaken by a company under Corporate social responsibility is enumerated in schedule 7 of the Act. As per the Act, only the Corporate social responsibility activities undertaken in India will be considered. The following methods can be used by a company to implement Corporate social responsibility activities
- Directly on its own.
- Via non-profit organizations that are independently registered and have 3 years record at least in similar activities.
- Through a non-profit venture.
- Pooling or collaborating their resources with other companies.
- Approve Corporate social responsibility (CSR) Policy.
- Ensure implementation of Corporate social responsibility (CSR) policy.
- Place the same on company’s website, if any.
- Ensure CSR spending amounting to at least 2% of the average net profit of the preceding three financial years.
- Board’s Report shall specify the reasons for not spending the specified amount.
- There is no penalty for failure to spend 2% of net profit on Corporate social responsibility.