Corporate Social Responsibility GSIV Ethics Paper

Corporate Social Responsibility GSIV Ethics Paper

As per World Business Council for Sustainable Development, Corporate Social Responsibility is the continuing commitment by a corporate to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of local community and society at large.

Provision of CSR under the Companies Act, 2013

• Section 135 of Companies Act, 2013 which contains CSR provisions is applicable to companies
  • With an annual turnover of ₹ 1000 crores and more, or
  • A net worth of ₹ 500 crores and more, or
  • A net profit of ₹ 5 crores and more.
• This act mandates companies to spend atleast 2% of their average net profit in the previous three years on the CSR activities.

Significance of CSR

• Moral appeal
  • It appeals to companies to be good citizens along the lines of Gandhiji’s Trusteeship principle.
• Satisfaction
  • This proposes that companies should not look only to satisfy their shareholders but other stakeholders who are directly or indirectly in the affairs and environment of company.
• Public image
  • Companies under CSR activities tend to enjoy brand value and good public image. e.g. TATA Group of companies.
• License to companies
  • CSR provides companies to gain the trust of local communities and ensure that the resources are also allocated for the development of local communities.
• Profitability
  • CSR activities increase profitability of the company as ethical conduct exerts a growing influence on purchasing decisions of the customers.

Also Read : Corporate Governance: Significance, Issues and Recommendations

Issues with the CSR

• Lack of implementation
  • There is very little strategic thinking and innovation in implementation of CSR. The larger goal of CSR is not understood, companies view it as only a charitable endeavor.
• Lack of robust policy
  • There is lack of long-term robust CSR policy which leads to failure in giving definitive direction to CSR spending.
• Ease of implementation
  • Many CSR efforts are mainly driven by company’s operational perspective and ease of implementation. Example : combating diseases and education account for 44% of total CSR expenditure.
• Duplication of activities
  • Duplication of activities by different companies which results in competitive approach rather than collaborative appraoch.
• Viewed as additional corporate tax
  • The CSR law is often viewed as a 2% tax, albeit spent by the firms rather than given to the government.
• Skewed pattern of expenditure
  • Around 65% of CSR fund is unutilized for education and health only while eradication of hunger, rural development, etc. receive very low expenditure.

Companies (CSR Policy) Amendment Rules, 2021

• Companies have to formulate an annual action plan and submit to Board of the company.
• Companies to ensure administrative overhead not to exceed 5% of total CSR expenditure.
• Surplus cannot be utilized for other purposes.
• Companies with CSR obligations to more than 10 crores in 3 financial years to hire independent agency to conduct impact assessment.
• Mandatory disclosure of CSR projects on the company’s website.
• Activities that have been excluded from CSR :
  • Activities undertaken in normal course of business excluded from CSR activities.
  • Contributed to political parties.
  • Activities undertaken outside India.
  • Activities benefitting employees of company.
  • Activities supported by the company on a sponsorship basis.
  • Activities carried out to fulfill statutory obligations.

Injeti Srinivas Committee recommendations

• Make CSR expenditure tax deductible.
• Allowing companies to carry forward unspent funds for three to five years,
• Aligning Schedule 7 of Company Act, 2013 with the Sustainable Development Goal,
• Allowing CSR in social benefit bonds,
• Promoting social impact companies,
• Balancing local area preferences with national priorities,
• Introducing impact assessment studies for CSR obligation of ₹ 5 crores or more.

Way Forward

• Annual Award
  • Annual awards for incentivizing companies to take up CSR activities be set up – one each for the two categories of companies, large and small, as recommended by Anil Baijal Committee.
• Collaboration
  • Companies should engage with local NGOs for understanding the ground situations and also utilize their expertise in the field.
• Greater awareness
  • Greater awareness should be created, especially at Gram Sabha level to ensure that they get their due share of social development in the company profits

Also Read : Case Study on Medical Ethics and Organ Donation