Corporate Social Responsibility - ICSIHindalco Industries Its CSR activities are concentrated in 692 villages and 12 urban slums, where it reaches out to about 26 lakh people. It has

CorporateCorporate SocialSocial

ResponsibilityResponsibility

BBy:

CS Jitesh Gupta

IntroductionIntroductionCSR is a concept whereby companies notCSR is a concept whereby companies notonly consider their profitability and growth,but also the interests of society and thebut also the interests of society and theenvironment by taking responsibility for thei f h i i i i k h ldimpact of their activities on stakeholders,environment, consumers, employees,communities, and all other members of thepublic sphere.p p

HistoryThe four phases of CSR development in India

• The First Phase : In this phase charity and• The First Phase : In this phase, charity andphilanthropy were the main drivers of CSR. Culture,religion family values and tradition andreligion, family values and tradition andindustrialization had an influential effect on CSR.

Th S d Ph I thi h I di i• The Second Phase: In this phase Indian companiesestablished trusts for schools and colleges and alsoh l d i tti t i i d i tifihelped in setting up training and scientificinstitutions.

……..The four phases of CSR development in India

• The Third Phase : In this phase, CSR relatesthe element of “mixed economy”, emergenceof Public Sector Undertakings (PSUs) and lawsrelating to labour and environmentalstandards.

• The Fourth Phase : In this phase, CSR initiatedtowards globalization and economicliberalization and also integrated into asustainable business strategy.

Current State of CSR in IndiaCurrent State of CSR in India

• In the present scenario, a growing number ofIn the present scenario, a growing number ofCorporates feel that CSR is not just another form ofindirect expense but is important for protecting thegoodwill and reputation, defending attacks andincreasing business competitiveness.

• Further, Corporates increasingly join hands withnon‐governmental organisations (NGOs) and usetheir expertise in devising programmes whichdd id i l bladdress wider social problems.

Key IssuesKey Issues• Environmental management

• Responsible use of natural resources

• Stakeholder confidence & engagementStakeholder confidence & engagement

• Labour Standards and working conditions

E l d C it l ti• Employee and Community relations

• Social Equity

• Human Rights

• Good Corporate GovernanceGood Corporate Governance

• Anti‐Corruption Measures

Need for CSRNeed for CSR• CSR has become increasingly important because oftoday’s heightened interest in the proper role ofbusiness in society has been promoted by increasedsensitivity and awareness of environmental andethical issues.

• The most important issues are: Environmentaldamage, improper treatment of workers and faultydamage, improper treatment of workers and faultyproduction leading to customer inconvenience ordanger and loss of natural resourses.da ge a d oss o atu a esou ses

Importance of CSRImportance of CSR• Bridges the company with its consumer and investor

• Consumer awareness

• Legislative provisions

• Globalization• Globalization

• Brand reputation & differentiation

• Business Development

• New Markets, products and services

• Conservation of strategic assets & natural resources

CSR under the Companies Act, 2013CSR under the Companies Act, 2013

• Meaning : As per rule 2 of Companies (CorporateSocial Responsibility Policy) Rules 2014 CSR meansSocial Responsibility Policy) Rules, 2014, CSR meansand includes but is not limited to :

j l i i i i ifi d‐projects or programs relating to activities specifiedin Schedule VII to the Act , or

‐ projects or programs relating to activitiesundertaken by the Board of Directors.

...the Companies Act, 2013p

Applicability : As per Rule 3 of the Companies(C t S i l R ibilit P li ) R l 2014 d(Corporate Social Responsibility Policy) Rules, 2014 andSection 135 of the Companies Act, 2013, Every Companyincluding its holding or subsidiary and a foreigng g gcompany defined under section 2 of the Act having itsbranch office or project office in India which has

N t W th f 500‐ Net Worth of rupees 500 crore or more, or‐ Turnover of rupees 1000 crore or more, orN t P fit f 5‐ Net Profit of rupees 5 crore or more,during any financial year shall constitute a CSRCommittee of the Board of 3 or more directors out ofCommittee of the Board of 3 or more directors out ofwhich at least one shall be an Independent Director.

…the Companies Act, 2013…the Companies Act, 2013

• As per Rule 5 of the Companies (Corporate Socialp p ( pResponsibility Policy) Rules, 2014 the companies mentionedin rule 3 shall constitute CSR as under:

‐ An unlisted public company or a private company coveredunder section 135 which is not required to appoint anIndependent Director pursuant to Section 149 of the Act shallIndependent Director pursuant to Section 149 of the Act shallhave its CSR Committee without such director

‐ A private company having only 2 Directors on its Board shallconstitute its CSR Committee with 2 such directors

‐ With respect to a Foreign Company, the CSR Committee shallcomprise of at least 2 persons of which 1 person shall be ascomprise of at least 2 persons of which, 1 person shall be asspecified under section 381 of the Act and another personshall be nominated by the Foreign company


• Every company which ceases to be a companyEvery company which ceases to be a companycovered under section 135 for 3 consecutivefinancial years shall not be required tofinancial years shall not be required toconstitute a CSR Committee and comply withthe provisions contained in sub‐section 2 to 5the provisions contained in sub section 2 to 5of the said section till such time it meets thecriteria specified in sub‐section 1 of Sectioncriteria specified in sub section 1 of Section135.


Functions of CSR Committee :

formulate and recommend to the Board, a CSR policy

i h CSRrecommend the monitor the CSR policy of the company from

recommend the amount of

expenditure to be incurred on the time to timeincurred on the

activities


• The Board of every company shall—y p y‐ approve the CSR Policy after taking into account the recommendations made by the CSR Committee and also disclose such policy in its report and alsoand also disclose such policy in its report and also place it on the companies website, if any

‐ Ensure the activities as are included in the CSR policy of the company are undertaken by the companyThe Board shall ensure that the company spends‐ The Board shall ensure that the company spends, in every financial year, at least 2% of the average net profits made during the three immediately

di fi i l i f it CSRpreceding financial years, in pursuance of its CSR Policy


• As per Section 134 sub section 3 clause (o), aAs per Section 134 sub section 3 clause (o), a statement shall be attached with Board Report which shall include—The details about the policy developed and implemented by the company on CSR initiatives taken during the year;Furthermore, if the company fails to spend such amount, the Board shall, in its report specify the reasons for not spending the amount.


Matters to be included in CSR Policy :yAs per Rule 6 Companies (Corporate SocialResponsibility Policy) Rules, 2014 ,

( )(a) a list of CSR activities which a company plans toundertake falling within the purview of theSchedule VII of the Act, specifying modalities ofSchedule VII of the Act, specifying modalities ofexecution of such activities and implementationschedules for the same; and

(b) i i f h i i i(b)monitoring process of such activities:


It may be noted that the CSR activities does notyinclude the activities undertaken in pursuance ofnormal course of business of a company.Further the Board shall ensure that activitiesFurther , the Board shall ensure that activitiesincluded by a company in its CSR Policy arerelated to the activities included in Schedule VIIof the Act.

(2) Th CSR P li f h h ll if h(2) The CSR Policy of the company shall specify thatthe surplus arising out of the CSR activities shallnot form part of the business profit of a company.p p p y


CSR ExpenditureCSR Expenditure • CSR expenditure shall include all expenditurei l di t ib ti t f j tincluding contribution to corpus, for projects orprograms relating to CSR activities approved byth B d th d ti f it CSRthe Board on the recommendation of its CSRCommittee, but does not include any

dit it t i f it texpenditure on an item not in conformity or notin line with activities which fall within the

i f S h d l VII f th A tpurview of Schedule VII of the Act.


With reference to General Circular No 21/2014 of/MCA dated 18th June, 2014,

• Expenses incurred by the companies for thefulfillment of any Act (such as Labour Laws Landfulfillment of any Act (such as Labour Laws, LandAcquisition Act, etc) would not count as CSRexpenditure

• Salaries paid to regular CSR staff as well asvolunteers of the companies can be part of CSRexpenditureexpenditure.

• Contribution to corpus of a trust/society/section8 companies will qualify as CSR expenditurep q y p


Schedule VII

Activities which may be included in the CSR Policy relating to :• eradicating extreme hunger and poverty;• promotion of education;• promoting gender equality and empoweringwomen;women;

• combating human immunodeficiency virus, acquiredimmune deficiency

• syndrome, malaria and other diseases;• ensuring environmental sustainability;• employment enhancing vocational skills• employment enhancing vocational skills;• social business projects;

CSR with to respect to SMEsCSR with to respect to SMEs

• Why is the CSR clause of the new Companies Act 2013 so critical for SMEs?Act, 2013 so critical for SMEs?

• How can SMEs comply the provisions of CSR i h i i i h i fi i l ?with minimum impact on their financials?

FAQs…FAQs…1. There are certain corporate groups who run . e e a e ce ta co po ate g oups o u

hospitals and educational institutions, will this be considered as CSR?

2. Whether section 135 is required to be complied by the company including its holding or b idi ?subsidiary company?

3. Whether the provisions of CSR are applicable to section 8 companies?section 8 companies?

4. Where CSR activities lead to profits then what about such surplus?about such surplus?

FAQs…FAQs…

5. In case of companies having multi‐locationaloperations which local area of operationsoperations, which local area of operations should the company choose for spending the amount earmarked for CSR operations?amount earmarked for CSR operations?

6. Are the provisions with regard to CSR li bl f i i ?applicable to foreign companies?

ExamplesExamples

Ashok Leylandy

Operates a FunBus in Chennai andpNew Delhi. This bus, equippedwith a hydraulic lift, takesdifferently abled children andythose from orphanages andcorporation primary schools on aday’s picnic. The company alsoy p p yruns AIDS awareness andprevention programs in its Hosurfactories for about 3.5 lakhdrivers.

ExamplesExamplesHindalco Industries

Its CSR activities are concentrated in692 villages and 12 urban slums,where it reaches out to about 26 lakhwhere it reaches out to about 26 lakhpeople. It has constructed checkdams, ponds and bore wells toprovide safe drinking water Inprovide safe drinking water. Ineducation, it awards scholarships tostudents from the rural schools itsupport Its other interests includesupport. Its other interests includewomen‟s empowerment and healthcare, in which it treats patients inhospitals runs medical camps andhospitals, runs medical camps andoperates rural mobile medical vanservices.

ExamplesExamples

Infosysy

The Infosys Science Foundation, setup in 2009 gives away the annualup in 2009, gives away the annualInfosys Prize to honour outstandingachievements in the fields of scienceand engineering The companyand engineering. The companysupports causes in health care,culture and rural development. In aninteresting initiative undertaken byinteresting initiative undertaken byit, 100 school teachers in Karnataka,who were suffering from arthritis,underwent free surgery as a part ofunderwent free surgery as a part ofa week‐long programme.

CONCLUSIONCONCLUSION• Corporate, public and private both, had moved ahead to a really new level to fulfill their social responsibilitya really new level to fulfill their social responsibility which not only help to society but also to these companies to make a reputation in the society.p p y

• The expectations from private sector regarding CSR is very high in future.

• Government put in legislative compulson for CSR

• In the present scenario, companies play an imporatantp p p y prole in the growth and development of the nation. They should be encouraged and motivated to contribute more.

CS Ji h GCS Jitesh Gupta

www.jkgupta.com

Documents

Corporate Social Responsibility - ICSIHindalco Industries Its CSR activities are concentrated in 692 villages and 12 urban slums, where it reaches out to about 26 lakh people. It has