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Corporate social responsibility and collaborative growth of the nation

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Corporate and social responsibility is a sense of responsibility towards the community and environment in which it functions. The aim of CSR is to increase long term value and shareholders’ trust through public relations and reduce business and legal risk. CSR strategy of a company makes a positive impact on the environment and all stakeholders like consumers, employees, investors, society, and others. CSR activity in different part of the world is defined in a different way such as, in China, a socially responsible company makes safe high-quality products, in Germans it means secure employment, in South Africa, it is a contribution towards social needs and in India, it means company contribution towards the society and environment. Corporate social responsibility is a very old concept in India. Earlier, a concept where companies voluntarily contribute to a better society, environment, culture, etc. now comes under CSR. It is a contribution of the company to the society by their business and social activity. Contribution given by the company for the development of the society helps the company for the sustainable development of the business as well as society.

Company social responsibility depends on various factors such as market, area of operation, business activity, socio-economic environment of the area, etc. Since CSR issues have been gaining in prominence across countries, India also introduced a law that made CSR mandatory for large and profitable companies.

Regulatory guidelines:

The first formal attempt by the government of India to put the CSR issue on the table was in the issuance of Corporate Social Responsibility Voluntary guidelines in 2009 by the Ministry of Corporate Affairs. The most ambitious attempt to implement CSR activities came in 2013 with the enactment of Section 135 of the Companies Act 2013. This law brought CSR activities of Indian corporates under the purview of corporate law.

Now as per section 135 of the companies Act 2013 Corporate social responsibility policy is mandatory for all those companies who come under the criteria mentioned under subsection 1 under section 135 of company act 2013.

Under sec 135 of companies act

  1. Every company having net worth of Rs.500 crore or more, or Turnover of Rs 1000 crore or more or profit of Rs 5 crore or more during any financial year shall have to constitute a corporate social responsibility committee of the Board consisting of three or more directors of which at least one director is an independent director.
  2. The Board’s report under sub-section(3)of section 134 and disclose the composition of the corporate social responsibility committee
  3. The corporate social responsibility committee shall
  4. Formulate the guidelines in line with section 135 and recommend the board, a corporate social responsibility policy which shall indicate the activities to be undertaken by the company as specified in schedule VII
  5. CSR committee also recommend the amount of expenditure to be incurred on the activities
  • CSR committee also monitors the corporate social responsibility policy of the company from time to time
  1. The Board of the company after taking into account the instructions    mentioned in subsection 1 of sec 135 make  the corporate social responsibility committee and approve the CSR policy for the company and disclose contents of such policy in its report and also place it on the company’s website
  2. The Board of the company also ensures that the activities are included in the corporate social responsibility policy as per the company ACT.
  3. The Board of every company should ensure that the company shall spend at least 2 percent of the average net profits of the company made during the three immediately preceding financial years in pursuance of its corporate social responsibility policy. The company shall give preference to the local area and areas around it where it operates for spending the amount earmarked for CSR activities.

Functions of the CSR committee:

  • The CSR committee formulates the CSR policy,
  • They recommend CSR activities to be implemented by the company
  • They set forth budget in detail how the company will implement the project and establish transparency

Disclosures:

If the company fails to spend such amount, the Board has to furnish its report made under clause (o) of sub-section 134, specify the reasons for not spending the amount. Under section 8 of the CSR rules, it is mandatory for a company after 1st April 2014. The Company has to furnish in its Board’s report an annual report on CSR as prescribed below

  • The company CSR policy
  • Proposed programs to be undertaken by the company
  • The composition of the CSR committee
  • Average net profit of the company for the last three financial years
  • CSR expenditure i.e.2% of the average net profit of the last three financial year as per financial statements
  • During calculation of net profits of the companies exclude following things: Any profit arising from any overseas branch or branches of the company or any dividend received from other companies in India which are covered under and complying with the provisions of section 135 of the ACT
  • The surplus arises out of the CSR activity will not be part of the business profits of the company

 

Activities under CSR:

CSR responsibility of the company is a commitment to support or to take initiatives to improve the lives of weaker sections or underprivileged sectors. The focus areas notified under section 135 of the companies act 2013 and companies corporate social responsibility policy rules 2014 are as under:

  1. Eradicating extreme hunger, malnutrition, and poverty
  2. Promoting education, special education, employment enhancing skills among children, women, etc.
  3. Improving mental health
  4. Promoting gender equality, empowering women, setting up old age homes, Daycare centers, etc.
  5. Reducing child mortality
  6. Promotions of road safety, Driver’s training
  7. Training to enforcement personnel
  8. Promoting health care including preventive health care
  9. Vocational skills livelihood enhancement projects
  10. Consumer education and awareness program
  11. Conservation and renovation of school building and classrooms as promoting education
  12. Disaster relief i.e. medical aid for promoting health, food supply for eradicating hunger, poverty or malnutrition, supply of clean water, sanitation etc in case of any disaster
  13. Any assist in ensuring environmental sustainability, ecological balance, protection of flora & fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil air and water
  14. Employment enhancing vocational skills
  15. Relief and funds for the welfare of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed.
  16. Contribution of funds provided to technology incubators located within academic institutions which are approved by the central government
  17. Contribution to the Prime Minister’s National Relief Fund or any other fund set by the Central Government or State government for socio-economic development
  18. Rural Developments projects
  19. Contribution to the Swachh Bharat Kosh
  20. Contribution to the Clean Ganga Fund

All these activities are a few examples of CSR activities. It means that all those activities which are environment-friendly, socially acceptable by the people and society comes under CSR activities. However, the company CSR committee may identify areas other than the stated above. The company has to give preference to the local area and areas around where it operates for spending the amount under CSR activity.

The company can meet the CSR obligations by implementing activities on its own or through a third party, such as a society, trust, charitable foundations, etc. as per purposes defined under company act.

Benefits of CSR activities:

Benefits to Company

  1. Enhanced Brand and Reputation–CSR improves the image of the organization. When an organization carries out CSR activities, it is telling the community members that it is a friend of the community. This improves the impression people have about the corporate existence of the organization.
  2. Increased sales and customer retention– Company products and services are perceived by society. The company product and business first satisfy customer’s key buying criteria such as price, quality, taste, safety, and convenience which create trust between the company and clients. It fosters strong working relationships with both existing and new clients because they understand that the company is a partner not only for the profit of the organization but also to support their public value.
  3. Enhanced employee acquisition and retention: Robust CSR framework helps the company to attract potential future employees. There is a common perception of the public that if a company is working well for the society so it can be good for employees also Viz. Tata, Wipro, Infosys, Private and public sector banks etc. It also helps the company to attract or retain talent employees by offering work-life balance, positive working conditions, culture and flexibility to work.
  4. Improved relationships with the investment community and better access to Capital- The companies that embrace the essential qualities of CSR outperform their counterparts that do not use features of CSR. Thus CSR activity of the company addressing the ethical, social and environmental responsibilities helps the company’s perspective in raising the capital in comparison with others.
  5. Reduce regulatory oversight: Companies engaged in CSR activities are much aware of the regulatory guidelines which help the company in the sustainable growth of the business.

Benefits to society

  1. Positive impact on the society: A CSR activity promotes the company to do business ethically and to consider social and environmental impact on the business. It also warns the company to avoid or mitigate the detrimental impacts of its business on society. The company can also change the business and delivers benefits for the community.
  2. Better Employment opportunities-Many studies have proven that companies with a stronger CSR policy do better financially and attract and retain more talent. These companies offer better perks and other direct benefit to their employees. Hence people join these companies for better career progression and job satisfaction.
  3. Increased Education and health facility-A CSR activity promotes education and health awareness among the society and many educational institutions and health centers and hospitals are run by corporate under their CSR activities. This gives access to good education and health facility to the society.
  4. Social security-Corporates also practice social responsibility by donating to national and local charities which benefits society as a whole. Many corporate companies donate for such organization that runs social security schemes.
  5. Natural environment protection-One primary focus of corporate social responsibility is the protection of the environment. For the protection of the environment, companies design their CSR policy to look at the company’s energy use, waste, pollution, natural resource conservation, and animal treatment.

Conclusion

There has been an inherent understanding since times ancient in India that no business can grow or succeed in isolation. The history of India provides much proof of this realization that sustainable growth of business requires inclusive development and progress of employees, community, and environment. Thus the CSR efforts are win-win for all. As business grows, the community gains and as the society flourishes businesses gain-resulting in a collaborative growth within the nation.

Authored By:

Vishvajeet Kumar
Chief Manager (Faculty)
Union Bank of India
Staff Training College
Bangalore

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