Government’s new ‘spend or explain’ approach with respect to

CSR
Corporate Social Responsibility (CSR)

The term social responsibility conveys the moral conduct that relates to such broad issues as
environmental pollution, discrimination, poverty, unemployment and inflation. Accordingly, an
organization whose practices contribute to such things would be viewed as socially irresponsible.

An automobile manufacturer who produces car with faulty brakes, a pharmaceutical house that
makes false claims about its cold remedies, or a food company whose TV ads promotes
substandard food are socially irresponsible. Corporate social responsibility not only includes
compliance to the law and ethical setup of the society but it goes beyond it.

CSR policy functions as a built-in, self-regulating mechanism whereby a business monitors and
ensures its active compliance with the spirit of the law, ethical standards, and international norms.
In some models, a firm's implementation of CSR goes beyond compliance and engages in "actions
that appear to further some social good, beyond the interests of the firm and that which is required
by law."

CSR is a process with the aim to embrace responsibility for the company's actions and encourage
a positive impact through its activities on the environment, consumers, employees, communities,
stakeholders and all other members of the public sphere who may also be considered as
stakeholders.

CSR Programs could range from overall development of a community to supporting specific
causes like education, environment, healthcare etc.

Even during ancient times, social responsibility was recognized by wealthy merchants. They use
to share a part of their wealth with the wider society by way of setting up temples for a religious
cause. Moreover, these merchants helped the society in getting over phases of famine and
epidemics by providing food and shelter.

The industrial families of the 19th century such as Tata, Godrej, Bajaj, Modi, Birla, were strongly
inclined towards economic as well as social considerations.
During the independence movement and even after that, under the influence of Gandhi, many
business houses established trusts for schools and colleges and also helped in setting up training
and scientific institutions.

CSR Initiatives in India

 ITC Group has been able to generate sustainable livelihood opportunities for six million
people through its CSR activities. Their 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. Its social and farm forestry program assists farmers in converting
wasteland to pulpwood plantations.

 Organizations like Bharath Petroleum Corporation Limited, Maruti Suzuki India

Limited, and Hindustan Unilever Limited, adopt villages where they focus on holistic
development. They provide better medical and sanitation facilities, build schools and
houses, and help the villagers become self-reliant by teaching them vocational and business
skills.

 The Tata Group conglomerate in India carries out various CSR projects, most of which
are community improvement and poverty alleviation programs. Tata Institute of
Fundamental Research (1945, Mumbai), Indian Institute of Science (1909, Bangalore),
Tata Institute of Social Sciences are all examples of efforts in field of education. Maternal
and New born Survival Initiative (MANSI) by TATA Steel is a project to reduce child and
infant mortality in states like Jharkhand.

 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. There's Project Hariyali has planted more than 8 million trees till date.

 SAP India in partnership with Hope Foundation, an NGO that works for the betterment of
the poor and the needy throughout India, has been working on short and long-term
rebuilding initiatives for the tsunami victims.
  Reliance Industries Ltd. launched a countrywide initiative known as "Project Drishti",
to restore the eye-sights of visually challenged Indians from the economically weaker
sections of the society.

 SBI under village adoption scheme "SBI KaApnaGaon", is adopting villages in

Uttrakhand for development of rural social and infrastructure facilities to remove regional
imbalances.
 Bharat Petroleum’s Project BOOND, which has evolved from the construction of rain
water harvesting structures to making villages' drought free.
 Infosys, The Infosys Foundation mid-day meal program, an initiative in partnership with
the Akshaya Patra Foundation, spans several states across India.
Government Guidelines

The Ministry of Corporate Affairs (MCA) had introduced the Corporate Social
Responsibility Voluntary Guidelines in 2009. These guidelines have now been incorporated
within the 2013 Act and have obtained legal sanctity. Section 135 of the 2013 Act, seeks to
provide that every company having a net worth of 500 crore INR, or more or a turnover of
1000 crore INR or more, or a net profit of five crore INR or more, during any financial year
shall constitute the corporate social responsibility committee of the board.
The 2013 Act mandates that these companies would be required to spend at least 2% of the
average net profits of the immediately preceding three years on CSR activities, and if not
spent, explanation for the reasons thereof would need to be given in the director's report
(section 135 of the 2013 Act).
This CSR committee needs to comprise of three or more directors, out of which, at least one
director should be an independent director. The committee shall formulate the policy,
including activities specified in Schedule VII, which are as follows:
 Eradicating extreme hunger and poverty

 Promotion of education

 Promoting gender equality and empowering women

 Reducing child mortality and improving maternal health

  Combating human immunodeficiency virus, acquired immune deficiency syndrome,
malaria and other diseases

 Ensuring environmental sustainability Employment enhancing vocational skills

 Social business projects

 Contribution to the Prime Minister's National Relief Fund or any other fund set-up by
the central government or the state governments for socio-economic development and
relief, and funds for the welfare of the scheduled castes and Tribes, other backward
classes, minorities and women.
 Such other matters as may be prescribed
SEBI has also (in 2012) mandated the inclusion of Business Responsibility Reports as pan of
the annual reports of the Top 100 listed entities based on market capitalization at BSE and NSE.
It is mandatory to make these reports available on the website of the company.

There have been mixed reactions to the introduction of the 'spend or explain' approach taken by
the MCA with respect to CSR. It may take a while before all of Corporate India imbibes CSR as
a culture.

However, activities specified in the Schedule are not elaborate or detailed enough to indicate the
kind of projects that could be undertaken, for example, environment sustainability or social
business projects could encompass a wide range of activities.

In overall analysis, making 2% investment almost compulsory can be regarded as a stronger

approach towards enforcing CSR on Indian companies which have not shown much progress in
this field. For example, many times employee's benefits are transferred to CSR activities. A lot
will also depend upon the political will for the success of this act. Like recently, Chhattisgarh
government asked the corporates to deposit their contributions to CSR in CM's community
development fund.

Recent trends in CSR spending in India

  KPMG's yearly 'India CSR Reporting Survey' that analyzed India Inc's CSR
activities in 2017, reveals that the instances of companies spending less than two percent of
their profits have decreased in the past three years.

 More structured CSR budgets have been put in place now and many organizations
are seeking the support of "external implementing agencies".

 Maharashtra, Uttar Pradesh, Tamil Nadu, Karnataka and Odisha are the top five
states when it comes to the number of CSR projects being implemented.

 In 2017, education and healthcare accounted for over 56 percent of the total CSR
spends in India. A part of it could be due to the government's push for the girl child's
education through its 'Beti Padhao Beti Bachao' drive.

 Companies that had higher women representation in their boards had more
programmes dedicated to reducing gender inequality.

 Public sector companies executed 22 percent of all CSR projects in 2017

accounting for 31 percent of the total CSR expenditure. Non-PSUs, on the other hand,
implemented 78 percent of the projects.

 Only five percent of all CSR projects in 2017 was executed by companies not of
Indian origin. These accounted for a mere three percent of overall CSR expenditure.

 The Ministry of Corporate Affairs in April 2018 has decided to put in place a
centralised system to keep a tab on entities' compliance with CSR obligations under the
company law 2013. The move comes against the backdrop of rising instances of non-
compliance with Corporate Social Responsibility (CSR) requirement. Presently, Registrar of
Companies (ROC) is responsible to check whether entities concerned are complying with
norms pertaining to social welfare spending activities under the Act.

-Written by Shobhit Awasthi, student of law at Dr. RML National Law University, Lucknow.