Corporate Social Responsibility (“CSR”) has become an integral part of corporate governance globally, and India is no exception. With the enactment of the Companies Act, 2013, India introduced mandatory CSR provisions, making it one of the few countries to legally mandate CSR spending for certain companies. This article provides an overview of CSR mandates in India, highlighting the legal framework, requirements, and impact on businesses and society.
The Companies Act, 2013, mandates that companies meeting certain criteria must spend a specified percentage of their average net profits on CSR activities. Specifically, companies falling under any of the following criteria are required to comply with CSR obligations:
- Companies with a net worth of INR 500 crore or more.
- Companies with a turnover of INR 1,000 crore or more.
- Companies with a net profit of INR 5 crore or more.
These companies are required to spend at least 2% of their average net profits from the preceding three financial years on CSR activities. While the law prescribes the minimum spend, companies are encouraged to allocate more resources towards CSR initiatives.
CSR activities encompass a wide range of socially beneficial programs aimed at promoting sustainable development and addressing societal needs. These activities may include but are not limited to:
- Eradicating hunger, poverty, and malnutrition.
- Promoting education, including special education and employment-enhancing vocational skills.
- Combating diseases, including preventive healthcare and sanitation measures.
- Ensuring environmental sustainability, ecological balance, and conservation of natural resources.
- Supporting socio-economic development for marginalized communities and promoting gender equality.
Companies are required to formulate a CSR policy, approved by the board of directors, outlining the areas of CSR focus, proposed activities, implementation mechanisms, and monitoring and evaluation processes. The CSR policy should be disclosed on the company’s website and included in the board’s report.
Additionally, companies are obligated to constitute a CSR committee comprised of at least three directors, including one independent director. The CSR committee is responsible for formulating and recommending CSR activities, monitoring their implementation, and reporting on CSR expenditures and outcomes in the company’s annual report.
Non-compliance with CSR obligations can result in penalties, including fines and legal action against the company and its officers. Therefore, adherence to CSR mandates is not only a legal requirement but also essential for maintaining corporate reputation and fostering stakeholder trust.
The implementation of CSR mandates has had a significant impact on corporate behavior and societal welfare in India. Companies have increasingly recognized the importance of CSR in fostering sustainable development, enhancing brand reputation, and building stronger relationships with stakeholders.
Conclusion
In conclusion, CSR mandates in India represent a significant legal and regulatory framework aimed at promoting corporate responsibility and societal welfare. By integrating CSR into their business strategies, companies can contribute to the well-being of communities and the environment while fulfilling their legal obligations and demonstrating ethical leadership in the corporate sector.
join For Updates