Google for ‘news’ on CSR and you’ll find almost all dailies writing something or the other around what is happening and what may be done and what all may happen. While some news articles are focusing on pros and cons of the Bill (awaiting the President’s nod to become law), with opinions from industry leaders, some others are talking about opportunities in terms of jobs in the development sector. You will also find how a dozen limited companies and non-profit foundations have already introduced CSR awards, some of which have sponsors’ list quite similar to that of Filmfare or Stardust. Not to mention the number of seminars, workshops, conferences and forums on CSR.
Corporate social responsibility (CSR) has started to sound like the new cool. The social sector does not meet khadi kurta and desi jhola anymore. A young creed of social entrepreneurs can now be seen pitching around CSR departments of corporate groups with ideas that they believe can bring about the change while fulfilling the company’s CSR obligation. This was expected. Any business-oriented yet socially thinking mind with common sense will want a share of the Rs 15,000 crore pie – the expected size of this new responsibility sector – this being a rough estimate if all companies in the ambit spend two per cent of their net profits towards CSR (as per Section 135 in the new Companies Bill).
Whether or not they deserve a part of the pie is another question altogether. Before moving on to that (Decoding CSR Bill – Part 3), let’s have some clarity on Section 135 – what it says, what it means, and what companies are
actually expected to do.
Who falls in its ambit?
Every company having net worth of five hundred crore rupees or more, or turnover of one thousand crore rupees or more, or net profit of five crore rupees or more during any financial year shall constitute a CSR committee of the board consisting of three or more directors, out of which at least one director shall be an independent director.
Step1: Form CSR committee – it is a must
Now that you fall in the Bill’s ambit, the first thing to do is to create a CSR committee. The Bill says that the company’s board’s report, under Sub-Section (3) of Section 134, shall disclose the composition of the CSR committee.
This means that the names, designations and responsibilities of the members of the committee have to be a part of the annual CSR report. Yes, this also means that the company shall bring out an annual CSR report.
Step 2: Assign responsibilities to the committee
As per the Bill, the CSR committee shall:
(a) Formulate and recommend to the board a CSR policy that shall indicate the activities to be undertaken by
the company as specified in Schedule VII. [What’s schedule VII? It is basically a list of issues around which your CSR activity should be conceptualised. Read about it in detail with examples of doable and impactful
CSR programmes in Part 3 of this series.)
(b) Recommend the amount of expenditure to be incurred on the activities.
(c) Monitor the CSR policy of the company from time to time.
Responsibilities of the company’s board
CSR shall be sharing the berth with finance, marketing and brand positioning decisions of the company. While the programmes and their impact analysis may be done by the CSR committee along with outside partners (including consultants or voluntary organisations), the review, the scrutiny and the approvals are to be done by the board of the directors. The board has to closely monitor and evaluate the ‘impact’ of each penny of the organisation that is going towards the development of the grassroots.
Here, the return on investment (RoI) for the company will not be seen in a rise in revenue but in terms of change on the ground – this will inevitably impact the way the company will be looked at from the outside.
(a) After taking into account the recommendations made by the CSR committee, the board shall approve the CSR policy for the company and disclose the contents of the policy in the CSR report, and also place it on the company’s website in such manner as may be prescribed.
(b) The board shall ensure that the activities included in the CSR policy are undertaken by the company.
(c) The board shall ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR policy.
It should be noted here that while defining the responsibilities of the board (Point ‘c’ above), the Bill says that the company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR. Also, these programmes shall preferably be implemented in association with non-government organisations, voluntary organisations, social societies, members of the civil society and social entrepreneurs.
Here, the Bill also says that if the company fails to spend such amount (two per cent of the said amount), the board shall in its report specify the adequate reasons for not spending the amount.
CauseBecause has developed a CSR Kit that brings together the process of ideating, implementing and reporting CSR on automation. The Kit is at implementation stage at various corporate groups as well as at a few small and medium enterprises (SMEs) in manufacturing, entertainment and services sectors.
Interestingly, the Kit does not cost companies anything – rather, it channelises funds from public relations (PR) and branding departments towards CSR without compromising on the value of either.
- Decoding the CSR clause in Companies Bill 2012 – Part 1
- Decoding the CSR clause in Companies Bill 2012 – Part 3