Introduction to CSR
CSR (Corporate Social Responsibility)
CSR refers to practices & policies undertaken by corporations that are intended to have a positive influence on all aspects of the society including economic, social & environmental. It is important to both consumers & companies.
Applicability of CSR to Companies
The CSR law which came into effect from April 2014 applies to every company registration under the Companies Act, 2013, qualifying following conditions having:
- A net worth of rupees 500 crores or more, or
- A turnover of rupees 1000 crores or more, or
- A net profit of rupees 5 crores or more,
- During immediately preceding financial year.
CSR Policy & Committee
Companies qualifying to have a CSR committee are required to spend at least 2% of its average net profit for the preceding 3 financial years on CSR activities.
Also, the qualifying company shall form a committee (CSR Committee) of the Board of Directors (Board) comprising of 3 or more directors. The CSR Committee will prepare and recommend to the Board, a CSR policy which will specify the activities to be undertaken, recommend the amount of expenditure to be incurred on the activities referred and monitor the CSR Policy related to the company. The Board will look into the recommendations made by the CSR Committee and support the CSR Policy of the company.
Role of Board of Directors in CSR
The board of directors of a company plays an important role in the CSR activities of the company as follows:
- Approval of the CSR policy.
- Ensuring its implementation.
- Disclosure of the contents of CSR policies related to its report.
- Placing the same on the Company’s website.
- Ensuring that statutory specified amount is spent by the company with reference to the CSR activities.
- It’s significant to note that there is no penalty if the particular amount is not spent on CSR activities. In such a case, the board’s report must also identify the reason for such short spending.
Categories of CSR
CSR initiatives are categorized as follows:
1. Environmental Responsibility
As society becomes more and more environmentally aware, the pressure for companies to be responsible and work to improvise the negative effects they may have on the environment continues to grow. So for this reason, CSR concerning environmental issues is more popular.
Environmental responsibility campaigns at reducing pollution and greenhouse gas emissions. Many companies also make commitments to “go green” and begin using more recyclable/sustainable products.
2. Human Rights Responsibility
Companies aim to improve their own business ethics, which in turn has a positive impact on society as a whole.
.Human rights responsibility initiatives involve providing fair labor practices (e.g., equal pay for equal work) and fair trade practices, and disallowing child labor.
3. Economic Responsibility
Economic responsibility generally strikes a balance between all the responsibilities.Companies campaign to promote business growth and generate profits through contributing to both their community and society.
We see many companies take this path today through incorporating sustainable products into their day-to-day routine. This not only aids a company’s brand and image, but also potentially decreases production costs, while improving society by using sustainable resources.
Economic responsibility aims at improving the firm’s business operation while participating in sustainable practices – for example, using a new manufacturing process to minimize wastage.
4. Philanthropic Responsibility
One of the most common forms of CSR today is philanthropic campaigns. It aims at campaigning to help humanity whether it is locally, nationally or internationally.
Companies campaign to help others through donating time, money and other resources to those who require it.
Some examples include: donation to human rights campaigns, volunteering at local charities, raising money for disaster relief organizations, etc.
CSR appears in many different shapes and sizes, but they all have one thing in common: the pursuit of a better world. Find which CSR form works best for your company and get involved to begin to make a difference!
Business Benefits of CSR
CSR can also boost a firm’s competitiveness. The business benefits of CSR are as below:
1. Stronger brand image, recognition, and reputation
2. Increased customer loyalty and sales
3. Operational cost savings
4. Easier access to funding
5. Reduced regulatory burden
With respect to the CSR Reporting, the provisions are as follows:
1. The Board’s Report referring to any financial year initiating on or after the 1st day of April 2014 shall include an annual report on CSR.
2. In case of a foreign company, the balance sheet filed shall contain an annexure regarding report on CSR.
CA Palak S Jain
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