Corporate Social Responsibility (CSR) in India: a Comprehensive Analysis.

WHAT IS CSR?

In our increasingly complex global landscape, individuals navigate a dynamic existence intertwined with multifaceted environmental, social, cultural, and economic issues. The traditional emphasis solely on profit maximization for businesses has shifted, with corporations now recognizing the imperative to fulfill their role as responsible corporate citizens, acknowledging their societal obligations. The introduction of Corporate Social Responsibility (CSR) under the Companies Act of 2013 in India signifies a pivotal moment, placing greater accountability on businesses to establish robust CSR frameworks. This framework underscores the reciprocity inherent in CSR, wherein companies utilize environmental resources for operational needs while concurrently contributing to economic, social, and environmental advancement.

Balancing economic objectives with social imperatives often presents organizations with a dilemma. Nevertheless, it is essential for them to align their business practices with social and environmental considerations, fostering meaningful engagement with stakeholders. India has emerged as a global frontrunner in mandating CSR initiatives for businesses, with the inaugural year of CSR implementation and reporting commencing in 2014-15. Noteworthy corporations like TATA and Birla have proactively embraced CSR, reflecting a growing cultural shift towards corporate philanthropy and social responsibility. The legislation now mandates companies to formulate CSR policies and allocate resources towards societal upliftment endeavors.

At its core, CSR embodies the ethos of corporate contribution to society. Company Secretaries are tasked with ensuring compliance with the legal and technical aspects of CSR, providing guidance to management and the Board in navigating this regulatory landscape.

REGULATORY FRAMEWORK

In the landmark legal case M. C. Mehta v Union of India, the Supreme Court of India set forth the doctrine of absolute liability, holding industries accountable for any harm resulting from their hazardous activities. This judicial principle was derived from the interpretation of Article 32 of the Indian Constitution, which empowers the court to issue appropriate directions and orders in suitable proceedings. Through this interpretation, the court underscored its pivotal role in safeguarding fundamental rights, particularly emphasizing Article 21, which guarantees the right to life. The judiciary’s understanding of the right to life under Article 21 underwent significant expansion, particularly concerning environmental protection. Although it took some time for the apex court to explicitly acknowledge the right to a healthy environment as inherent in Article 21, lower courts had recognized it earlier. Judicial interventions, such as imposing damages on industries for environmental disturbances, were aligned with the broader duty to safeguard and improve the environment, thereby augmenting the right to a healthy environment as an integral component of the right to life.

Furthermore, constitutional amendments, notably the 42nd Amendment, introduced directives emphasizing the duty of both the state and citizens to protect and enhance the environment. These legislative changes laid the foundation for the development of environmental jurisprudence in India, providing a legal framework for environmental protection. Corporate sustainability, in essence, refers to the commitment of businesses to contribute to sustainable development by balancing economic progress with social well-being and environmental stewardship. The Supreme Court, in its rulings such as M. C. Mehta, has affirmed the right to an unpolluted environment as an intrinsic aspect of the right to life. This legal interpretation extends protection not only to human life but also to various elements of nature, including wildlife, forests, water bodies, and ecological balance, highlighting the imperative of sustainable development.

In this context, businesses are no longer solely driven by profit motives but are expected to fulfill their social responsibilities. This obligation is enshrined in Schedule VII of the Companies Act as well as Section 135 of the Companies Act 2013 mandates that certain companies must allocate at least 2% of their average net profit from the preceding three financial years towards CSR activities by constitution ha CSR Committee of Board consisting of three or more directors. Both the Supreme Court and the National Company Law Tribunals play pivotal roles in upholding CSR obligations, ensuring compliance with the Companies Act. Failure to meet these obligations can result in penalties as stipulated by law. Recent amendments to CSR rules by the Ministry of Corporate Affairs in 2022 have further refined the regulatory framework governing CSR activities. These amendments delineate procedures for conducting social impact assessments and managing unspent CSR funds. They also allow for the inclusion of impact assessment expenses within CSR obligations, enhancing transparency and accountability in CSR initiatives.

Therefore, any company satisfying any of the following criteria during the immediately preceding financial year is required to comply with CSR provisions-

• Net worth- 500 crores or more
• Turnover- 1000 crores or more
• Net profit- 5 crores or more

While computing the net profits for CSR provisions, the company need to make adjustment as per section 198 in Profit before tax which has been calculated as per schedule III.

Overall, the evolving legal landscape in India underscores the interconnectedness of economic development, environmental protection, and social welfare, with the judiciary playing a crucial role in shaping corporate behavior and fostering sustainable practices.

RECENT DEVELOPMENT

In recent years, CSR in India has seen significant growth, with companies expanding their CSR activities and the government introducing new regulations to promote CSR. Key developments include:

• Digitalization of CSR: The government launched an online portal to streamline CSR reporting and tracking, making it easier for companies to showcase their initiatives.
• Inclusion of COVID-19 relief measures: Companies were directed to undertake COVID-19 relief measures under CSR, such as providing healthcare facilities or contributing to the PM Care Fund.
• Introduction of NVGs: The Ministry of Corporate Affairs introduced NVGs in 2011, guiding companies on integrating CSR sustainably into their business operations.
• Emphasis on education: CSR operations in India have focused heavily on education, with companies funding programs like school infrastructure development and teacher training.
• Partnership with Non-Profits: Companies increasingly collaborate with charitable institutions to carry out CSR programs, leveraging NGOs’ expertise in social development fields.
• Promotion of social entrepreneurship: The CSR Rules introduced in 2013 allow companies to support social entrepreneurship through contributions to incubators and research organizations.
• Focus on impact assessment: Recent years have seen a greater emphasis on impact assessment of CSR activities, with Companies Rules 2022 allowing higher spending on impact evaluation for major projects.
• Transparency & accountability: Amendment rules introduced in 2022 mandate a new format for annual CSR reports, emphasizing transparency and accountability in reporting CSR efforts.

Despite progress in institutionalizing CSR practices in India, challenges persist, such as unclear priorities, inadequate monitoring, and the need for better collaboration. However, these challenges also present opportunities for innovation and collective action, leveraging CSR for sustainable development and inclusive growth.

RECOMMENDATION

Addressing the deficiencies in Corporate Social Responsibility (CSR) implementation in India necessitates a multifaceted approach to optimize its impact. Here are some proposed measures to enhance the effectiveness of CSR activities:

1. Specialization of Companies: Instead of just allocating funds, companies should strategically invest in areas aligned with their strengths. For example, a food production company could provide nutritious food to underprivileged communities, while telecom firms could establish connectivity in remote areas. Amending Section 135 of the Companies Act to allow tailored CSR activities would enable more targeted interventions.
2. Evidence-Based Decision Making: Companies should base CSR activities on data and insights from research institutes and social enterprises. Collaboration ensures efforts are informed and aligned with pressing social issues, enhancing efficiency and effectiveness in addressing societal challenges and eradicating social problems.
3. Stakeholder Engagement: Meaningful engagement with local communities and beneficiaries is crucial for effective CSR initiatives. Companies should collaborate with grassroots organizations and community leaders to understand local priorities and challenges firsthand. By involving stakeholders in planning and implementation, companies can tailor CSR interventions to specific community needs, enhancing their relevance and impact.
4. Collaboration with Specialized NGOs: Companies should collaborate with established NGOs specializing in relevant fields, leveraging their expertise and track record of success. These organizations possess valuable experience and insights gained from years of work in specific sectors or communities. By partnering with them, companies can design and implement effective CSR programs, ensuring optimal resource utilization and meaningful outcomes.

Incorporating these measures into CSR policies and practices can contribute to a more strategic, evidence-based, and impactful approach to corporate social responsibility in India, ultimately leading to positive social change and sustainable development.

CONCLUSION

The introduction of CSR legislation in India aimed to encourage corporations to contribute to societal welfare by recognizing their symbiotic relationship with local communities. However, challenges such as inadequate policies and a short-term focus hinder the comprehensive social impact of the CSR Act. Current policies lack a robust framework for implementation, leading to faulty expenditure assessment criteria and selective CSR activities, undermining the integrity of India’s CSR laws. To address these challenges, reformulating CSR laws to prioritize long-term sustainability and enhanced monitoring is necessary. By revising legislation, India can create a conducive environment for corporate philanthropy and social responsibility, yielding tangible benefits for society.

In conclusion, CSR plays a crucial role in corporate accountability, sustainable development, and addressing socio-economic disparities in India. Addressing implementation challenges and enhancing stakeholder engagement are vital for leveraging CSR to drive positive change and foster societal progress.

By: Esha Gandhi (Intern)