Corporate Social Responsibility Hosh February 12, 2025

Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR) is an essential aspect of business in India, allowing companies to contribute to social welfare while also benefiting their stakeholders. With a fast-growing economy, a large population, and various social challenges, India provides a unique landscape for businesses to engage in CSR initiatives. These initiatives include projects, programs, and activities that promote societal well-being and sustainable development.

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Introduction

Company registration in India is carried out under the Ministry of Corporate Affairs (MCA). Each state has a Registrar of Companies (ROC) responsible for overseeing compliance and regulations. The ROC in India is centrally located near 22 Godown Circle. The incorporation of companies, including foreign entities, is governed by the Companies Act, 2013, and requires approval from the Central Registration Centre (CRC) in Manesar.

Importance of Corporate Social Responsibility (CSR)

The CSR Committee is responsible for formulating and implementing the company’s CSR policy. They must disclose policy details in their reports and ensure the information is accessible online. Companies are required to allocate at least 2% of their average net profit over the past three financial years to CSR initiatives. These activities include poverty alleviation, education support, gender equality, and contributions to government funds.

Benefits of CSR

  • Improved brand recognition
  • Boosts sales and customer loyalty
  • Improved financial performance
  • Organizational development
  • Greater capital access
  • Reducing operating costs

Committee and Policy for CSR

The CSR Committee is responsible for:

  • Formulating and recommending CSR principles that outline the company’s CSR activities.
  • Recommending the budget allocation for these activities.
  • Ensuring compliance with the company’s CSR policy.
  • Establishing a transparent monitoring system for CSR projects, programs, or activities.

CSR Committee

Every company subject to CSR regulations must establish a CSR committee consisting of:

  • Three or more directors, including at least one independent director. If the company is not required to appoint an independent director, the committee must have at least two directors.
  • Two directors in the case of a private company with only two board members.
  • At least two individuals for a foreign company—one must be its authorized representative and resident in India, while the other is nominated by the foreign company.

Role of the Board of Directors in CSR Activities

The Board of Directors of companies subject to CSR regulations is responsible for:

  • Approving the CSR policy after reviewing the CSR Committee’s recommendations and disclosing its details in the Board of Directors’ report.
  • Ensuring the implementation of CSR activities as outlined in the policy.
  • Disclosing the composition of the CSR Committee in the board report.
  • Ensuring that the company spends at least 2% of its average net profit from the last three financial years on CSR initiatives, which must be conducted within India.

CSR Activities Under Corporate Social Responsibility in India

Companies subject to CSR regulations can undertake the following activities:

  • Eradication of Hunger & Healthcare: Efforts to eliminate hunger, poverty, and malnutrition, promote healthcare (including preventive care and hygiene), and contribute to initiatives like the Swachh Bharat Kosh for hygiene and clean drinking water.
  • Education & Skill Development: Supporting education, special education, and vocational training for children, women, the elderly, and persons with disabilities to enhance livelihood opportunities.
  • Gender Equality & Women Empowerment: Promoting gender equality, setting up homes and hostels for women, orphans, and the elderly, and ensuring their well-being.
  • Environmental Sustainability: Initiatives for ecological balance, biodiversity conservation, animal welfare, agroforestry, and contributions to the Clean Ganga Fund for the river’s rejuvenation.
  • Cultural & Heritage Protection: Supporting the preservation of historical sites, artworks, and cultural heritage, as well as establishing public libraries and promoting traditional arts and crafts.
  • Support for Armed Forces & Their Families: Measures to assist war veterans, widows, and dependents of armed forces personnel, including CAPF and CPMF veterans.
  • Promotion of Sports: Training and support for rural sports, nationally recognized sports, Paralympic sports, and Olympic sports.
  • Contributions to Government Welfare Funds: Donations to the PM CARES Fund, PM National Relief Fund, or other government funds aimed at socio-economic development and welfare of underprivileged communities.
  • Scientific & Medical Research: Contributions to government-supported incubators and research institutions engaged in scientific, technological, engineering, and medical research and development.
  • Higher Education & Research Institutions: Donations to IITs, national research labs, and institutions under departments like DRDO, ICAR, ICMR, DBT, DST, and the Ministry of Ayurveda, Yoga, and Naturopathy.
  • Rural Development: Implementing projects aimed at rural infrastructure, employment generation, and improving the quality of life in rural areas.
  • Slum Area Development: Efforts to improve living conditions, sanitation, and housing in urban slums.
  • Disaster Management: Relief, rehabilitation, and reconstruction activities during natural disasters and emergencies.

New Role of the CSR Committee & Updated CSR Policy Requirements

Under the revised CSR framework, the CSR Committee is responsible for developing and recommending an Annual Action Plan to the Board of Directors, ensuring alignment with the company’s CSR policy and compliance with new regulations. The Board retains the authority to modify the plan during the fiscal year based on justified reasons.

Key Components of the CSR Policy:

  • Approved CSR Initiatives: A clearly defined list of CSR projects and activities that align with the company’s social responsibility objectives.
  • Implementation Strategy: Detailed procedures outlining how the approved projects will be executed, including collaboration with third-party organizations if applicable.
  • Budget Allocation & Timelines: A structured financial plan specifying fund utilization along with defined timelines for project execution.
  • Monitoring & Reporting Mechanism: A transparent system to track the progress, performance, and outcomes of CSR activities.
  • Need & Impact Assessment: Evaluation reports on the necessity and effectiveness of CSR initiatives, ensuring measurable social impact and accountability.

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