This article has been written by Aditi Ananya from Chanakya National Law University

INTRODUCTION

A self-policing business concept known as “corporate social responsibility” (CSR) assists an organisation in being held socially responsible by the public, its stakeholders, and itself. Companies may be aware of their influence on the social, economic, and environmental facets of society by engaging in corporate social responsibility, often known as corporate citizenship. When a firm practices corporate social responsibility (CSR), it implies that it operates in a way that benefits society and the environment rather than detracting from them.

It is a tactic used by businesses to increase revenue while simultaneously playing a proactive and constructive social role in the community. The word and the related term “corporate citizenship” are also linked.

It is a strategy that supports the idea that a business may promote social order and do good in the world. Because CSR is a reflection of business practices and corporate culture, it is an issue that may involve the board of directors of an organisation. Social responsibility is a wide concept that encompasses human elements, such as using moral labour practices both in-house and within a wider supply chain.

CSR, or the “Triple-Bottom-Line-Approach,” is meant to help the company meet both its social and commercial commitments while developing its business interests.

INDIAN CONTEXT

Under section 2(d) of the Companies (Corporate Social Responsibility Policy) Rules, 2014, corporate social responsibility is defined as:

“Corporate Social Responsibility (CSR) refers to the actions taken by a company in compliance with the provisions outlined in these rules and in accordance with its statutory obligation as outlined in section 135 of the Act.” However, the following activities are not considered to be part of CSR:

1. actions taken in the course of the company’s regular business;
2. any activity carried out outside of India, with the exception of training Indian athletes who represent a State, Union territory, or India internationally;
3. Contributions of any kind, either directly or indirectly, to any political party under section 182 of the Act;
4. actions that benefit the company’s employees as specified in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);
5. actions that the companies sponsor in order to gain marketing advantages for their goods or services;
6. actions taken in order to fulfil any additional statutory obligations under any applicable Indian laws;

The Companies (Corporate Social Responsibility Policy) Rules, 2014 were later amended by the Ministry of Corporate Affairs (MCA) in accordance with Section 135 and Subsections (1) and (2) of Section 469 of the Companies Act T 2013. (18 of 2013).

The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2022 was the new regulation that was brought forward. It aims to determine the price of finishing social impact evaluations of corporate social responsibility (CSR) initiatives and the process for managing corporate CSR funds that go unused.

The following were modified by the Amendment Rules:

• In order to monitor their CSR responsibilities and unused CSR funds, businesses must establish a CSR committee. This account may hold unused CSR funds for a period of three years. CSR keeps an eye on its utilisation. The exception for businesses that no longer satisfy CSR committee requirements was likewise eliminated by the Amendment Rules.
• Prior to the CSR Rules, impact assessments may only cost up to 5% of CSR expenditures, or Rs. 50 lakhs. The Amendment Rules set a cap of Rs. 50 lakhs, or 2% of total CSR spending, on the cost of social impact evaluations, which are essentially CSR expenditures. The modification permits significant CSR initiatives to spend more on impact assessments.
• The annual report on CSR initiatives will now have a new format as provided by the Amendment Rules. The following data must be included in annual reports:
• A synopsis of the company’s CSR policy;
• Information on the members of the CSR committee, including the director’s title, position, and frequency of meetings;
• Links to the CSR Committee’s membership, policy, and board-approved projects on the company’s website; Impact evaluations and executive summaries of CSR initiatives.

Companies are now required to disclose in their annual report the amount of CSR allotted to ongoing projects, new projects, any excess for set-off, and the amount of CSR that was not spent during the preceding three fiscal years. How many capital assets were created or purchased throughout the fiscal year through CSR expenditure must be disclosed by the company. The annual report must also provide an explanation if the firm does not spend 2% of its average net income from the previous three fiscal years.

A CSR committee assists in formalising a company’s CSR strategy and ensuring that CSR projects complement and connect with the company’s commercial objectives. The board offers guidance and feedback from the top down and pushes CSR initiatives from the bottom up. A company’s corporate social responsibility committee is a team of individuals in charge of developing and managing the company’s CSR policies, plans, and projects.

SECTION 135

Section 135 of the Companies Act 2013 regarding Corporate Social Responsibility states that-

1. “Every company having a net worth of rupees five hundred crores or more, or turnover of rupees one thousand crores or more, or a net profit of rupees five crores or more during any financial year shall constitute a Corporate Social Responsibility Committee of the A board consisting of three or more directors, out of which at least one director shall be an independent director,”
2. The Corporate Social Responsibility Committee’s membership must be disclosed in the Board’s report as required by section 134, subsection (3).
3. The Corporate Social Responsibility Committee will do the following:
   1. create and recommend to the Board a Corporate Social Responsibility Policy that outlines the activities the company will engage in as outlined in Schedule VII;
   2. recommend the amount of money to be spent on the activities mentioned in clause (a); and
   3. periodically review the company’s Corporate Social Responsibility Policy.
4. The Board of each company mentioned in sub-section (1) shall do the following:
   1. approve the company’s corporate social responsibility policy after considering the recommendations of the corporate social responsibility committee;
   2. make sure that the company carries out the activities specified in the policy and discloses the contents of the policy in its report and, if applicable, on its website.
5. The Board of each business mentioned in sub-section (1) is responsible for making sure the business spends, in each fiscal year, a minimum of two percent of its average net profits from the three fiscal years prior, in line with its corporate social responsibility policy.

With the caveat that when allocating funds for CSR initiatives, the business would prioritise supporting the community in which it works and the surrounding areas:

With the additional caveat that should the firm neglect to expend said amount, the Board will be required to provide a detailed report under clause (o) of sub-section (3) of section 134, outlining the reasons for the non-spending of said amount.

Furthermore, according to this section, a company must meet one of three thresholds before it can be considered appropriate for it to engage in corporate social responsibility (CSR):

• have total assets of at least Rs 500 crore;or
• have turnover of at least Rs 1000 crore; or
• have net benefits of at least Rs 5 crore.

Moreover, as per the CSR Rules, the CSR arrangements apply to both Indian organisations and to the branch and extended offices of international organisations operating in India.

THE EMERGING DRIVE TO ADOPT CSR STRATEGIES

The following are just a few of the problems and developments that have fueled the adoption of CSR policies during the past century:

1. Selflessness – Fundamentally, it’s about the desire of organisations and the individuals who own and run them to be decent, to support their local communities and the wider world.
2. Customer Needs – Customers started questioning companies about their social and environmental responsibility in the 20th century, and this led to a shift in how companies were held accountable.
3. Contentment among workers – Any organisation wants to attract and retain employees. Prospective workers are curious about the social responsibility of the organisations they could work for.
4. Reputation of the brand – Whether or not an organisation is socially responsible may directly impact its brand and how the market perceives it.
5. Financial backers – Investors are increasingly choosing to only fund companies with clearly defined corporate social responsibility (CSR) policies.

Adherence to regulations. Regulations are being implemented in several businesses due to various ethical issues, which is why CSR activities are necessary.

In certain instances, companies decide to implement a CSR strategy just because they believe it to be morally correct. In other instances, businesses have realised that implementing a CSR strategy—or not—can affect an organization’s capacity to successfully manage operations.

CSR PRACTISES

A firm may embrace corporate social responsibility (CSR) in a number of ways, such as by being eco-aware and environmentally friendly; encouraging diversity, equality, and inclusion in the workplace; showing respect to workers; giving back to the community; and making sure business decisions are morally just.

Initiatives for corporate social responsibility are often divided into the following categories:

1. Environmental accountability – Initiatives promoting environmental stewardship seek to use natural resources sustainably while lowering pollution and greenhouse gas emissions.
2. Responsibility for human rights – Initiatives pertaining to human rights responsibilities include opposing child labour and implementing fair trade and labour standards, such as equal pay for equal labour.
3. The obligation to give back – Contributions to causes, educational programmes, health initiatives, and community beautification projects are a few examples of philanthropic responsibilities.
4. Financial accountability – Initiatives aimed at promoting economic responsibility entail enhancing the company’s operations while engaging in sustainable activities, such as developing a new production technique to reduce waste.

NEED FOR CSR

1. Legitimacy: CSR assists businesses in obtaining and preserving the social licence and legality needed to function in society. Through CSR, businesses use social expectations to address and get consistent support for their procedures.
2. Reputation: By demonstrating that a company is a dependable corporate citizen, CSR improves a company’s reputation. This promotes trust across stakeholders, including customers, employees, and the general public.
3. Loyalty: A company’s CSR efforts demonstrate its concern for stakeholders and larger concerns. Both employee motivation and consumer loyalty may increase as a result.
4. Risk management: CSR assists businesses in recognising and reducing the possible harmful effects of their activities. This lowers the dangers to the reputation, finances, operations, and law.
5. Competitive advantage: A company may establish its identity in the market and get a tactical advantage over rivals by implementing CSR well.
6. Access to aids: CSR assists businesses in drawing in partners, employees, investors, and clients that prefer conducting business with socially conscious partnerships.
7. Innovation: Through CSR programmes, businesses may investigate environmental and social issues that may spark the development of fresh products, services, and business strategies.
8. Compliance: While CSR is entirely voluntary, it is becoming more and more important for businesses to abide with laws and stakeholder demands on social and environmental issues.
9. Values: CSR makes a company’s actions consistent with its purpose and values. This guarantees strategic choices take into account the effects on society, the environment, and ethics.
10. Long-term sustainability: CSR promotes a company’s long-term performance and viability by reducing risks and fostering uses for society.

BENEFITS OF CSR

Enhanced reputation and brand image: Businesses that participate in corporate social responsibility (CSR) may fortify their brand and establish a solid reputation by being linked to virtues like dependability, honesty, and sustainability. Investors and clients are drawn to this.

1. Enhanced employee loyalty and motivation: CSR actions show that a company is concerned about larger social and environmental challenges. Employee devotion to the company and pride in it may both increase as a result.
2. Access to funds and investors: Companies that engage in socially conscious business activities are more likely to draw in cash from moral investors and financial institutions that take non-financial aspects like CSR performance into account.
3. Risk management: CSR assists businesses in recognising and reducing the possible negative effects of their activities and goods. Operating and regulatory risks are decreased as a result.
4. Resource efficiency: Companies may use assistance more effectively and save money by participating in CSR projects that emphasise environmental sustainability and conservation.
5. Innovation: CSR initiatives help businesses understand social and environmental concerns, which can lead to the development of new goods and services to solve these problems.
6. Competitive advantage: By enhancing their company reputation and connections with stakeholders, CSR may give businesses a competitive advantage. It indicates that a company is run well.
7. Stronger connections: A company’s relationships with stakeholders, including governments, locals, suppliers, clients, and business partners, are strengthened by its CSR efforts.
8. Capacity to attract and keep talent: Younger employees, in particular, appreciate working for companies that practise social responsibility. The greatest talent is drawn to and retained by CSR.

SOME EXAMPLES OF CSR COMPANIES

• Johnson & Johnson: By making investments in renewable energy sources, the company seeks to lessen its influence on the environment. Johnson & Johnson also strives to give communities throughout the world access to clean, safe water.
• Starbucks: In an effort to diversify its staff, the international coffee business has instituted a socially conscious recruiting procedure. Its efforts are concentrated on recruiting more immigrants, young individuals pursuing jobs, and veterans.
• Google: By making investments in sustainable workspaces and renewable energy sources, Google has shown its dedication to the environment. Additionally well-known for taking positions on social issues is CEO Sundar Pichai.

RELATED JUDGEMENTS

• The 1992 case of Union Carbide Corporation v. Union of India AIR 248 brought to light the legal and moral obligations that companies have to the victims of industrial disasters. This lawsuit stemmed from the Bhopal gas tragedy. The Indian Supreme Court’s decision, which emphasised the value of environmental preservation and community welfare, held that businesses involved in risky operations must pay harmed parties’ damages. The significance of compensation, rehabilitation, and environmental restoration as essential components of corporate responsibility was affirmed by the Indian Supreme Court.
• In the 2013 decision of Kiobel v. Royal Dutch Petroleum Co., 569 U.S. 108, the US Supreme Court acknowledged the Alien Tort Statute as a tool for holding companies liable for violations of human rights carried out elsewhere. The decision made clear that businesses may face consequences for their involvement in abuses of human rights.
• In the case, Lungowe v. Vedanta Resources plc (2019) UKSC 20, the United Kingdom Supreme Court decided that if a parent corporation did not take action to protect human rights and the environment, it may be held accountable for the deeds of its subsidiary in that nation. The case affirmed the idea of a “duty of care” and illustrated how global CSR responsibilities are.

CONCLUSION

From individual corporations’ voluntary decisions to mandated laws at the regional, national, and international levels, corporate social responsibility has progressed. Nonetheless, a lot of businesses decide to go above and beyond the letter of the law and include the notion of “doing good” into their operations.

There is no one way for a company to adopt CSR, but one thing is for sure: for the firm’s efforts to be seen as sincere, they must be ingrained in the company’s operations and culture. Today’s socially conscious workforce values companies that prioritise corporate social responsibility (CSR), and consumers value doing business with them. They are able to recognise corporate deceit.

A corporation should examine its values, corporate mission, and fundamental concerns to guarantee the authenticity of its CSR efforts. Then, it should decide which activities best fit the company’s objectives and culture. The company has the option to carry out this evaluation internally or by hiring a third party.

The fundamental principle of corporate social responsibility (CSR) is to conduct business in a way that is sustainable in terms of the economy, society, and environment, despite the fact that it is a very wide concept that is interpreted and used differently by each company.

REFERENCES

An Brief Overview on Corporate Social Responsibility. (2021, May 24). Retrieved from LawBhoomi: https://lawbhoomi.com/a/csr

Corporate Social Responsibility in Detail. (2023, November 17). Retrieved from testbook: https://testbook.com/csr

Fernando, J. (2023, July 18). Corporate Social Responsibility (CSR) Explained With Examples. Retrieved from Investopedia: https://www.investopedia.com/csr

Kerner, S. M. (n.d.). Corporate Social Responsibility (CSR). Retrieved from TechTarget: https://www.techtarget.com/s/CSR

Reckmann, N. (2023, September 05). What Is Corporate Social Responsibility? Retrieved from Business News Daily: https://www.businessnewsdaily.com/cc