World Business Council for Sustainable Development defines CSR as “the continuing commitment by businesses to contribute to economic development while improving quality of life of the workforce and their families as well as of the community and society at large.” In countries like India, CSR has the potential to supplement governmental resources for social justice. Although designed mainly in the philanthropic space, an effective CSR strategy should target broader elements essential to society by encompassing educational, research and cultural aspects. CSR activities, therefore, must be accompanied by community development efforts, donations, charity, relief work, etc. Many companies in India report CSR activities they undertake on their official websites, annual reports, sustainability reports, and even publishing CSR reports. In India, the law that governs CSR regulations requires certain companies to mandatorily undertake CSR activities and spend at least 2% of the average net profit of the immediately preceding three financial years on CSR-related activities.
Companies today are required to comply with the CSR Rules and establish a CSR committee that will formulate CSR policy, recommend the amount to be incurred for CSR activities, and monitor the policy’s implementation. Companies are now also required to disclose in the annual report information regarding the CSR amount allocated to ongoing projects and other than ongoing projects, particulars of excess amount for set-off, if applicable and unspent CSR amount for the preceding three financial years. Therefore developing an effective CSR strategy becomes essential for such companies. In India, expenditure on CSR activities was made mandatory from April 2014 onwards as per the Companies (Corporate Social Responsibility Policy) Rules, 2014 and the Companies Act 2013. Through this article, we will understand the legalities associated with CSR and how one can formulate an effective CSR strategy.
A company that fits in any of the following criteria must comply with the CSR provisions specified under Section 135 of the Companies Act 2013.
However, Rule 2(1)(d) of the Companies (CSR Policy) Rules, 2014, excludes the following activity to be considered as a part of CSR activity.
How to Frame an effective CSR strategy
An effective CSR strategy should articulate whom it wishes to address (i.e. the target group), where it expects to work (i.e. the geography) and what sectors or issues it wishes to address. CSR policies are getting more strategic today and not remaining restricted to community development. Following are the steps involved in formulating a CSR strategy.
Step 1: Research current CSR activities
This step includes reviewing the past and current CSR activities and examining their alignment with Schedule VII of the Companies Act, 2013. The research should consist of a study of publicly available information on national and local development priorities. Meeting development experts in the government and NGOs to understand preferences and identify potential areas of intervention is also suggested in this regard.
Step 2:Building internal relationships
This step includes conducting internal meetings with business leaders to establish the relevance of potential CSR activities to the company’s core business.
Step 3:Understanding Business priorities and how CSR could assist in it
The next step includes identifying business problems and designing a CSR plan accordingly. Analysing the effective CSR practices of other companies and their achievements could help in this regard.
Step 4: Predicting howCSRwill positively affect the business
Showing how CSR positively impacts the business’s bottom line by developing a CSR strategy that clearly defines the approach of the company towards CSR for the next three to five years. This step must include what the company’s CSR activities will cover in terms of
Step 5: Determining the implementation mechanism
This step of CSR strategy includes choosing the implementation mechanism/s of CSR activities such as direct implementation, partnerships with other NGOs or through in-house departments.
Step 6: Establish methods for monitoring and reporting
At this stage, various monitoring and reporting techniques are implemented. The following tools and standards can be used as technical guidance.
The rationale of CSR is represented by the role such activities play in addressing challenges of social development and inclusive growth in India, where there is high-income equality. Today, in India, the concept of CSR has evolved. It now encompasses all related concepts such as corporate citizenship, triple bottom line, shared value philanthropy, strategic philanthropy, corporate sustainability and business responsibility. The government also monitors the compliance of CSR provisions by companies through the disclosures made by them on the MCA portal. The government can even initiate action for violating CSR provisions against non-compliant companies after due examination of records. Besides working in the community’s interest, CSR activities benefit the organisation in many ways.
In September 2022, the MCA issued the Companies (CSR Policy) Amendment Rules, 2022. Apart from some crucial changes like the omission of Rule 3(2) of the CSR Policy Rules, and the change in the limits of expenses incurred towards impact assessment studies, the amendment introduced a new format for the annual report on CSR activities under which companies are now required to provide the following information in their annual report.
Companies often value CSR as a business strategy for profit maximisation. Companies must appreciate that the rules governing CSR in India attempt to strike a balance between developmental growth and welfare-based development. The mandatory disclosure provision brings transparency to CSR activities by enabling the stakeholders to monitor and ensure compliance by the eligible companies. Therefore devising an effective CSR strategy is crucial for companies for themselves as well as for society. Guidance towards CSR planning and report preparation by CSR experts can help business entities portray a responsible image in a civil society.