The Journey of CSR

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The Journey of CSR
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• CSR or Corporate Social Responsibility is a
  well-known concept and a globally recognized
  practice today. Though the term was coined first
  in 1953, it has gained momentum in the last one
  or two decades. India is leading the way if we
  analyze the current scenario. While CSR is a
  voluntary activity or is fragmented across
  multiple statutory requirements worldwide, India
  is the first nation to mandate it through the
  provisions of Companies Act 2013 and Companies
  (CSR Policy) Rules, 2014. India is also among the
  first few nations to establish a Social Stock
  Exchange which is expected to facilitate
  utilization of CSR funds in a more effective and
  disciplined manner.
• Evolution of the concept of CSR
• The concept of Corporate Social Responsibility
  (CSR) has evolved over time, drawing from various
  historical and philosophical influences. Here is
  a revised version Throughout history, the
  importance of considering the well-being of all
  stakeholders in economic structures has been
  emphasized. Ancient texts like the Vedas in India
  advocated for Sarva loka hitam, which means the
  well-being of all. In Rome, ancient laws
  prescribed measures such as asylums and homes for
  the poor and elderly, reflecting the recognition
  of social responsibility. The term CSR was
  first introduced by American economist Howard
  Bowen in his publication Social Responsibilities
  of the Businessman, earning him the title of the
  Father of CSR. In the Middle Ages, English Law
  adopted the concept of corporate social
  responsibility. In 1971, the Committee for
  Economic Development in the United States
  declared the concept of the social contract
  between business and society. This concept was
  based on the understanding that businesses
  function with public consent and, therefore, have
  an obligation to serve the needs of society
  constructively. This idea is often referred to
  today as the license to operate, which entails
  contributing to society beyond the mere sale of
  products.

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• According to the United Nations Industrial
  Development Organization (UNIDO), CSR is a
  business management concept that involves
  integrating social and environmental concerns
  into business operations and interactions with
  stakeholders. It is seen as a means for companies
  to achieve a balance between economic,
  environmental, and social objectives, while also
  addressing the expectations of shareholders and
  stakeholders. Overall, the evolution of CSR
  highlights the growing recognition of the
  importance of businesses taking responsibility
  for their impact on society and the environment.
  It involves actively engaging in sustainable and
  socially responsible practices, while considering
  the well-being of all stakeholders involved.
• CSR in India
• The concept of CSR is deep rooted in Indian
  philosophy. Ramrajya is considered as a
  benchmark for governance which signifies the
  importance of social responsibilities since
  ancient times in India. The great philosopher
  Chanakya had emphasized on ethical practices and
  principles while conducting business. In modern
  times, philanthropy by Indian corporates is more
  than a century old tradition, practiced
  voluntarily by all frontline corporate houses.
  Shri Jamsetjee Nusserwanjee Tata, the founder of
  Tata group, had established The J. N. Tata
  Endowment in 1892 to award loan scholarships to
  Indians for overseas higher studies, based only
  on individual merit, irrespective of caste,
  creed, religion or any other factor. Since then,
  numbers of philanthropic initiatives are
  developed by Tata and many other groups in
  various thematic areas of social activities.
  During the independence movement, Mahatma Gandhi
  introduced the notion of trusteeship, according
  to which the industry leaders had to manage their
  wealth to benefit the common man. With changing
  times, philanthropy has turned into Business
  Responsibility. Every business now needs to be
  responsible towards protection of environment and
  upliftment of society. Sustainability of a
  business depends heavily on the fact how it
  handles environmental and social needs. No
  responsible business can afford to ignore this
  aspect anymore. In India, the governmental
  initiatives started in the year 2007, with
  adoption of Inclusive Growth in 11th 5-year
  plan. Later, Ministry of Corporate Affairs (MCA)
  issued Voluntary Guidelines on Corporate Social
  Responsibility, 2009 as a first step towards
  mainstreaming the concept of Business
  Responsibilities. In July 2011, MCA issued
  National Voluntary Guidelines on Social,
  Environmental and Economic Responsibilities of
  Business, 2011 which were further revised in
  2015 to align with International Standards and
  Sustainable Development Goals (SDGs) and in March
  2019, the guidelines were updated and released as
  National Guidelines on Responsible Business
  Conduct (NGRBC). NGRBC provides a framework for
  the companies to grow in an inclusive and
  sustainable manner while addressing the concerns
  of stakeholders.

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• Corporate Social Responsibility (CSR) has been
  recognized as a tool to incorporate social,
  environmental, and human development concerns
  into the entire value chain of corporate
  business. The provisions for CSR were initially
  introduced in the newly enacted Companies Act,
  2013 under Section 135. These provisions are
  supported by the Companies (CSR Policy) Rules,
  2014 and Schedule-VII. According to these
  regulations, every company meeting certain
  financial thresholds is required to constitute a
  CSR committee of the Board. The thresholds
  include a net worth of ? 500 crore or more, a
  turnover of ? 1000 crore or more, or a net profit
  of ? 5 crore or more during any financial
  year. The company is then obligated to ensure
  that it spends, in every financial year, at least
  2 of the average net profits made during the
  three immediately preceding financial years, in
  alignment with its Corporate Social
  Responsibility Policy. This emphasizes the
  importance of companies engaging in responsible
  practices and making a positive impact on society
  through their CSR initiatives. Companies were
  allowed to undertake CSR activities on their own
  or through a registered trust/society or a
  company established by the company or its holding
  or subsidiary or associate company u/s 8 of the
  Act or otherwise. If such trust/society/company
  was not established by the company or its holding
  or subsidiary or associate company, it was
  required to have an established track record of 3
  years in undertaking similar programs/projects.
  Activities includible for CSR were as follows
  (i) eradicating extreme hunger and poverty (ii)
  promotion of education

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• (iii) promoting gender equality and empowering
  women (iv) reducing child mortality and
  improving maternal health (v) combating human
  immunodeficiency virus, acquired immune
  deficiency syndrome, malaria and other diseases
  (vi) ensuring environmental sustainability (vii)
  employment enhancing vocational skills (viii)
  social business projects (ix) contribution to
  the Prime Ministers National Relief Fund or any
  other fund set up by the Central Government or
  the State Governments for socio-economic
  development and relief and funds for the welfare
  of the Scheduled Castes, the Scheduled Tribes,
  other backward classes, minorities and women and
  (x) such other matters as may be prescribed.
  Initially, the CSR Rules allowed companies to
  make corpus contributions for projects or
  programs related to CSR activities. This means
  that companies could contribute a fixed amount of
  funds towards specific CSR initiatives.
  Additionally, a brief report on CSR activities
  was required to be included as part of the Annual
  Board Report. This report provided an overview of
  the CSR initiatives undertaken by the company
  during the financial year.At that time, there
  were no penal provisions in place for companies
  that failed to spend the prescribed amount for
  CSR expenditure. Instead, companies were required
  to provide a mention of the reasons for not
  meeting the CSR expenditure requirement in the
  Board Report. This ensured transparency and
  accountability by encouraging companies to
  provide explanations for any deviations from the
  prescribed CSR spending. It is important to note
  that the specific provisions and requirements
  regarding CSR may have been subject to amendments
  or changes since the initial implementation, so
  it is advisable to refer to the latest
  regulations and guidelines for up-to-date
  information.

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• Major Shift in CSR Policies since 22nd January
  2021
• Since the inclusion of CSR provisions in the
  Companies Act 2013, there have been several
  amendments aimed at expanding the scope of
  activities covered under CSR and making minor
  clarifications or corrections to the provisions.
  However, a major shift in CSR policies and
  provisions occurred on January 22, 2021, with the
  enforcement of relevant provisions from the
  following statutes Companies (Amendment) Act,
  2019 Companies (Amendment) Act, 2020 Companies
  (Corporate Social Responsibility Policy)
  Amendment Rules, 2021 These amendments brought
  significant changes to the CSR framework. One of
  the key changes was the transformation of
  recommendatory or voluntary CSR activities into
  mandatory obligations for companies. This means
  that companies are now required to engage in CSR
  initiatives as specified under the law.
  Furthermore, there have been notable alterations
  in the spending and reporting requirements
  related to CSR. The amendments have introduced
  stricter guidelines and reporting obligations for
  companies to ensure better accountability and
  transparency in their CSR activities.
  Additionally, penal provisions have been
  introduced to enforce compliance with the CSR
  obligations. These provisions aim to hold
  companies accountable for any non-compliance or
  failure to meet the prescribed CSR requirements.
  It is important for companies to stay updated
  with the latest CSR regulations and comply with
  the revised provisions to fulfill their CSR
  obligations effectively and avoid any potential
  penalties.

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• Major changes effected from 22.01.2021 are as
  follows
• The amendments made to the CSR provisions
  highlight the governments intention to promote
  greater responsibility among corporate entities
  towards social objectives and their involvement
  in achieving sustainable development goals
  (SDGs). The key changes introduced through these
  amendments include
• Mandatory spending of prescribed CSR
  expenditure Companies are now required to spend
  the prescribed amount for CSR activities. Any
  unspent amount (except for ongoing projects) must
  be transferred to specified funds within a
  specific timeframe.
• Handling of unspent CSR funds Unspent CSR funds
  related to ongoing projects are required to be
  transferred to a special Unspent CSR Account
  within 30 days from the end of the financial
  year. These funds must be utilized within three
  financial years. If not utilized, they should be
  transferred to specified funds.
• Set-off of excess CSR expenditure Companies are
  allowed to set off excess CSR expenditure in
  succeeding financial years, following the
  prescribed manner.
• Removal of corpus contributions Contributions
  towards corpus for projects or programs related
  to CSR activities are no longer considered
  eligible CSR activities. Introduction of penal
  provisions Penalties have been introduced for
  non-compliance with CSR expenditure requirements.
  Defaulting companies and officers in default may
  face penalties based on the prescribed amounts.

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• Exceptions for small companies Companies with an
  annual CSR liability below ?50 lakh are exempted
  from constituting a CSR Committee. The board of
  directors themselves can discharge the necessary
  functions in such cases.
• Impact assessment and registration requirements
  Companies with a minimum average CSR obligation
  of ?10 crore or more in the preceding three
  financial years are required to undertake impact
  assessments for CSR projects. Additionally,
  implementing agencies need to be registered with
  the respective Registrar of Companies.
• Engagement with international organizations
  Companies are allowed to engage international
  organizations for designing, monitoring, and
  evaluating CSR projects or programs, as well as
  for capacity building purposes.
• Collaboration with other companies Companies are
  permitted to collaborate with other entities for
  undertaking CSR projects or activities. The CSR
  committees of respective companies should report
  separately on such collaborations.
• Allowance for capital asset expenditure CSR
  expenditure for the creation or acquisition of
  capital assets is allowed, provided they are held
  by Section 8 companies, registered charitable
  trusts/societies with CSR registration,
  beneficiaries such as self-help groups (SHGs), or
  public authorities.
• Comprehensive reporting requirements Reporting
  requirements for CSR activities have been made
  more comprehensive, ensuring transparent
  disclosure of CSR initiatives undertaken by
  companies.

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• These amendments reflect the governments
  emphasis on encouraging corporate entities to
  actively contribute to social objectives and
  align their actions with sustainable development
  goals. By making CSR provisions more robust, the
  aim is to foster greater corporate responsibility
  and engagement in social and environmental
  initiatives.
• Trends in CSR Expenditure
• The education and healthcare sectors have emerged
  as the biggest beneficiaries of CSR initiatives
  over the years, accounting for approximately 49
  of the total CSR expenditure. These sectors have
  received substantial funding to support various
  initiatives and projects aimed at improving
  education accessibility, healthcare
  infrastructure, and addressing healthcare
  challenges. Following education and healthcare,
  other significant beneficiaries of CSR include
  rural development projects, environmental
  sustainability efforts, and initiatives focused
  on poverty eradication, hunger, and malnutrition.
  These areas have received considerable attention
  and funding to address critical social and
  environmental challenges. It is worth noting that
  CSR expenditure has witnessed a significant
  increase since its introduction. In the fiscal
  year 2014-15, the total CSR spend amounted to
  ?10,066 crore, which grew to ?26,211 crore in FY
  2020-21. These figures represent the period
  before CSR became mandatory under the provisions
  of the Companies Act, 2013. With CSR becoming
  mandatory and the increasing awareness and
  commitment towards corporate social
  responsibility, it can be reasonably assumed that
  CSR expenditure will continue to grow
  significantly in the coming years. This trend
  indicates a positive trajectory for corporate
  contributions towards social and environmental
  causes, leading to a greater impact on
  sustainable development goals and societal
  well-being.

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• Social Stock Exchange CSR The emergence of the
  Social Stock Exchange (SSE) in India is expected
  to have a transformative impact on the
  utilization of CSR funds. The SSE will serve as a
  crucial facilitator of social financing,
  providing a dedicated platform for social
  enterprises (implementing agencies) and CSR
  contributors (corporates) to connect and
  collaborate. With the introduction of the SSE,
  the Pay for Success model is anticipated to
  gain popularity for CSR funding. This model
  aligns the funding with specific social outcomes,
  ensuring that the CSR funds are effectively
  utilized and generate measurable impact.
  Implementing agencies will be required to
  demonstrate discipline, transparency, and
  efficiency to attract CSR funds through the SSE,
  thereby fostering a culture of accountability and
  results-driven initiatives. One of the
  significant beneficiaries of the SSE and
  increased CSR funding is expected to be the
  achievement of the Social Development Goals
  (SDGs). The SDGs provide a comprehensive
  framework for addressing various social and
  environmental challenges, and the availability of
  dedicated CSR funds through the SSE will further
  support and accelerate progress towards these
  goals. Overall, the emergence of the SSE in India
  is likely to reshape the utilization of CSR funds
  by promoting greater efficiency, transparency,
  and impact-oriented initiatives. It holds the
  potential to channelize CSR contributions towards
  projects and programs that align with the SDGs,
  ultimately benefiting society at large.

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• Conclusion
• CSR is proving to be an important tool to achieve
  Niti Aayogs Sustainable Development Goals (SDGs)
  for the nation. CSR funds should not be
  considered as traditional donation. These funds
  should be directed towards long term objectives
  of the society and to serve the thematic areas
  which are neglected.
• Sources of Data
• https//www.csr.gov.in/content/csr/global/master/h
  ome/home.html. https//www.intechopen.com/chapters
  /83098. https//thecsrjournal.in/what-is-csr-corpo
  rate-social-responsibility/. https//www.mca.gov.i
  n/.
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