{"id":4600,"date":"2022-10-07T00:00:00","date_gmt":"2022-10-07T00:00:00","guid":{"rendered":"https:\/\/www.nextias.com\/current_affairs\/uncategorized\/07-10-2022\/strengthening-the-csr-framework\/"},"modified":"2022-10-07T00:00:00","modified_gmt":"2022-10-07T00:00:00","slug":"strengthening-the-csr-framework","status":"publish","type":"post","link":"https:\/\/www.nextias.com\/ca\/current-affairs\/07-10-2022\/strengthening-the-csr-framework","title":{"rendered":"Strengthening the CSR Framework"},"content":{"rendered":"<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Growth and related issues<\/strong><\/span><\/span><\/p>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>In News<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Recently, the opinion has emerged that Strengthening the Corporate Social Responsibility (CSR) framework is a profitable idea.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Data of CSR participation of companies<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Rise in spending:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Ever since the establishment of the Corporate Social Responsibility (CSR) regime in India (under Section 135 of the Companies Act 2013), CSR spending in India has <\/span><span style=\"font-size:13pt\"><strong>risen from ?10,065 crores in 2014-15<\/strong><\/span><span style=\"font-size:13pt\"> to <\/span><span style=\"font-size:13pt\"><strong>?24,865 crores in 2020-21<\/strong><\/span><span style=\"font-size:13pt\">.\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">But there is no data to verify whether this increase is <\/span><span style=\"font-size:13pt\"><strong>commensurate with the increase in profits <\/strong><\/span><span style=\"font-size:13pt\">of Indian and foreign (having a registered arm in India) companies.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Zero spendings:\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">There were<\/span><span style=\"font-size:13pt\"><strong> 2,926 companies<\/strong><\/span><span style=\"font-size:13pt\"> in 2020-21 with zero spending on CSR.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Decline:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\"><strong>Companies spending less than the prescribed limit of 2%<\/strong><\/span><span style=\"font-size:13pt\"> rose from 3,078 in 2015-16 to 3,290 in 2020-21.\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">There was also a <\/span><span style=\"font-size:13pt\"><strong>decline in the number of companies participating<\/strong><\/span><span style=\"font-size:13pt\"> in CSR \u2014 25,103 in FY2019 to 17,007 in FY2021.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<div>\n<table cellspacing=\"0\" style=\"border-collapse:collapse; border:none; width:667px\">\n<tbody>\n<tr>\n<td style=\"background-color:#fff2cc; border-bottom:1px solid #000000; border-left:1px solid #000000; border-right:1px solid #000000; border-top:1px solid #000000; vertical-align:top; width:667px\">\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Corporate Social Responsibility (CSR)<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Rationale:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Companies are <\/span><span style=\"font-size:13pt\"><strong>morally obligated to contribute back to society<\/strong><\/span><span style=\"font-size:13pt\"> in addition to their obligations to consumers or shareholders since they rely on societal assets to operate efficiently.<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Corporate social responsibility enables businesses to <\/span><span style=\"font-size:13pt\"><strong>participate in a variety of socially responsible initiatives<\/strong><\/span><span style=\"font-size:13pt\">.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">About:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">The Companies Act encourages companies to <\/span><span style=\"font-size:13pt\"><strong>spend 2% of their average net profit in the previous three years on CSR activities<\/strong><\/span><span style=\"font-size:13pt\">.<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">It is a management concept whereby companies integrate <\/span><span style=\"font-size:13pt\"><strong>social and environmental concerns<\/strong><\/span><span style=\"font-size:13pt\"> in their business operations and interactions with their stakeholders.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Statute:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">The CSR concept in India is <\/span><span style=\"font-size:13pt\"><strong>governed by Section 135 of the Companies Act<\/strong><\/span><span style=\"font-size:13pt\">, <\/span><span style=\"font-size:13pt\"><strong>2013<\/strong><\/span><span style=\"font-size:13pt\">, Schedule VII of the Act and<\/span><span style=\"font-size:13pt\"><strong> Companies (CSR Policy) Rules, 2014<\/strong><\/span><span style=\"font-size:13pt\">.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Monitoring and report filing:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Under the existing regulation, monitoring is by a board-led, <\/span><span style=\"font-size:13pt\"><strong>disclosure-based regime,<\/strong><\/span><span style=\"font-size:13pt\"> with companies reporting their CSR spends <\/span><span style=\"font-size:13pt\"><strong>annually to the Corporate Affairs Ministry (MCA)<\/strong><\/span><span style=\"font-size:13pt\"> through <\/span><span style=\"font-size:13pt\"><strong>filing of an annual report.\u00a0<\/strong><\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Key CSR Areas:\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Environmental management,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Eco-efficiency,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Responsible sourcing,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Stakeholder engagement,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Labour standards and working conditions,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Employee and community relations,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Social equity,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Gender balance,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Human rights,\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Good governance, and\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Anti-corruption measures.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Significance of CSR:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Helps companies to achieve a balance of economic, environmental and social imperatives (\u201cTriple-Bottom-Line-Approach\u201d);<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Companies can make a valuable contribution to poverty reduction;\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Enhanced access to capital and markets, increased sales and profits;\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Directly enhances the reputation of a company and strengthens its brand image leading to enhanced customer loyalty.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Issues with CSR spending<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Excess spendings:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">If a company spends an amount in excess of the minimum 2%, as stipulated, the excess amount is liable to be set off against spending<\/span><span style=\"font-size:13pt\"><strong> in the succeeding three financial years.\u00a0<\/strong><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">The latter provision in the Act weakens the former provision since the <\/span><span style=\"font-size:13pt\"><strong>requirement of 2% is only a minimum requirement.\u00a0<\/strong><\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Ideally, <\/span><span style=\"font-size:13pt\"><strong>companies should be encouraged to spend more <\/strong><\/span><span style=\"font-size:13pt\">than this.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Companies\u2019 own foundations:\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Besides, many private companies have registered their own foundations\/trusts to which they transfer the statutory CSR budgets for utilisation.\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">It is unclear if this is allowed under the Companies Act\/CSR rules.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Skewed spendings:\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">One of the provisions of the Act is that the company should <\/span><span style=\"font-size:13pt\"><strong>give preference to local areas\/areas around it where it operates.\u00a0<\/strong><\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">This is logical. However, a private report says that\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">54% of CSR companies are concentrated in<\/span><span style=\"font-size:13pt\"><strong> Maharashtra, Tamil Nadu, Karnataka, and Gujarat<\/strong><\/span><span style=\"font-size:13pt\"> (receiving the largest CSR spends)\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">While populous Uttar Pradesh and Madhya Pradesh receive little.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\"><strong>A high-level committee observed in 2018<\/strong><\/span><span style=\"font-size:13pt\"> that &#8211;<\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Although the emphasis on \u2018local area\u2019 in the Act is<\/span><span style=\"font-size:13pt\"><strong> only directionary<\/strong><\/span><span style=\"font-size:13pt\"> a <\/span><span style=\"font-size:13pt\"><strong>balance has to be maintained<\/strong><\/span><span style=\"font-size:13pt\">.\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Unfortunately, this ambiguity has left much to the discretion of the boards of these companies in the<\/span><span style=\"font-size:13pt\"><strong> absence of clear percentages for local spending <\/strong><\/span><span style=\"font-size:13pt\">vis-\u00e0-vis other area spending.<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">No focus on environmental spendings:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">The Act deals with broader environmental issues to create a countervailing effect.\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">However, an analysis of CSR spending (2014-18) reveals that while most CSR spending is in <\/span><span style=\"font-size:13pt\"><strong>education (37%) and health and sanitation (29%)<\/strong><\/span><span style=\"font-size:13pt\">, only <\/span><span style=\"font-size:13pt\"><strong>9% was spent on the environment<\/strong><\/span><span style=\"font-size:13pt\">.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Output rather than quality:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">A major issue with this design is that it focuses on output rather than quality of the expenditure and its impact.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:13pt\"><span style=\"font-family:\"Book Antiqua\",serif\"><strong>Suggestions &#038; way ahead<\/strong><\/span><\/span><\/p>\n<ul>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Need of a national-level platform:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">There is a need to curate a national-level platform centralised by the MCA where\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">All States could list their potential CSR-admissible projects.\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Companies can assess where their CSR funds would be most impactful across India.\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Companies can also give preferential treatment to areas where they operate.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\"><strong>Invest India\u2019s \u2018Corporate Social Responsibility Projects Repository\u2019 <\/strong><\/span><span style=\"font-size:13pt\">on the <\/span><span style=\"font-size:13pt\"><strong>India Investment Grid (IIG)<\/strong><\/span><span style=\"font-size:13pt\"> can serve as a guide for such efforts.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Combining with other government schemes:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">This model would be very useful for supporting deserving projects in the 112 aspirational districts and projects identified by MPs under the Government\u2019s Sansad Adarsh Gram Yojana.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Focussing on environmental restoration:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">Companies need to prioritise environmental restoration in the area where they operate, earmarking at least 25% for environment regeneration.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\">Community participation:<\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">All CSR projects should be selected and implemented with the active involvement of communities, district administration and public representatives.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"list-style-type:disc\"><span style=\"font-size:13pt\"><strong>Recommendations by the high-level committee in 2018:<\/strong><\/span>\n<ul>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">These recommendations should be incorporated in the current CSR framework to improve the existing monitoring and evaluation regime.\u00a0<\/span><\/li>\n<li style=\"list-style-type:circle\"><span style=\"font-size:13pt\">The recommendations include:\u00a0<\/span>\n<ul>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\"><strong>Strengthening the reporting mechanisms<\/strong><\/span><span style=\"font-size:13pt\"> with enhanced <\/span><span style=\"font-size:13pt\"><strong>disclosures <\/strong><\/span><span style=\"font-size:13pt\">concerning <\/span><span style=\"font-size:13pt\"><strong>selection of projects, locations, implementing agencies<\/strong><\/span><span style=\"font-size:13pt\">, etc.;\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Bringing CSR <\/span><span style=\"font-size:13pt\"><strong>within the purview of statutory financial audit <\/strong><\/span><span style=\"font-size:13pt\">with details of CSR expenditure included in the <\/span><span style=\"font-size:13pt\"><strong>financial statement of a company<\/strong><\/span><span style=\"font-size:13pt\">, and\u00a0<\/span><\/li>\n<li style=\"list-style-type:square\"><span style=\"font-size:13pt\">Mandatory independent third-party impact assessment audits.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><span style=\"font-size:12pt\"><span style=\"font-family:\"Book Antiqua\",serif\">Source: TH<\/span><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Growth and related issues In News Recently, the opinion has emerged that Strengthening the Corporate Social Responsibility (CSR) framework is a profitable idea. Data of CSR participation of companies Rise in spending: Ever since the establishment of the Corporate Social Responsibility (CSR) regime in India (under Section 135 of the Companies Act 2013), CSR spending [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":4601,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[21],"tags":[31,30,26,68],"class_list":["post-4600","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-current-affairs","tag-government-policies-interventions","tag-gs-2","tag-gs-3","tag-inclusive-growth-related-issues"],"acf":[],"jetpack_featured_media_url":"https:\/\/wp-images.nextias.com\/cdn-cgi\/image\/format=auto\/ca\/uploads\/2023\/07\/2124812Screenshot_20221007-123332_Android System.jpg","_links":{"self":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/4600","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/comments?post=4600"}],"version-history":[{"count":0,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/posts\/4600\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media\/4601"}],"wp:attachment":[{"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/media?parent=4600"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/categories?post=4600"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.nextias.com\/ca\/wp-json\/wp\/v2\/tags?post=4600"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}