Corporate Social Responsibility Details and Challenges
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John Elkington coined the term "Triple Bottom Line" in 1994, which refers to a business being responsible for profit, protecting the planet, and serving people's interests. Milton Friedman argued that a business's only social responsibility is to increase profits within legal bounds. The 2013 CSR Bill in India mandates that large companies spend 2% of their average net profits on social and environmental activities listed in Schedule VII, such as eradicating hunger and poverty, promoting education, healthcare, and environmental sustainability. While companies and activists have mixed views, proper implementation faces challenges such as unequal regional development and ensuring funds are properly spent and monitored.
Corporate Social Responsibility Details and Challenges
- 1. Corporate Social Responsibility & Millennium Development Goal
- 2. Scholar Views John Elikngton Milton Friedman He coined the term Triple Bottom Line (TBL) in year 1994. TBL includes 3Ps ie. Profit, Planet & People. According to him business is responsible for making profit, protection of planet and towards interest of people which form the society in which any business operates. He said that 'there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud."
- 4. CSR Bill 2013 The newly enacted Companies Act 2013 has brought remarkable changes in 60 years old Companies Act 1956. Section 135 is among one of the remarkable changes that makes spending on community development say Corporate Social Responsibility (CSR) mandatory from 1st April 2014. Though there are many minute details in the CSR Bill but most important are Section 135 and Schedule VII.
- 5. Section 135 As per Section 135 (1) All listed companies who fulfil the following criteria: Net worth Rs 500cr or Turnover Rs 1,000cr or Net profit Rs 5cr; during any financial year Has to constitute a CSR Committee of the Board consisting of three or more Directors of which at least one should be independent Director. All such companies have to spend 2% of their average net profit for preceding three FY on activities listed in Schedule VII and/or activities as per their CSR Policy.
- 6. Section 135 CSR Committee will: Recommend to Boards CSR policies and activities to be undertaken. Recommend the amount of expenditure to be incurred on activities. Monitor CSR policy of company from time to time Board of Directors will: Approve the recommendation and CSR policy Disclose companies CSR policies in report/website Ensure that 2% of average net profit of preceding 3 financial years are spent on CSR activities.
- 7. Section 135 Every company which ceases to comply with Section 135 (1) for consecutive 3 FY shall not be required to: Constitute a CSR Committee, Comply with the provisions contained in sub-section 2- 5 of Section 135. Till such time it meets the criteria specified in Section 135 (1)
- 8. Guidelines Board Resolution required for constitution of CSR committee and approval of CSR policy The activities to be undertaken by CSR committee should not directly or indirectly benefit the Company or employees of the Company and their families or any other person related to the Company. Not exceeding 5 % of total CSR expenditure can be spent by Companies for building CSR capacity of their own personnel as well as those of their implementing agencies. Earmarked amount should be spent in same FY, carry forward is not available.
- 9. Guidelines Company may undertake its CSR activities approved by CSR Committee through a registered trust or registered society or a registered society or company established by the company or its holding under Section 8 of the Act. Companies may also collaborate with other companies for undertaking project or programme or CSR activities in such a manner that respective CSR committee of the company is position to report separately on such projects or programme as per defined rules. CSR projects or programme or activities that solely employees and their family shall not be considered as CSR
- 10. Schedule VII The Schedule enlists the activities which qualifies to be considered as CSR activity and the cost incurred on such activities only will be considered as CSR expenditure. Thus Schedule VII becomes the most critical part of CSR Bill 2013 because of existing ambiguity in the activities. Corporate have to align their existing CSR activities as per these guidelines.
- 11. CSR under Schedule VII Activities in Schedule VII MDG Subsumed 1. Eradicating hunger and poverty 1. Eradicate Extreme Hunger and Poverty 2. Promotion of Education 2. Achieve Universal Primary Education 3. Promoting gender equality and Empowering Women 3.Promote Gender Equality and Women Empowerment 4. Reducing Child mortality and Improving Maternal Health 4. Reduce Child Mortality 5. Improve Maternal Health
- 12. Activities in Schedule VII MDG Subsumed 5. Combating HIV/AIDS, Malaria and other Diseases 6. Combating HIV/AIDS, Malaria and other Diseases 6. Ensuring Environmental Sustainability 7. Ensuring environmental sustainability 8. Develop a Global Partnership for Development 7. Employment Enhancing Vocational skills 8. Social Business Projects
- 13. Activities in Schedule VII MDG Subsumed 9. Contribution to the Prime Minister's 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 10. Such other matters as may be prescribed
- 14. Challenges of CSR CSR Bill has received a mixed response from different stake holders, viz. Society and Social Activist and many Corporate has welcomed it. On the other hand many corporate have shown resentment citing it Government responsibility to work for the welfare of the state where they are already paying all sort of taxes and following all compliances. Where as Govt. has already appealed for public privet partnership for common goods. Besides there are many companies which has been doing work for social goods before the advent of the bill but many still find it hard to loose their pockets because of many reasons.
- 15. Major Challenges of CSR Few states which are already industrialised will get an edge in development. It will increase regional disparity in growth as industries are concentrated in shorter geography There is still ambiguity over the tax treatment of the money spent on CSR To spend such a huge amount with proper monitoring is another major challenge.
- 16. Major Challenges of CSR Though CSR spending has been made mandatory but if company fails to meet that threshold they have to give reasons for the same. So it will be challenging for Govt. as well to monitor so many companies. It will add another level of bureaucracy to look after the CSR where so many companies qualifies whether it will be free from bias is yet another challenge.
- 17. Cont.... Within the existing Govt. Welfare Schemes Companies have to identify its own area of intervention or establish a synergy with them such that local bodies do no misappropriate the Govt. Funds.
- 18. Thank You