Open Access Research Article
EFFECTIVENESS CORPORATE SOCIAL RESPONSIBILITY
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Article Details
EFFECTIVENESS CORPORATE SOCIAL
RESPONSIBILITY
AUTHORED BY
- MR. ASHISH TIWARI & MR. DEWESH SHARAN
B.A., LL. B 2nd Year
KES’ Shri.
Jayantilal H. Patel Law College, Mumbai
INTRODUCTION
In an era marked by rapid
globalization, technological advancement and increasing awareness of social and
environmental issues, Corporate Social Responsibility (CSR)[1]
has emerged as a fundamental pillar of modern business practices. CSR refers to
the ethical framework that businesses adopt to conduct their operations in a
manner that is socially responsible, environmentally sustainable and
economically viable. It encompasses a wide range of practices from reducing
carbon footprints and improving labour policies to engaging in community
development and ensuring ethical supply chain By the enactment of Companies Act
2013[2],
Corporate social responsibility came into effect. Section 135[3] of
the Companies Act states all the provisions concerning the act of CSR activity.
Schedule 7 of the act lists all the activities which may be included by the
companies in their CSR policies. These provisions are necessary to govern the
CSR activity.
It has evolved into a strategic
imperative that can shape a company's reputation, foster customer loyalty and
drive long-term profitability. Businesses that embrace CSR not only contribute
positively to society but also position themselves as leaders in their
industries, capable of attracting top talent and securing investor confidence.
The growing body of evidence linking CSR to enhanced business performance
underscores the necessity for companies to integrate social responsibility into
their core strategies. In this article we will explore the multifaceted nature
of CSR, its benefits for businesses and society. the challenges organizations
face in implementing effective CSR initiatives. By understanding the critical
role of CSR in today's business landscape, we can appreciate why it is not just
an option but a necessity for sustainable growth and success.
CSR
COMMITTEE (SECTION 135)
ELIGIBILITY CRETERIA: Section 135(1)
of the Companies Act 2013 specifically mentions the eligibility criteria by
which companies are obligated to comply with. Every company having:
·
Net
worth of more than Rs. 500 crore
·
Turnover
of more than Rs. 1000 crore
·
Net
profit of more than Rs. 5 crore
COMPOSITION:
The Corporate Social Responsibility
(CSR) Committee shall be composed of a minimum of three Directors with the
stipulation that at least one of these Directors must be an Independent
Director.
In instances where a company is not
mandated to appoint an Independent Director as per sub-section (4) of section
149[4],
it is required to include two or more Directors in its CSR Committee.
Therefore, a company exempt from appointing an Independent Director may
establish its CSR Committee without including such a director.
For a private company with only two
Directors on its Board, the CSR Committee shall be formed with both Directors.
Regarding foreign companies, the CSR
Committee must consist of at least two individuals, one of whom must meet the
criteria outlined in clause (d) of sub-section (1) of section 380 of the
Companies Act, 2013[5], while
the other individual shall be appointed by the foreign company.
MEETINGS/QUORUM:
According to SS-1[6],
the committee is required to convene as frequently as necessary adhering to the
minimum number and frequency established by applicable laws, authorities, or
directives from the Board.
A member designated by the Board or
elected by the Committee to serve as Chairman in compliance with the Act or
other relevant legislation or the Articles shall preside over the Committee
Meetings. In the absence of an elected Chairman or if the elected Chairman is
unable to attend, the Committee shall select one of its present members to lead
the Meeting, unless otherwise specified in the Articles.
Regarding the quorum for the CSR
Committee unless otherwise indicated in the Act, the Articles or any other
legal provisions, the quorum for meetings of the CSR Committee established by
the Board shall be determined by the Board. In the absence of a specified
quorum, the presence of all Committee members is required to establish a
quorum.
FUNCTIONS
The responsibility of formulating and
recommending a Corporate Social Responsibility (CSR) Policy to the Board lies
in identifying the activities the company will engage in as outlined in
Schedule VII of the Companies Act, 2013[7].
-
Additionally,
the Committee is tasked with advising on the budget allocated for CSR
initiatives.
-
It
is also responsible for the ongoing oversight of the company's CSR Policy.
Moreover, the CSR regulations
stipulate that the CSR Committee must develop and propose an annual action plan
to the Board in alignment with its CSR policy, which should encompass the
following elements:
(a)
a
list of approved CSR projects or programs to be executed in accordance with the
areas specified in Schedule VII of the Companies Act, 2013.
(b)
the
execution methods for these projects or programs as detailed in sub-rule (1) of
rule 4[8] of
the CSR Rules.
(c)
the
strategies for fund allocation and timelines for project implementation.
(d)
a
framework for monitoring and reporting on the progress of the projects or
programs. And
(e)
any
necessary assessments of need and impact related to the projects undertaken by
the company.
It is important to note that the
Board retains the authority to modify this plan at any point during the
financial year based on recommendations from the CSR Committee provided there
is reasonable justification for such changes.
DISCLOSURE
RELATED TO CSR COMMITTEE
The Board of Directors of each
company are obligated to establish a CSR Committee shall after considering the
recommendations provided by the Committee formally approve the Corporate Social
Responsibility Policy for the organization. The contents of this Policy must be
disclosed in the company's report and made available on the company's website
if applicable in accordance with the prescribed guidelines. Furthermore, the
Board of Directors is required to publicly disclose the composition of the CSR
Committee along with the CSR Policy and Projects that have received Board
approval on their website if one exists to ensure public accessibility.
HOW CSR
ACTIVITY IS BEEN PERFORMED?
CSR became mandatory for certain
companies through the Companies Act of 2013, which requires businesses meeting
specific criteria (like revenue and net worth) to spend at least 2% of their
average net profits on CSR activities each year.
Key Amendments and Updates
- Companies (Amendment) Act, 2019[9]:
Introduced penalties for non-compliance. Mandated depositing unspent
Corporate Social Responsibility funds into specified government funds.
- Companies (CSR Policy) Amendment Rules, 2021[10]:
Allowed carrying forward unspent funds for “ongoing projects.” Reinforced
transparency through stricter reporting norms.
TYPES OF
CSR
1.
Environmental Responsibility: In order to sustain in the tech-centric era organizations
should behave in as environmentally friendly way as possible. It refers to organization’s
commitment to sustainable practices pledging to consider their environmental
impact at every stage of business. This means reducing harmful environmental
practices regulating energy consumption and offset negative environmental
impact.
2.
Ethical Responsibility: It refers to a company’s commitment to operate their business
in fair and ethical manner that upholds human rights principle. This reflects
the fair treatment to all stakeholders, employees, employers, suppliers,
investors and customers.
3.
Philanthropic responsibility: It refers to business’s aim at making the society a better
place. Engaging in such activities that can help in improve society and environment
by aiding research, creating awareness or supporting specific sections of the
community. It aims at donating money, doing charity, and giving schemes to employees.
4.
Economic Responsibility: It is the practice of making financial decisions which are
empathetic towards community and go beyond just gaining profits. Companies take
measures that it benefits the business and society. The end goal isn’t just to
maximize profits but also to draw positive impact on environment and society.
BENEFITS OF
CSR
- Increased Brand Awareness and Reputation: Corporate social
responsibility (CSR) initiatives can help companies build a positive brand
image and reputation. It can attract potential customers and investors and
create opportunities to develop stronger relationships with current
customers.
- Improved Employee Engagement and Retention: Companies that invest in
CSR programs report higher employee satisfaction, engagement and retention
levels. Employees feel more connected to the organization when they see
that the company values the community and environment.
- Increased Productivity and Efficiency: CSR initiatives create an
environment that encourages employees to work together and strive to reach
their full potential. It can lead to greater efficiency, improved
productivity and ultimately better results for the company.
- Enhanced Community Relations: Companies that participate
in CSR programs have better relationships with the communities in which
they operate. It can lead to increased support from local communities as
well as new opportunities for collaboration.
- Financial Benefits: Companies that invest in CSR experience
increased revenues, market share, and cost savings from reduced waste and
improved efficiency. It can contribute to a company's financial success by
reducing operational costs attracting investment and driving customer
loyalty.
- Regulatory Benefits: Companies that engage in CSR can benefit
from increased regulatory compliance and reduced legal risks.
- Environmental Benefits: Companies that invest in
CSR initiatives experience environmental benefits such as reduced
emissions and improved resource management.
- Social Benefits: Companies that engage in CSR can benefit
communities by providing educational and employment opportunities as well
as improved access to health care, clean water and sanitation.
CHALLENGES
1.
Lack of Transparency: This is perhaps one of the main issues where the local implementing
agencies do not make enough efforts to disclose or share information about
their programmes whether they have been successful or not. Also, audits are not
conducted to show how funds are spent. This lack of transparency negatively
impacts the process of trust building between companies and local communities
which is key to the success of any CSR initiative at the local level.
2.
Limited Availability of Well Organized Non-Governmental Organizations: This is a challenge which is unique
to India where data shows that there is limited availability of well-organized
nongovernmental organizations in remote and rural areas who have the expertise
to assess and identify real needs of the community and work along with
companies to ensure successful implementation of CSR activities. This also
means there is limited investment in local communities to empower them to
undertake their own grassroot development projects.
3.
Visibility Factor: The role of media in highlighting good cases of successful CSR
initiatives is welcomed as it spreads good stories and sensitizes the local
population about various ongoing CSR initiatives of companies. This apparent
influence of gaining visibility and branding exercise often leads many
nongovernmental organizations to involve themselves in event-based programs in
the process they often miss out on meaningful grassroots interventions.
4.
Lack of Community Participation in CSR Activities: There is a lack of interest of the
local community in participating and contributing to CSR activities of
companies. This is largely attributable to the fact that there exists little or
no knowledge about. CSR within the local communities as no serious efforts have
been made to spread awareness about CSR and maintain confidence in the local
communities about such initiatives. The situation is further aggravated by a
lack of communication between the company and the community at the grassroots.
Recommendations for Reform
·
Incentivize
Corporate Social Responsibility through Tax Reforms: Allow broader tax
deductions for Corporate Social Responsibility expenses to encourage meaningful
investments.
·
Strengthen
Monitoring Mechanisms: Introduce independent audits to assess the actual impact
of Corporate Social Responsibility initiatives.
·
Align
with Sustainable Development Goals (SDGs)[11]:
Encourage businesses to integrate CSR with global sustainability goals for a
holistic approach.
·
Promote
Capacity Building for NGOs[12]:
Enhance training and funding for NGOs to effectively implement CSR projects.
·
Focus
on Long-term Impact: Shift from compliance-driven spending to sustainable
practices that create lasting societal benefits.
Conclusion
CSR has evolved from its historical
status as a purely moral duty to become a strategic necessity for long-term
success and sustainable growth in the modern corporate environment. CSR has
been formalized with the passage of Section 135 of the Companies Act 2013 which
requires companies to make significant contributions to the welfare of society
and the environment. Businesses that include CSR into their fundamental
strategy not only build consumer loyalty and improve their brand image, but
they also improve financial performance employee engagement and community
development. Nevertheless, there are obstacles in the way of implementing CSR
effectively. The full potential of CSR activities is frequently hampered by
problems including a lack of transparency, a limited capacity of NGOs and
inadequate community involvement. To get beyond these obstacles, companies need
to embrace a more open, inclusive left.
REFERENCES
[1] Corporate Social Responsibility
(CSR)
[2] Companies Act 2013
[3] Section 135
[4] CA sub-section (4) of section
149
[5] section 380 of the Companies
Act, 2013
[6] SS-1
[7] Schedule VII of the Companies
Act, 2013
[8] Rule 4 of the CSR Rules.
[9] Companies (Amendment) Act, 2019[9]:
[10] Companies (CSR Policy) Amendment
Rules, 2021[10]:
[11] Align with Sustainable
Development Goals (SDGs)
[12] Promote Capacity Building for
NGOs[12]:
Article Information
EFFECTIVENESS CORPORATE SOCIAL RESPONSIBILITY
Authors: MR. ASHISH TIWARI, MR. DEWESH SHARAN
- Journal IJLRA
- ISSN 2582-6433
- Published 2025/03/27
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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