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Corporate Social Responsibility (CSR) - Policy, Types & Scope (Sec. 135)

Updated: Oct 4, 2022

What is CSR?

Corporate social responsibility (CSR), refers to a company's attempts to better society in some way. These initiatives can range from monetary donations to the implementation of ecologically friendly workplace rules. It is stated under Sec. 135 of the Indian Companies Act 2013.

It is a commitment of a company to manage the social, environmental, and economic repercussions of its operations responsibly and by public expectations.

It is a component of a company's corporate governance strategy and can affect all aspects of the business, including operations, human resources, production, supply chain, health and safety, and more.

In general, "Corporate Social Responsibility" refers to but is not limited to, projects or programs linked to the activities listed in Schedule VII of the Act.

Projects or programs relating to activities undertaken by the Board of Directors of a company to ensure the recommendation of the CSR Committee of the Board following the Company's declared CSR Policy, subject to the condition that such policy will cover subjects specified in Schedule VII.

Role of Board of Directors

The Board of Directors has the following responsibilities:

  • Approve the Company's CSR policy after considering the suggestions of the CSR Committee.

  • The Board shall guarantee that only those actions are carried out that are specified in the policy.

  • According to CSR policy, the Board of Directors must ensure that the company spends a minimum of 2% of its average net income over the previous three financial years in each financial year.

  • The average net earnings for the financial years since the company's incorporation shall be determined if it has not completed three financial years since its incorporation.

CSR Policy

The CSR Policy outlines the activities and expenditures that the Company will undertake by Schedule VII of the Act. The activities should not be the same as those carried out in the normal course of business by the corporation.

  1. The Board should post the contents of the CSR Policy on the company's website.

  2. The company must carry out the actions outlined in the policy.

  3. The Company can collaborate with other companies on projects, initiatives, or CSR activities and report separately on each of these activities.

  4. The projects or programs will be monitored under the CSR policy.

The following are a few examples of CSR activities:

  • Working with partners who follow ethical business practices is required by company standards.

  • Profits are re-invested in health and safety and environmental activities.

  • Supporting charitable groups in a business's communities is a good idea.

  • At the executive level, promoting equal opportunity for men and women

  • Some components of corporate social responsibility may be mandated by law. Banks and hospitals, for example, are mandated by law to safeguard personal information. Others are entirely optional.

Fine & Penalties

If a corporation fails to comply with the laws relating to CSR spending, transferring, and using the unspent funds, it will be fined a minimum of Rs 50,000, with a maximum fine of Rs 25 lakh. Furthermore, any officer of a such corporation who fails to comply shall be subject to a penalty of either imprisonment for a term up to three years or a minimum fine of Rs 50,000, which may be increased to Rs 5 lakh, or both.

Types Of CSR

Corporate Social Responsibility(CSR) is classified into four categories:

1. Environment responsibility-

Environmental responsibility is the concept where businesses should act in a manner that is ecologically beneficial as well as feasible. It is one of the most popular types of corporate social responsibility. Some businesses refer to such programs as "environmental stewardship."

Companies that want to be more environmentally conscious might do so in a variety of ways:

  • Pollution, greenhouse gas emissions, single-use plastics, water use, and general waste are all being reduced.

  • The use of renewable energy, sustainable resources, and recycled or partially recycled materials is becoming more common.

  • Planting trees, supporting research, and donating to related causes are examples of ways to mitigate harmful environmental impacts.

2. Ethical responsibility-

The goal of ethical responsibility is to ensure that an organization operates fairly and ethically. All stakeholders, including leadership, investors, employees, suppliers, and customers, should be treated fairly by organizations that embrace ethical responsibility.

Companies can take on ethical responsibility in a variety of ways. For example, a business may set its own, higher wage. Similarly, a company may demand that products, ingredients, materials, or components be sourced under free trade principles. Many businesses have procedures in place to verify that they are not purchasing products made by slaves or children.

3. Philanthropic Responsibility-

Philanthropic duty refers to a company's goal of actively improving the world and society.

Organizations inspired by philanthropic duty often donate a portion of their earnings in addition to being as ethically and environmentally friendly as possible. Many businesses donate to charities and nonprofits that coincide with their guiding missions, while others donate to worthwhile causes that have nothing to do with their business. Others go so far as to establish their charitable trust or organization to help others.

4. Economic responsibility-

Economic responsibility refers to a company's practice of basing all of its financial decisions on its commitment to do good in the areas mentioned above. The ultimate goal is to positively impact the environment, people, and society, not just maximize profits.

Scope of CSR

In today's capitalist economy, the relevance and importance of corporate social responsibility (CSR) are critical to ensuring the long-term viability of life and business.

  • Enhances Public Reputation-

Public image has improved. This is critical because customers judge your public image before determining whether or not to buy from you. Something as easy as staff members volunteering an hour a week at a charity demonstrates that you're a company that cares about others. As a result, you'll come across as much more appealing to customers.

  • Brand recognition-

This information will spread if you are devoted to ethical behaviors. As a result, more people will hear about your business, increasing brand awareness.

  • An edge over the competition-

You will distinguish out from your industry's competitors if you embrace CSR. You position yourself as a company that is committed to going above and beyond by taking social and environmental considerations into account.

  • Employee engagement is higher-

You must ensure that your staff is aware of your CSR efforts, just as you must ensure that they are aware of your customer engagement tactics. Employees prefer working for a company that has a positive public image more than one that does not. Furthermore, demonstrating your commitment to issues such as human rights increases your chances of attracting and retaining outstanding applicants.

  • Cost Savings-

Previously, functioning sustainably came at a significant financial cost to the organization. It would have been shocking a few years ago if cost reductions were one of the elements in the importance of CSR. Responsible companies have discovered breakthrough technologies that have lowered operational expenses.

When you adopt CSR, your employees will reap a variety of rewards. Your office will be a more cheerful and productive environment, and you will support personal and professional growth.

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