CORPORATE SOCIAL RESPONSIBILITY (CSR)

Published on 30 Jan 2025

Corporate Social Responsibility refers to the responsibility of the corporation to contribute towards the development of the society, where the company is functioning. India is the first country in the world to mandate CSR spending, being mentioned in clause 135 of the Companies Act, 2013. 

The provisions are applicable to companies with an annual turnover of 1000 crore or more, or a net worth of 500 crore and more, or a net profit of 5 crore and more. Companies falling within these categories are expected to spend 2% of their average net profit in the previous three years on CSR activities.

Benefits of Corporate Social Responsibility (CSR)

• Education and skill development: Many CSR programmes in India are dedicated to promote education and skill development among children, youth and adults. This enhances their literacy, improves employability and fosters socio-economic mobility.

• Example: ‘Lab-on-a-Bike’ programme in Bihar by SKF manufacturers seeks to make STEM education more accessible. The programme is expected to reach out to more than 2000 students across 18 government schools in the state.

• Healthcare services: Companies support healthcare facilities, mobile clinics, run health awareness programmes, and disease prevention programmes in rural and remote areas where health infrastructure is inadequate.

• Example: Apollo Foundations’ Mega Eye Camp with Sightsavers India in Chhattisgarh.

• Social welfare programmes: Companies invest towards initiatives which improves the quality of life, like better access to resources, thus ensuring well-being of people.

• Example: Infosys foundation in partnership with Akshaya Patra Foundation provides midday meals to school children in partnership with the government.

• Infrastructure development: Companies could fund the development of roads, bridges, schools, healthcare and sanitation facilities to improve the living standards of poor people.

• Women empowerment: Providing women with job-oriented skills through vocational training and making them better economic assets.

• Example: Project Sakhi by Hindustan Zinc Limited has aided in the formation and development of 2248 SGs having membership of over 27000 women.

• Environment sustainability: Companies could support the development of renewable energy projects, waste management initiatives and afforestation programmes, thus contributing positively to the environment.

• Example: Project Hariyali of Mahindra aims to plant 1 million trees annually as it addresses the challenge of climate change.

• Community development: CSR funds could target the specific needs and priorities of the local community like improving the sanitation projects, disaster relief efforts, cultural preservation etc.

• Example: Tata Power Community Development Trust conducts programmes to increase renewable energy, facilitate access to clean drinking water, ensure menstrual hygiene etc.

Concerns in the functioning of CSR

• CSR amount remaining unspent: Companies are less enthusiastic in spending the amount for social benefit. They usually cite reasons like lack of expertise to identify the project, delay due to long term nature of the project etc.

• Example: According to a KPMG report, 52 of the 100 largest companies in India failed to spend the 2% CSR fund.

• Limited stakeholder engagement: The community is not involved in the planning process, eventually leading to developing programmes that do not suit communites’ demand.

• Lack of proper monitoring: Timely and impartial monitoring has been lacking, which results in increased cases of diversion of funds and accumulation of unspent funds.

• Example: NALCO’s CSR fund diversion case in 2012

• Inequality in distribution of benefits: Distribution of benefits has been concentrated to certain states, with more focus on the region in-and-around the company.

• Example: Maharashtra, Gujarat, Andhra Pradesh, Rajasthan and Tamil Nadu accounts for more than one-fourth of the CSR benefits.

• Fund projects beneficial to the company: CSR projects being used to increase the demand for projects which the company produces, thus using a social initiative as an advertisement tool for the company.

• Example: Hindustan Unilever conducted programmes on good hygiene and sanitation, which increased the demand for their toiletries and detergents.

• Focus on short-term projects: Many companies, in order to use the fund in a quick manner, prefer short term projects, which serves little benefit to society.

• Division of fund by NGO: Many companies rely upon NGOs for proper utilization of the fund due to lack of expertise. But these NGOs may divert the funds, leading to loss for the society.

• Example: CBI filed a case against an NGO, Advantage India, for misusing the CSR funds given to them by a company.

• Lack of transparency and accountability: The reluctance from most of the companies to proactively disclose the amount spent for CSR hinders effective monitoring and scrutiny.

• Example: Based on a report by Institutional Investor Advisory Services, Bajaj Auto did not only conceal unspent amounts in the given financial year, but also did not mention whether the amount unspent was carried forward to the next year.

Way forward

• Consultation with local government: 2nd ARC report mentions the need to have a consultation between the local government and the company to avoid unnecessary overlap and to have cooperation on certain programmes.

• Proactive disclosure: Rules shall be formulated to encourage proactive disclosure of CSR information on a real time basis to bring transparency in the functioning.

• CSR Audit: Bring CSR under the purview of a statutory audit system to avoid diversion in the flow of funds.

• Bridge disparity in site selection: The projects shall be more evenly distributed, with incentives being provided to companies for covering less explored states.

Thus, CSR is indeed a great innovation to facilitate redistribution of wealth by following the Gandhian footstep of trusteeship. But regulatory frameworks need to be tightened with better monitoring, and community involvement to make the programme successful and beneficial to the society.

Tags:
Social Justice

Keywords:
CORPORATE SOCIAL RESPONSIBILITY CSR Companies Act 2013 Benefits of Corporate Social Responsibility Concerns in the functioning of CSR

Syllabus:
General Studies Paper 2

Topics:
Social Justice