Any misappropriation and fraud in utilization of CSR funds (the public money) and in execution of CSR programmes/projects (for the benefit of people) can be brought into public notice by any stakeholder. CSR has its own democratic value.
The growing importance and relevance of CSR and the need for appropriate utilization of CSR funds towards social development causes in India are highlighted below:
The Companies Act 2013 of the Government of India has made it mandatory for the profit-making companies to mark out minimum 2% of their profit for CSR activities. As per the Section 135 of this Act, that becomes the Companies Rules 2014, any company coming under the mandated criteria of having minimum 1000 crore turnover or 500 crore net worth or 5 crore profit must spend at least 2% of the average net profit of previous three years in its CSR programme. Before this, in 2011, the Ministry of Corporate Affairs has launched the National Voluntary Guidelines (NVGs) for Social, Environmental & Economic Responsibilities of Business. Also, Department of Public Enterprises (DPE), Ministry of Heavy Industries and Public Enterprises of Government of India has introduced the Guidelines for CSR & Sustainability for Central Public Sector Enterprises (CPSEs) in 2013. Also, SEBI Guidelines (2012) asks the top 100 listed companies to disclose information on their ESG (Environmental, Social and Governance) performance.
Once any Company commits a fund for CSR, the fund becomes the public money as it intends to be used for the benefit of Public.
Hence, the CSR fund as public money must be utilized in an appropriate manner with utmost transparency. Its utilization in various planned programmes/projects should be monitored regularly. The process as well as the resulting impact of CSR programmes/projects should be evaluated Corrective feedback on these should be welcomed and be executed.
The concept of CSR is built around the stakeholders of Companies. The stakeholders are Employees, Communities, NGOs, CBOs (Community Based Organisations), Government Agencies, Media, etc. The roles and rights of stakeholders are critical for the CSR Programme.
Being a stakeholder, any individual citizen or group of the country has the right to know about any CSR programme/project happening in the country. Noteworthy to cite, CSR activities do come under the purview of Right to Information (RTI) Act 2005.
Further, every citizen or group, being watchdog, can exercise its right to ensure that the CSR fund is being used properly.
Any misappropriation and fraud in utilization of CSR fund and in execution of CSR programmes/projects can be brought into public notice by any stakeholder.
Here are some relevant quotes taken from the saying of Ministries, Committees and Authorities of Govt. of India:
The Corporate Social Responsibility concept in India is governed by Section 135 of the Companies Act, 2013 and Rules made thereunder wherein the criteria has been provided for assessing the CSR eligibility of a company, Implementation and Reporting of their CSR Policies. India having the most elaborated CSR mechanism and implementation strategy has started its journey to set a benchmark in attaining sustainability goals and stakeholder activism in nation building.[1]
It has tried to take a holistic and comprehensive view while suggesting changes in the Companies Act, 2013 (Act) and subordinate legislations, bearing in mind difficulties and challenges expressed by various stakeholders, emerging themes such as Sustainable Development Goals (SDGs), Social Enterprises, Business and Human Rights, etc. The committee has endeavoured to reconcile stakeholders’ concerns with larger public interest to maximize the potential for social development through CSR.[2]
President of India on CSR: Broadly, CSR initiatives have been aligned with the national priorities such as publichealth, education, livelihoods, water conservation, sanitation, and natural resource management. They are also in tune with the global priorities. I am referring here to the Sustainable Development Goals (SDGs) set by the United Nations to end poverty, protect the planet and ensure prosperity for all. The 17 goals with 169 targets are to be achieved by 2030. I am confident that we will achieve all targets well in time. In fact, on the parameter of sanitation, India has achieved the target far ahead of the time. The advent of an effective CSR regime is indeed a timely development in this context. I sincerely hope that innovative solutions to persisting development challenges will emerge from the CSR activities.[3]
Reporting of CSR and Transparency in CSR Ecosystem for public interest
As a democratic nation, CSR awareness and CSR consciousness is need of citizens, hence CSR is a subject of public interest.
CSR awareness and CSR consciousness has grown dramatically among large and medium-sized companies, which now look at CSR to build a strategic fit with the community and environment in which they operate. Broadly, the CSR mandate has been aligned with national priorities such as public health, education, livelihood, water conservation, natural resource management, etc. More importantly, it has generated national interest and debate on its potential role, and, the responsibility of the corporate sector in achieving Sustainable Development Goals (SDGs).[4]
“Enactment of Companies Act, 2013 by the Ministry of Corporate Affairs, Government of India was one of the world’s largest experiments of introducing the CSR as a mandatory provision by imposing statutory obligation on Companies to take up CSR projects towards social welfare activities. This has made India the only country which has regulated and mandated CSR for some select categories of companies registered under the Act. This CSR Initiative will push the nation towards achievement of sustainable development goals and public-private partnership in transforming India.” Govt. of India has established National CSR Data Portal, making CSR related information in public domain for public interest.[5]
National CSR Data Portal: The National Corporate Social Responsibility Data Portal is an initiative by Ministry of Corporate Affairs, Government of India to establish a platform to disseminate Corporate Social Responsibility related data and information filed by the companies registered with it.” [6]
Advocacy of CSR
Advocacy of CSR and academic network for CSR: The evolution of CSR has necessitated that the ecosystem be strengthened for undertaking research, capacity building, advocacy and related support for CSR. The Committee has been informed that the Ministry of Corporate Affairs, through the Regional Director, IICA, and, Professional Institutes, have been carrying out sensitization workshops to ensure effective compliance of CSR provisions by companies. Further, MCA & IICA established the National Foundation for Corporate Social Responsibility (NFCSR) on December 6, 2012 to provide a platform for corporates to collaborate with Government, Non-Governmental and Civil Society Organizations, and local communities on CSR projects. Considering the wider mandate of CSR such as responsible business conduct, SDGs, stakeholder awareness, promoting best practices, research and capacity building, etc. the Ministry in 2019 restructured the NFCSR to function as a think tank of CSR. The foundation has an independent governing structure – ‘Governing Council’ chaired by Minister of Corporate Affairs with 7 Members (Ex-Officio), and a ‘Steering Committee’ chaired by the Secretary, Corporate Affairs with 20 Members from diverse fields such as PSUs, Private Sector Firms, Regulatory Bodies, Industry Associations, State Governments, Professional Institutes, NGOs and Eminent Persons. The committee recommends strengthening NFCSR. There is a requirement for its institutional set up as a legal entity with a formal structure, funding mechanism and staffing position, which will enable it to act as a nodal agency for all CSR activities and develop a CSR ecosystem. The strengthened NFCSR may undertake advocacy of CSR as well as partner with professional/academic/research institutions and business chambers/industry associations in this regard. NFCSR to be strengthened to function as the think-tank for CSR. The Government may consider contributing Rupees Ten Crore as seed capital for strengthening NFCSR. It shall build a strong network among all stakeholders and build capacity for CSR. NFCSR may also undertake advocacy for Individual Social Responsibility.[7]
Issues related to Reporting for CSR
The reporting for CSR needs to be strengthened, with enhanced disclosures for better information dissemination with respect to selection of projects, locations, implementing agencies to facilitate better monitoring.[8]
CSR is meant to be monitored and regulated through a disclosure-based regime, it is imperative that reporting for CSR activities be holistic and granular capturing requisite details in a machine-readable formats. The latter is essential to enable technology based assessments for regulation and also for seamlessly rendering it on to the Data Portal for information dissemination. The National CSR Data Portal was launched by MCA in January 2018 wherein data as reported by companies is being presented in the public domain. Also, details of CSR spending need to be made part of the financial statement of a Company and incorporated in Schedule III of the Act. The Board Report of a Company must also disclose need assessment and outcomes and their impact in it. The Committee is of the view that a comprehensive e-form be developed and the details of IAs such as, PAN of the IA, the nature of organisation, viz. trust, society, section 8 company, details of related parties in the IAs, etc. be captured in order to bring greater transparency in disclosures.[9]
Question on reports in the media regarding misuse of the said CSR funds in Loksabha
(a) the names of the projects for which Corporate Social Responsibility (CSR) funds has been utilised during the last three years and the current year and the amount of such funds available with the Public Sector Enterprises; (b) whether the Government is aware of the reports in the media regarding misuse of the said CSR funds of Public Sector Enterprises of Public Works Department; (c) if so, the details thereof; and (d) the steps taken/ being taken by the Government to ensure the proper utilization of CSR funds as per the prescribed guidelines?[10]
Justice Madan Lokur of the Supreme Court on CSR
Endorsing the mandatory corporate social responsibility under the Companies Act-2013, Justice Madan Lokur of the Supreme Court has said that it was a step towards realisation of directive principles of state policy enshrined in Constitution. He was speaking on new provision (which mandates that corporates must spend 2 per cent of profit on CSR) at a seminar organised by United World School of Law here. “Why should corporates have social responsibility? The reason is that corporates have immense resources and tremendous potential to impact their surrounding through the policies and their business conduct,” Justice Lokur said. “Every decision of corporates from extraction of raw materials to employment of labour, from sale of a product to a policy decision of starting business in an area and that of winding up has the potential to tremendously impact lives of thousands of people directly or indirectly. “Therefore there is a need to hold them accountable as their nature and scale causes innumerable risk to the society,” the judge said. “India I believe…became the only country to make legislation and make CSR activity mandatory,” he said.[11]
The CSR Rule in India
As per Section 135 of the Indian Companies Act, 2013, a company, meeting the applicability threshold, needs to spend at least 2% of its average net profit computed as mandated by the Act for the immediately preceding three financial years on CSR activities. The Act prescribes that every company having a net worth of Rs. 500 crore or more, or turnover of Rs. 1,000 crore or more, or a net profit of Rs. 5 crore or more during any financial year shall ensure that it spends, in every financial year, at least 2% of the average net profits computed as mandated by the Act, in pursuance of its CSR Policy.
Rusen Kumar is the founder and managing editor of India CSR. He regularly writes on Sustainability and CSR.
(CopyRight@IndiaCSRNetwork)
[1] Ministry of Corporate Affairs, Govt. of India) (Source: https://csr.gov.in/about-us.php)
[2] REPORT OF THE HIGH LEVEL COMMITTEE ON CORPORATE SOCIAL RESPONSIBILITY 2018, See the page no.-1) (Source: https://www.mca.gov.in/Ministry/pdf/CSRHLC_13092019.pdf)
[3] Address by the Hon’ble President of India Shri Ram Nath Kovind On the occasion of presentation of the national corporate social responsibility awards New Delhi, October 29, 2019 Address by the Hon’ble President of India http://164.100.117.97/WriteReadData/userfiles/National%20corporate%20Social%20Responsibility%20Awards.pdf) (Page no. 3)
[4] REPORT OF THE HIGH LEVEL COMMITTEE ON CORPORATE SOCIAL RESPONSIBILITY 2018, See the page no.-3 Source: https://www.mca.gov.in/Ministry/pdf/CSRHLC_13092019.pdf
[5] Ministry of Corporate Affairs, Govt. of India) (Source: https://csr.gov.in/
[6] Ministry of Corporate Affairs, Govt. of India) (Source: https://csr.gov.in/about-us.php
[7] REPORT OF THE HIGH LEVEL COMMITTEE ON CORPORATE SOCIAL RESPONSIBILITY 2018, See the page no.-83 Source: https://www.mca.gov.in/Ministry/pdf/CSRHLC_13092019.pdf)
[8] REPORT OF THE HIGH LEVEL COMMITTEE ON CORPORATE SOCIAL RESPONSIBILITY 2018, See the page no.-74 Source: https://www.mca.gov.in/Ministry/pdf/CSRHLC_13092019.pdf
[9] http://loksabhaph.nic.in/Questions/QResult15.aspx?qref=69746&lsno=16
[10] http://164.100.24.220/loksabhaquestions/annex/15/AU975.pdf)
[11] Source: https://economictimes.indiatimes.com/news/politics-and-nation/supreme-court-judge-defends-mandatory-csr-provision/articleshow/48218958.cms
