The Bill makes disclosure of CSR spend mandatory for companies with 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 fiscal. It asks these companies to earmark two per cent of their three years’ average profit for CSR and disclose the manner in which it was carried out.
Mandatory disclosure but no penalty
Companies that fail to spend this much will not be penalised in any way, though they will have to provide sufficient reasons for non-compliance.
Reactions to the CSR guidelines were positive. “Its two cheers for the government on CSR,” said Manoj Kumar, managing partner of corporate law firm Hammurabi& Soloman. “While making a budget for CSR is mandatory, the two per cent norm is not mandatory for corporates. CSR by corporates can only be achieved through making incentives to corporates more attractive.”
More than half of the Bombay Stock Exchange (BSE) listed companies would qualify for making mandatory disclosures of CSR activities undertaken by them during the financial year 2010-11, an analysis by Business Standard Research Bureau using Capitaline data shows.
A huge kitty
Business Standard analysis of the 2010-11 performance of 3,150 BSE listed companies show that 1,519 firms would have qualified for government’s new CSR directive, if the law was in place on Wednesday. The total money these companies would have put together for CSR would be Rs 7,384.15 crore.
The Bill prescribes 10 broad categories of activities as CSR that include poverty eradication, promotion of education, and women empowerment. Financial donations are accepted as CSR, provided the amount goes to the Prime Minister’s National Relief Fund or funds set up by the Central Government or the State Governments for socio-economic development and relief.
The director boards of companies that fall in the mandatory disclosure criteria will need to constitute a CSR committee of three or more directors, one of them compulsorily being an independent director. This group will formulate and recommend a CSR policy to the board of directors which shall indicate the activities the company has chosen to undertake from the government notified list of CSR activities.
Among activities, companies can also choose from reduction of child mortality, improving maternal health, fights diseases such as AIDS and malaria, environment protection, skill development programmes and social business projects.
Contributions to such government funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women will qualify for CSR.