Corporate Social Responsibility (CSR)

Corporate Social Responsibility (CSR)

Subject – Governance

Context – Businesses need not restrict their Corporate Social Responsibility (CSR) expenditure to local projects and must balance local area preferences specified in the law with ‘national priorities’, the Corporate Affairs Ministry said.

Concept –

• The term “Corporate Social Responsibility” in general can be referred to as a corporate initiative to assess and take responsibility for the company’s effects on the environment and impact on social welfare.
• In India, the concept of CSR is governed by clause 135 of the Companies Act, 2013.
• India is the first country in the world to mandate CSR spending along with a framework to identify potential CSR activities.
• The CSR provisions within the Act is applicable to companies with an annual turnover of 1,000 crore and more, or a net worth of Rs. 500 crore and more, or a net profit of Rs. 5 crore and more.
• The Act requires companies to set up a CSR committee which shall recommend a Corporate Social Responsibility Policy to the Board of Directors and also monitor the same from time to time.
• The Act encourages companies to spend 2% of their average net profit in the previous three years on CSR activities.
• The indicative activities, which can be undertaken by a company under CSR, have been specified under Schedule VII of the Act.
• The first proviso to Section 135(5) of the Companies Act says a company shall give preference to local areas and areas around which it operates, in its mandatory CSR spending.