Corporate Social Responsibility: From Self Regulatory to Mandatory
Corporate Social Responsibility (“CSR”) originated in the 1970’s in the west, came to be introduced as a concept by which a corporate grows its business/ profitability and also becomes socially accountable by engaging in activities that have a positive impact on the environment, community and society at large. Howard Bowen, an American economist is widely regarded as the father of CSR. He suggested CSR as a self-regulatory model that can be adopted by corporates. Over the decades the concept of CSR has taken a concise shape.
In 2014, India became the first country to introduce the provision of CSR in the Companies Act 2013. Section 135 of the Act made it mandatory for companies having certain turnover and profitability to spend 2% of their average net profits for the preceding 3 years to be spent towards CSR activities. The Act further identified certain areas in which amounts could be spent by corporate houses who have touched the threshold laid down under the Act., Education, healthcare, poverty alleviation, women empowerment, sanitation and environmental protection, among others are areas towards which corporates can make their CSR contribution.
When introduced in 2014, India adopted the model which was being widely followed in the west. The corporate houses could comply by investing the amounts in areas ear marked in the Act. If they could not, they had to report in the annual compliance about reasons for not spending the amount. Now, this has changed with the notification of CSR amendments in 2021.
On 22nd January 2021, the government notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021. A look at key changes that have been introduced and their impact on the corporate sector.
Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021
The original CSR Rules had a “comply or explain” policy. When companies could not spend, they need to report / explain reasons for non spending of the CSR amount. The amendment Rules 2021 has made one thing loud and clear. The CSR obligation which was considered self-regulatory / voluntary in nature (up until now) will henceforth be made mandatory. Effectively doing good to the society is mandatory. CSR: only comply no explain.
For full text of the amendments: