Social responsibility means a business’s obligation to conduct business in a manner that benefits society, as a stakeholder of business, along with maximising shareholder value. Many a time, the philanthropic efforts of a company, undertaken voluntarily, and Corporate Social Responsibility (CSR), which is mandated by law, are misconstrued as synonymous. Philanthropy means promoting and attempting to bring about social change, by making generous contributions, either in the form of money or in kind. It is a purely voluntary act. On the other hand, CSR goes beyond philanthropy. CSR benefits the society by aligning corporate purpose with CSR programmes. It is mandated in India under the Companies Act, 2013.
The concept of recognising that a company has a responsibility towards society is not new in India. In the initial days, it came about because of family values, traditions, culture and religion. As part of philanthropic activities, wealthy businesses shared a part of the earnings with society by setting up charitable foundations, educational and healthcare institutions, and trusts for community development and undertaking similar initiatives.
In 2014, India became the first country to create a statutory obligation for companies to spend a part of their profit towards CSR projects. The rationale behind this provision was that companies ought to give back to society, for using society’s resources for their businesses. As part of this mandate, the Companies Act, 2013 listed a number of activities which could be undertaken in order comply with the provisions relating to CSR. When this provision was first introduced, it followed the principle of Comply or Explain (COREX). If companies were not able to spend the mandatory minimum amount on CSR, they could explain the reason for the shortfall to the shareholders, through their Annual reports. Over the years, the Comply or Explain approach has been discontinued, and if a company is not able to spend the minimum mandatory amount, along with giving the reason for the shortfall, the amount of shortfall has to be deposited in a separate account, and used subsequently for activities relating to CSR.
Schedule VII of the Companies Act, 2013, which lists the activities which can be undertaken by businesses to comply with CSR provisions, includes the following activities:
- To eradicate hunger, poverty and malnutrition, promote health care including contribution to the Swachh Bharat
- To promote education and livelihood enhancement projects
- To promote gender equality, empower women, provide facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
- To ensure environmental sustainability
- To protect national heritage, art and culture
- To take measures for the benefit of armed forces veterans, war widows and their dependents, Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows.
- To promote sports
- To contribute to PM CARES Fund or any other fund set up by the central government for socio economic development, relief and welfare.
- To contribute to incubators or research and development projects in the specified fields
- To take development projects for rural and slum areas
- To contribute to disaster management, including relief, rehabilitation and reconstruction activities.
A number of these activities are aligned to the UN Sustainable Development Goals (SDGs). Further a number of corporates feel that the items listed are broad enough for companies to undertake meaningful activities through CSR programmes. Companies are required to give preference to local areas and areas around its operations, while spending on CSR activities. This is intended to help in the development of areas surrounding the company.
CSR has helped in companies being socially responsible, and in the development of local areas. Data collected by Government sources shows that the contribution by companies towards CSR is continuously increasing. It has increased from INR 14,343 crores in FY 2016-17 to INR 20,358 crores in FY 2020-21. In the two years during pandemic, it has been seen that companies came forward to help stakeholders. Their efforts demonstrated that they were socially responsible and people oriented. Many companies contributed more than the mandated spend to help society during the pandemic.