Authors: Srishti Malik, Jigisha Sharma
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Corporate governance refers to the system of rules, practices, processes, and structures by which a company is directed, controlled, and operated. It encompasses the relationships and responsibilities among various stakeholders, including shareholders, management, the board of directors, employees, customers, suppliers, and the broader community. Corporate Social Responsibility (CSR) refers to the ethical and moral obligations that businesses and corporations have towards society and the environment beyond just maximizing profits. CSR includes socially responsible ways to earn profits and operating a transparent business to achieve an overall social and environmental sustainability. It also includes the various activities businesses use their profits for in order to use them for various social and environmental development. The purpose of this essay is to examine the various facets of corporate social responsibility and to evaluate the roles Indian businesses have played in various CSR initiatives.Corporate social responsibility should be viewed as an essential component of a business entity\'s primary operation rather than just as charity. This research paper will create a theoretical framework that explicitly connects the characteristics of CSR committees, board diversity, and financial performance. It will examine the various facets of corporate social responsibility and to evaluate the roles played by companies in carrying out various CSR initiatives.
The nature of the triangle-shaped connection between businesses, the government, and society has undergone a radical upheaval in the past twenty years. Businesses can no longer operate independently from the interests of the broader population. The relationship between businesses and society has slowly evolved from one of altruistic coexistence to one in which the common interests of all stakeholders are becoming increasingly important. This gives rise to a broader mindset within businesses that extends beyond shareholders, giving way to the concept of Corporate Social Responsibility (CSR).
Over time, CSR has evolved from being considered a discretionary action to becoming an integral part of corporate strategy. In this journey, it has seen the development of guidelines, standards, and initiatives that encourage companies to align their practices with broader social and environmental goals. As the world faces complex challenges such as climate change, social inequality, and resource depletion, CSR offers a path for businesses to become agents of positive change, striving not only for financial success but also for a sustainable and equitable future.
Another factor driving the swift adoption of CSR within the Indian context is the prevailing socio-economic landscape. Despite India's status as a rapidly growing economy, pervasive issues such as poverty, illiteracy, inadequate healthcare, and other challenges persist. The government's resources to address these issues are limited. Numerous other entities are also playing a role in societal betterment through contributions and charitable activities. Virtually all prominent Indian corporations are engaged in corporate social responsibility (CSR) initiatives, focusing on areas such as education, healthcare, the creation of livelihood opportunities, skill enhancement, and the empowerment of marginalized segments of the population.
The idea of corporate social responsibility (CSR) is not a novel concept for Indian businesses. However, what is novel is how it has gained traction within Indian corporations and the active engagement of employees in executing these initiatives. Many companies now have dedicated departments overseeing efforts that extend beyond mere funding or sporadic projects. The advantages of CSR endeavors are manifold. They contribute to fostering a positive reputation and encouraging employees' direct participation in social projects, thereby cultivating a sense of allegiance to the company. These initiatives also facilitate team cohesion among employees and enhance their attachment to both the team and the organization, ultimately leading to a committed workforce that takes pride in its association with the company.
The concept of Corporate Social Responsibility (CSR) has evolved over time in response to changing societal expectations and business practices. Its origins can be traced back to the early 20th century, but the modern CSR movement gained momentum in the latter half of the 20th century and has continued to evolve to this day. Here's a brief overview of the background and evolution of CSR:
Throughout its history, the CSR concept has evolved from sporadic acts of philanthropy to a more strategic and comprehensive approach that considers a company's impact on society, the environment, and multiple stakeholders. The changing landscape of business, societal expectations, and global challenges continues to shape the evolution of CSR practices.
B. Corporate Social Responsibility
There is no definition of CSR in the Companies Act, 2013. The provisions of Corporate Social Responsibility is given under section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014. CSR includes, but is not limited to, projects or programmes related to activities listed in Schedule VII of the Act or projects and programmes related to activities carried out by a business board in accordance with recommendations made by the board's CSR Committee as stated in the board's CSR Policy, as per Rule 2(c) of the CSR Rules.
II. RESEARCH METHODOLOGY
As I mentioned above, CSR goes beyond the company's core business activities and involves engaging in activities that benefit various stakeholders and address social and environmental concerns. CSR encompasses areas such as environmental sustainability, community engagement, philanthropy, ethical business practices, and employee well-being. For this research study, we began by browsing a variety of websites to see which ones are beneficial and offer the appropriate information. We looked through a lot of websites and research journals to acquire secondary data for this essay through a variety of websites and academic journals. We read as much as we could to get a sense and importance of the topic and make sure the information is true. Everyone falls inside our target demographic because CSR is one of the rising concerns in today’s world and everyone should be aware of this.
For this study report, part of the information was directly copied from the websites, which we then edited in our own words. Several websites offer information that is essentially the same, which was a problem we ran into when collecting data.
Section 135 of the Companies Act, 2013
A. Section 135
a. Net Worth of 500 Crore or more
b. Turnover of 1000Crore or more
c. Net Profit of 5 Crore or more
2. The companies which fulfils either of the criteria, shall constitute CSR committee with 3 or more directors, out of which one should be Independent Director.
3. Compliance obligations are also applicable on holding and subsidiary companies and foreign companies whose branch and project offices are in India.
B. CSR Committee
As per the Companies Act of 2013 in India, certain categories of companies are required to establish a Corporate Social Responsibility (CSR) Committee as part of their governance structure. This committee is responsible for overseeing and implementing CSR activities within the company. Here's an overview of the CSR committee as per the Companies Act, 2013:
Composition of the CSR Committee:
Functions of the CSR Committee:
a. Formulating CSR Policy: The CSR committee is responsible for formulating and recommending the company's CSR policy. This policy outlines the focus areas, projects, and initiatives the company intends to undertake as part of its CSR efforts.
b. Spending on CSR Activities: The committee ensures that the company spends the required amount on CSR activities. The Act mandates that certain companies allocate at least 2% of their average net profits over the preceding three financial years on CSR initiatives.
c. Monitoring and Implementation: The committee oversees the implementation of CSR projects and initiatives in line with the company's policy. This includes assessing the impact of these activities and ensuring compliance with the stated objectives.
d. Reporting: The committee is responsible for reporting on CSR activities in the company's annual financial statements and annual report. The report should detail the CSR initiatives undertaken, the amount spent, and the impact achieved.
The CSR committee plays a crucial role in ensuring that companies fulfill their social responsibility obligations and contribute positively to society's well-being. It reflects the growing emphasis on ethical and responsible business practices, with businesses being expected to go beyond profit-making and actively engage in efforts to address societal and environmental challenges.
C. Board's Role in CSR:
Overall, the involvement of the Board of Directors in overseeing CSR activities reflects the growing emphasis on responsible business practices and the broader impact that companies have on society and the environment. The Board's engagement ensures that CSR initiatives are aligned with the company's values, contribute positively to society, and promote sustainable development.
Where the amount relates to ongoing project - The amount to be transferred within a period of 30 days from the end of the financial year to a special account to be opened by the company on that behalf for that financial year in any scheduled bank. These amounts should be spend within the next three financial year in accordance with the CSR policy. These amounts should be transferred to any fund listed on Schedule VII if they are still unspent after three years. Not relating to the ongoing project - The unspent amount will be transferred to any fund specified in Schedule VII within six months of the expiry of the financial year.
If this unspent amount is not allocated anywhere then there is a huge penalty imposed on the company and officer in charge:
E. Activities Permitted under CSR
Under the provisions of the Companies Act, 2013 in India, companies are allowed to undertake a wide range of activities as part of their Corporate Social Responsibility (CSR) initiatives. The Act provides a broad framework within which companies can contribute to social and environmental causes. While the law doesn't prescribe specific activities, it does offer general categories under which CSR initiatives can fall. Some activities permitted under CSR include:
a. Skill Development and Livelihood Creation: Supporting skill development programs that enhance employability, income generation, and entrepreneurship among disadvantaged groups.
b. Promoting Sports and Culture: Initiatives that encourage sports, cultural activities, and arts, fostering community engagement and talent development.
c. Disaster Relief and Rehabilitation: Providing assistance during natural disasters, offering relief materials, and supporting rehabilitation efforts.
d. Community Development: Undertaking projects that benefit local communities, such as building community centers, libraries, and improving public infrastructure.
e. Technology Advancement: Initiatives that promote technological advancements for social welfare, digital literacy, and access to information.
f. Empowerment of Vulnerable Groups: Supporting the upliftment of marginalized sections, including scheduled castes, tribes, and persons with disabilities.
It's important to note that while the Companies Act, 2013 provides guidelines on CSR activities, companies have the flexibility to choose initiatives that align with their industry, expertise, and the needs of the communities they serve. The Act requires companies to prioritize local areas where they operate for their CSR efforts.
Companies should also ensure that their chosen activities are aligned with the overall CSR policy they have formulated and contribute to sustainable development and positive social impact.
F. Role of CSR in Companies
Corporate Social Responsibility (CSR) plays a crucial role within companies, influencing various aspects of their operations, culture, and impact on society.
Here are some key roles that CSR serves within companies:
In essence, CSR is a strategic approach that goes beyond profit-making and emphasizes a company's commitment to ethical, social, and environmental responsibility. It is an integral part of modern business practices, reflecting the increasing awareness of businesses' role in shaping a sustainable and equitable future.
G. Challenges of CSR
Corporate Social Responsibility (CSR) initiatives, while noble and impactful, are not without their challenges. These challenges can vary depending on factors like industry, region, company size, and the specific CSR activities undertaken. Here are some common challenges associated with CSR:
Addressing these challenges requires a strategic and well-planned approach to CSR. While overcoming these obstacles can be daunting, successfully navigating them can lead to more impactful and sustainable CSR initiatives that benefit both the company and society.
Companies are individually contributing to the advancement of CSR initiatives in India. They are tackling a range of urgent societal concerns, such as promoting employment opportunities, fostering community growth, safeguarding the environment, ensuring convenient healthcare access, and establishing inclusive market environments. CSR creates an impact by establishing connections between stakeholders and human resource policies. Additionally, it considers the effects on both internal and external aspects of the organization. A significant obstacle to fully realizing the potential of this endeavor is the absence of effective coordination among stakeholders within the policy framework. Collaborative engagement of diverse stakeholders—companies, individuals, institutions, and both state and central governments—can optimize resource utilization and facilitate the attainment of developmental objectives in a coordinated and harmonious manner. The effort can be enhanced by offering a clearer definition of CSR within the Indian context and creating a more conducive policy environment. Analyzing CSR and CSR reporting practices without considering the context could uphold erroneous interpretations derived from research conducted in developed countries. Diverse political, social, cultural, and economic conditions influence the evolution and reporting of CSR initiatives. As a result, these conditions also affect the extent to which these activities contribute to the betterment of society and the environment. The Indian government is taking decisive measures to communicate to companies that embracing strategic CSR implementation can result in enhanced business sustainability. By adopting this approach, a mutually beneficial scenario can be established for all stakeholders, involving the accumulation of both financial and technical resources. This, in turn, has the potential to foster comprehensive societal development.
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Copyright © 2023 Srishti Malik, Jigisha Sharma. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.