The Companies Bill 2012 has thrown

up several opportunities and

challenges. This analysis promotes

understanding on the provisions and

recommends next steps.

Getting Ready for

Upcoming Act on

Corporate Social

Responsibility

What should

Companies & NGOs

do?

SAFRG Research Unit; June 2013

“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013

Page1

Getting Ready for Upcoming

Act on Corporate Social

Responsibility (CSR)

1. Understanding CSR provisions in the Company Bill

2012

i. Relevant Parts of the Bill- the sections 134, 135, Schedule III and

Schedule VII of the Companies Bill 2012 deal with CSR. The sections 134 and 135

are part of Chapter IX on Accounts of Companies.

ii. Mandatory Reporting- the Section 134, under subsection 3, clause (o),

states that there shall be attached to (Financial) statements laid before a company

in general meeting, a report by its Board of Directors, which shall include the details

about the policy developed and implemented by the company on corporate social

responsibility initiatives taken during the year.

iii. Which companies are covered- the section 135 provides further details

on the corporate social responsibility initiatives. Under its subsection (1) it defines

the companies for whom formation of a Corporate Social Responsibility Committee

of the Board is mandatory- every company having net worth of INR 500 crore (INR 5

billion) or more, or turnover of INR 1,000 crore (INR 10 billion) or more or a net profit

of INR 5 crore (INR 50 million) or more during any financial year.

iv. Composition of CSR Committee- it will consist of 3 or more directors,

out of which at least one director shall be an independent director. This composition

needs to be disclosed in the mandatory reporting mentioned in sub point ii.

v. Role of the CSR Committee- formulate and recommend to the Board a

CSR Policy, the amount of expenditure to be incurred and monitoring of the Policy

from time to time.

vi. Role of the Board- approval of the policy recommended by CSR Committee;

disclose content of the Policy in its report and company website. The board also has

to ensure that the company undertakes activities as per CSR Policy and spends in

every financial year at least the referred amount in the law.

“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013

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vii. Referred amount for CSR- every financial year the company should

spend at least 2 percent of the average net profits of the company made during the

three preceding financial years.

viii. Preferred Geography for Application of Funds- as per the Bill,

the company shall give preference to the local area and areas around it where it

operates for spending the amount earmarked for CSR activities.

ix. Which Activities may be included in CSR Policy- in Schedule

VII of the Bill there are 9 specified and 1 provisional generic category of activities:

a. Eradicating extreme hunger and poverty

b. Promotion of education

c. Promoting gender equality and empowering women

d. Reducing child mortality and improving maternal health

e. Combating human immunodeficiency virus, acquired immune deficiency

syndrome, malaria and other diseases

f. Ensuring environmental sustainability

g. Employment enhancing vocational skills

h. Social business projects

i. Contribution to the Prime Minister's National Relief Fund or any other Fund

set up by the Central Government or the State Governments for socio-

economic development and relief and funds for the welfare of the Scheduled

Castes, the Scheduled Tribes, other backward classes, minorities and women

j. Such other matters as may be prescribed.

x. Where can you see the amount of expense on CSR- in

Schedule III of the Bill, General Instructions for Preparation of Statement of Profit

and Loss , it is stated that the company shall have to disclose by way of notes in the

Profit and Loss Statement the amount of expenditure incurred on CSR activities.

xi. What if the company fails to spend the referred amount

on CSR- in such case the company will have to specify the reasons for not

spending the amount in the Mandatory Reporting mentioned in sub point ii.

2. Frequently Asked Questions

i. Is CSR Mandatory or Not- The companies that have turnover/net

worth/net-profit as described above, mandatorily need to have a CSR Committee

and a CSR Policy. The board of the company has to ensure that 2% of net-profit is

“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013

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spent on CSR. Such companies also have to report mandatorily about their CSR. In

case the company fails to spend it can report the reasons in above mentioned

report. However, since the report would be publically available, the companies will

be continuously under the scrutiny of various stakeholders and will have to perform.

They cannot consistently default, which makes CSR mandatory to a large extent.

ii. Does it include all companies or only the listed ones- The

section 135 dealing with CSR states that it is applicable for every company with

specified turnover/net worth/ net profit. However, the composition of CSR

Committee mandates inclusion of an independent director. The independent

directors under the Company Law are compulsory only for the public listed

companies. Therefore it certainly applies for public listed companies meeting the

turnover/net worth/ net income criterion, but for other companies clarity is still

needed.

iii. Will the companies be able to spend this kind of money-

as per the ‘CSR 10 India Index 2012’, the top 10 companies, which could be

bellwether for CSR spending, currently spend less than 50% of what they need to in

next couple of years. Therefore, the task looks difficult but companies will have to

ramp up their infrastructure. Please see ‘What should Companies do?’

iv. Will the NGOs be able to absorb the money- the NGOs will also

have to ramp up their infrastructure to deliver. It could be a blessing in disguise as

NGOs never had enough resources to invest in increasing efficiency and

effectiveness. Please see ‘What should NGOs do?’

v. What happens if my cause is not in the list- the list in the

Companies Bill 2012 while specifying activities under CSR states- ‘activities which

may be included by companies in their Corporate Social Responsibility Policies’;

and the listed activities are largely as specified in UN Millennium Development

Goals. So the list does not appear to be binding but suggestive in nature. Moreover,

if one sees the new guidelines for Central Public Sector Enterprises, they also

recognise ‘preservation and promotion of heritage, art, music and culture in keeping

with Indian tradition’ as a CSR activity.

3. What should Companies do?

The companies would have to do a lot as the CSR spends are slated to increase

several folds. Some basic steps are listed below:

i. Draw up a core CSR team and organize capacity building program to bring people

up to date.

“Getting Ready for Upcoming Act on CSR”, SAFRG Research Unit, June 2013

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ii. Appoint a CSR Committee of the Board, if it does not exist already. Engage

independent directors that have strategic and hands-on development experience.

iii. Develop/Modify the CSR Policy. Central Public Sector Enterprises have merged

their CSR and Sustainability effort. This could be a direction to follow, so as to bring

unified impact.

iv. Gear up the CSR infrastructure - staff, advisors, consultants that can help in

strategizing, planning, monitoring, evaluation and implementation. Monitoring and

impact assessment preferably should be done by external experts to maintain

objectivity.

v. Network with credible non-profit organisations to leverage their expertise and

capacities.

vi. Choose few projects but go for in-depth and long-term support, so that social impact

is visible and can be credibly reported upon.

4. What should NGOs do?

The NGOs also need to gear up if they want to leverage corporate funds/resources for

creating further impact. Some basic steps are listed below:

i. Develop a CSR ready infrastructure proactively- staff, advisors, consultants that can

help in implementing the program in a Project Management mode- with identified

steps, anticipated impact, indicators, timeline, people responsible etc. NGOs should

not wait for the CSR funds to come knocking and start working on it immediately.

ii. Build capacities of existing staff on seeking and implementing CSR funds. The

capacities of corporate partnerships staff will have to be different now than before.

They would need to be more process oriented and strategic. Since CSR becomes

an agenda at the level of board, staff will need capacity building in aspects like

communications, strategic thinking and negotiations (not necessarily financial).

iii. Develop products for corporations that show larger social impact than just activities,

pictures, stories and so on. The products should be in line with the CSR policies of

the partnering companies. These should also be measurable and scalable.

iv. Invest in reporting and communication resources. Often NGOs in India do excellent

work but are not good in this aspect, which in the newer scenario is equally

important.

v. Invest in good program management, accounting and reporting systems, as

increased transparency at ‘Donor Company’ will only increase demands for

transparency at the NGOs end.

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5. Base Documents for Analysis

i. The Companies Bill 2012, as passed by Lok Sabha on 18/12/2012

ii. Guidelines on Corporate Social Responsibility and Sustainability for Central Public

Sector Enterprises; effective from April 01, 2013

iii. CSR 10 India Index 2012

iv. UN Millennium Development Goals

6. About SAFRG

SAFRG is a not-for-profit think tank on Corporate Social Responsibility (CSR) and

Philanthropy in South Asia. It builds capacities, conducts research and promotes

dialogue on these issues. Thousands of NGOs and CSR professionals have benefited

from SAFRG's programmes since 1989. SAFRG board and advisory group comprises

of leading names from NGO and CSR world in India and internationally. For more

details visit www.safrg.org or write to at@safrg.org / nandita@safrg.org