The Journey of CSR Legislation in India

Introduction

The idea of ‘Inclusive Growth’ has been the essence of Indian philosophy since centuries. As early as during the Mauryan empire, Chanakya- the philosopher, economist, and political thinker- emphasized on ethical practices in business. Over centuries, the manifestation of business doing good for society took different forms- from charity to poor, to running pyau(place for drinking water) and establishing  dharmshalas(rest houses). Whatever be the form the larger intent was that business has a responsibility towards society and people. All the religions further strengthened the concept in the mindset of business as each religion promoted a concept of sharing/donation to underprivileged.

Since independence the nature of business’s commitment towards society has gradually changed and evolved in sync with the changing nature and face of businesses in the country. With the advent of globalisation in last decade of 20^th century coupled with decline in state’s control and involvement in business, there emerged a need for a framework to aid businesses to approach its responsibility towards society in a systematic manner.

The World Business Council for Sustainable Development (WBCSD) defines CSR as ‘the continuing commitment by business to contribute to economic development while improving the quality of life of the workforce and their families as well as of the community and society at large’. Whereas, as per UNIDO, ‘Corporate social responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (Triple-Bottom-Line Approach), while at the same time addressing the expectations of shareholders and stakeholders. In this sense it is important to draw a distinction between CSR, which can be a strategic business management concept, and charity, sponsorships, or philanthropy. Even though the latter can also make a valuable contribution to poverty reduction, will directly enhance the reputation of a company and strengthen its brand, the concept of CSR clearly goes beyond that.’

Till the first decade of 21^st century CSR can be broadly classified into 5-6 phases (each not necessarily distinct:

• In what could be termed as the first phase of CSR, philanthropic and charity activities were key drivers of CSR (started in independence era when Indian business houses were slowly and steadily emerging)
• Phase two of CSR focused on social development, deeply influenced by Gandhi ji’s trusteeship principles.
• Then for nearly 3-4 decades till end of 20^th century CSR emerged under paradigm of mixed economy. Focus on this phase was legislation on labour and environmental standards etc)
• The next phase of CSR was the interface between philanthropic and business approaches. (Focus of business in this phase was on social licence to operate, adding to shareholder value and CSR at sustainable business strategy etc )
• Then in 2014, the government of India made CSR mandatory with a legislation (focus on transparency, voluntary reporting and sustainable practices)

It would be erroneous to believe that all these were distinct phases and with starting of new phase the focus of previous phase become redundant. As a matter of fact, even now CSR as practiced by businesses across the country have components of all these phases. The CSR legislation has added the mandatory legislative requirement for a set of companies.

As per the CSR regulation in India (companies rule 2014)) companies -including its holding or subsidiary- having net worth of Rs. 500 crore or more or turnover of Rs. 1000 crore or more or net profit of Rs. 5 crore or more during any financial year shall ensure to spend ( on CSR) 2% of the average net profits of the Company made during the three immediately preceding financial year. The legislation has made CSR a board driven process where the board of the company along with concerned officials have been made responsible and accountable for ensuring compliance. To ensure transparency the legislation also mandates that each of the eligible company shall come up with CSR reports. Companies need to mandatorily disclose the on their website; a) Composition of the CSR Committee; b) CSR Policy; and c) Projects approved by the Board. All CSR projects approved by the Board also needs to be disclosed on the website of the company.

The making of Companies (CSR Policy) Rules 20I4

CSR rules were not drafted overnight. Rather it was result of long process of deliberation between various stakeholders which included- government, private sector companies, bilateral agencies, foundations, social and business experts & legislators. To integrate   social, environmental, and human development concerns in the entire value chain of corporate business, the Ministry of Corporate Affairs (MCA) after an intensive stakeholder deliberation issues ‘Voluntary Guidelines on Corporate Social Responsibility, 2009’ as a first step towards mainstreaming the concept of Business Responsibilities. The first draft was further refined, as ‘National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business, 2011’. These guidelines have set of 9 principles, which were:

1. Businesses should conduct and govern themselves with ethics, transparency and accountability
2. Businesses should provide goods and services that are safe and contribute to sustainability throughout their life cycle
3. Businesses should promote the wellbeing of all employees
4. Businesses should respect the interests of, and be responsive towards all stakeholders, especially those who are disadvantaged, vulnerable and marginalised
5. Businesses should respect and promote human rights
6. Businesses should respect, protect, and make efforts to restore the environment
7. Businesses, when engaged in influencing public and regulatory policy, should do so in a responsible manner
8. Businesses should support inclusive growth and equitable development
9. Businesses should engage with and provide value to their customers and consumers in a responsible manner

These guidelines not being prescriptive in nature, nevertheless, seek to guide Indian businesses to take into account Indian social and business realities and the global trends, while promoting their businesses. Principle 8 of the NVGs on ‘inclusive growth and equitable development’ focuses on encouraging business action on national development priorities, including community development initiatives and strategic CSR based on the shared value concept. This principle of NVG was subsequently translated into a mandatory provision of Corporate Social Responsibility (CSR) in Section 135 of the Companies Act 2013.

The 21st Report of the Parliamentary Standing Committee on Finance is one of the prime movers for bringing the CSR provisions within the statute. It was observed by the Standing Committee, that annual statutory disclosures on CSR required to be made by the companies under the Act would be a sufficient check on non-compliance. Companies Act 2013 mandates every company qualifying under Section 135(1) to make a statutory disclosure of CSR in its Annual Report of the Board.