Corporate Social Responsibility Reporting
Large multinational companies working towards addressing social and environmental concerns define the idea of Corporate Social Responsibility. These concerns may be a consequence of a company’s business operations. By incorporating CSR activities, the management attempts to involve its employees in adding value to their actions towards the betterment of their community and creating a positive impact on the environment and the lives of everyone around them.
Before introducing the clause of Corporate Social Responsibility, it was believed that it was every company’s moral responsibility to contribute to the betterment of the community and enable socio-economic upliftment of the society one is such an integral part. CSR is heavily influenced by the Indian culture and values that believe in giving back to the community.
The Companies Act of 2013 cemented this belief and legislated the need to undertake Corporate Social Responsibility (CSR) activities by all the companies listed in India. Section 135 of the Companies Act, 2013 lists down essential information about the execution, fund allotment, and reporting of any successful CSR project implemented by the company. The CSR initiatives need to be mandatorily reported to the Ministry of Corporate Affairs.
What is Corporate Social Responsibility Reporting (CSR Report)?
It is an assessment report of the company’s efforts to bring about a positive change in society. This report intends to improve the transparency of their business activities and take responsibility for the actions that might have negatively impacted the world around us. The report also aims to quantify and measure the impact of their activities on the economy, environment, and society.
Additionally, the report also helps communicate the company’s vision and the extent of its CSR efforts to internal and external stakeholders, employees, and potential investors. This enables all stakeholders to understand the company’s goals and make informed decisions. It can also be used as an assertive communication and marketing tool.
To whom are the provisions of the Companies Act applicable?
As per the clauses of this Act, any company with a
1. Net worth of 500 crores and more
2. Gross revenue of over 1000 crores
3. Net profit of over 5 crores in the previous financial year is expected to establish a committee to oversee the initiatives taken as a part of their Corporate Social Responsibility.
A company, its holding company, subsidiary company, and a foreign company need to adhere to the provisions of this Act.
The committee established is responsible for formulating a firm CSR policy, implementing it, and monitoring the execution of the initiatives as per the Act. The committee is also responsible for recommending the amount incurred on the CSR activities. This committee reports to a board of directors.
The board of directors is responsible for disclosing why a percentage of the finances allocated for CSR activities were unspent. They also need to tell the details of the transfer of any unspent amount during an ongoing project.
Parts of the unutilised funds can be contributed to the prime minister’s national relief fund. The unutilised funds can also be transferred to any other fund backed by the central government, which concerns socio-economic development, relief, and welfare of the scheduled caste, minorities, tribes, women, and other backward classes. Publicly funded universities, national laboratories, autonomous bodies, CSIR, IITs, ICMR, and DRDO, are a few places where the unspent money can be transferred.
What activities can be considered under CSR initiatives?
1. Donations and Sponsorships
Monetary donations to non-profit organizations and charities come under CSR activities. Choosing to donate time to impart knowledge and using skills to help a section of people also counts as a meaningful CSR activity.
Sponsoring meals, college education, girl education, primary education, etc., also come under CSR initiatives.
2. Operational Initiatives
Initiatives to reduce carbon footprint, emission and wastage are oriented towards improving business efficiency and performance while positively impacting the three main categories – environment, society, and economy. Supporting community initiatives, enhancing diversity in the workplace to make employees feel part of the system, and ensuring discrimination and harassment don’t occur within the workplace are also some initiatives that can be considered while drafting the CSR reports.
3. Integration of social and environmental goals into business strategy
Some businesses weave their vision and mission around social and environmental goals. These companies are referred to as social enterprises, coops, or purpose enterprises. This doesn’t mean they don’t seek to make profits with their business; it simply means that they formally pledge to track their earnings and the social and environmental impact of their business operations.
How do active CSR initiatives add value to a company’s standing?
CSR activities mainly involve giving back to society a portion of your profits. One would wonder if this would add value to the company. The answer would be a resounding yes. A company’s annual profits benefit the communities in dire financial need.
This thoughtful step taken by the company leads to an increase in the ‘marketplace respect’ for a company. The marketplace respect that a company earns can help attract qualified personnel to the company and increase sales.
Research also suggests that CSR has the potential to maximize a company’s profits as well. This would indicate that a company’s inherent value might depend not only on the profit it makes but also on the kind of values it fosters.
Unfortunately, no formula explains how CSR can maximize profits, but since we deal with a subjective topic with abstract variables, it becomes difficult to define and quantify them. Researchers strongly believe that there is a positive relationship between corporate financial performance and CSR.
There are some benefits of pursuing CSR activities within a company culture, and the benefits include increased levels of productivity, engagement, employee retention, and talent acquisition. It was also seen that there were increased feelings of loyalty, more significant support from the community, and a robust & influential brand voice.
A company is expected to examine the Environmental and Social impact of its business decisions. These are critical non-financial factors that any company, large or small, is likely to consider while making important business decisions that might affect the community, environment, or the economy. The Companies Act mandates all companies to take up Corporate Social Responsibility and build a better world for everyone around them.
Filing CSR reports with MCA.
All companies regulated by MCA are notified to start furnishing a report on Corporate Social Responsibility (CSR) in Form CSR-2 to the Registrar for financial year 2020-21 and onwards.
This is to be submitted as an addendum to AOC-4 or AOC-4 XBRL or AOC-4 NBFC, whichever is applicable to the company.
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