Integrating CSR into Your Business Model: A Step-by-Step Guide
Introduction
Corporate Social Responsibility, or CSR is a kind of business practice which functions by self-regulation that a company is accountable towards society and its stakeholders.
Firms using CSR will probably have an infrastructure to enable their functioning in a manner that will make them work as socially responsible business organizations in a manner that is good for the world. It is a self-restraint that can be framed in terms or strategies depending on the desire of an entity. Most firms report such activities to outsiders and insiders in corporate social responsibility reports.
Section 135 of The Companies Act, 2013 required the companies to spend at-least 2% of their net profit for their CSR initiatives if they fall under this relevant section.
Corporate Social Responsibility, or CSR, isn’t just a corporate buzzword — it’s a way for businesses to give back to the society they’re a part of.
What “Section 135” talks about as per The Companies Act, 2013?
Section 135 of Companies Act, 2013 discusses the applicability, spending requirement, types of projects to be done, CSR policies, process of filing and the penal provisions for non-compliance.
The CSR rules would apply to all the companies fulfilling any one of the following conditions during the previous financial year:
- Net worth of more than ₹500 crore
- Turnover more than Rs.1000 crore
- Net profit exceeding Rs.5 crore
All such companies possessing the determined net worth, turnover, or net profits need to form a CSR committee and follow CSR standards. Companies registered under Section 8 of Companies Act, 2013 possessing a charitable goal are also subject to CSR standards.
As we discussed above, Companies Act, 2013 under Section 135 requires businesses to invest at least 2% of their net profit in CSR activities.
CSR Amendment Rules, 2022
The Ministry of Corporate Affairs has also released new directives on the CSR Amendment Rules of 2022. The amendment allows companies to implement their CSR individually or by another company incorporated under Section 8 of the Companies Act, a registered public trust, registered society established by the company itself, by the Central Government or State.
Companies CSR Policy Rules 2014
The Companies CSR Policy Rules became effective in 2014 with the objective of providing guidelines to companies while making their CSR policies. The key provisions under the Companies CSR Policy Rules are:
- It is obligatory on the board of directors of a company under Section 135 to apply the CSR policy.
- The company is pushed by the public to reveal the contents of the policy in its annual board report.
- The company should put the information about its CSR initiatives on its website.
Types Of CSR
Four kinds of CSR which can be grouped under Corporate Social Responsibility (CSR) are:
- Environment responsibility
- Greenhouse gas, disposables plastic, water use, and waste in general is being reduced.
- Improved environmental means, renewable material, and recycled or minimized material are being used increasingly.
- Tree planting, research sponsorships, and voluntary charitable donations are some of the ways through which reverse environment harms are carried out.
- Ethical responsibility
- Philanthropic Responsibility
- Economic responsibility
Environmental responsibility is the ethic by which firms should act in an environmentally responsible way and to the best of their ability. This is considered as one of the common responsibilities in which some firms refer to such activities as "environmental stewardship."
Companies that want to be green are being compelled to do so in so many different ways:
Ethical responsibility is acquired to help an organization be ethical and just. Ethical responsibility by the companies includes treating all the stakeholders, including leadership, investors, employees, suppliers, and customers, equitably.
Business companies can assume ethical responsibility in several manners. A company, for example, can obtain a higher rate of payment for itself. A company can also ask products, ingredients, material, or parts to be made in terms of free trade. Companies typically have policies to see that they are not purchasing products that are manufactured by children or slaves.
Philanthropic responsibility means that a company's attempt to positively contribute to society and the world.
Philanthropically responsible businesses will give some of their profit and also try to be as green and as ethical as possible. The majority of companies give money to charities and non-profit organizations based on the company's mission statement, but other businesses give money to charities and organizations that are unrelated to business. Other businesses proceed to form their trust or charity so that they can assist other people.
Economic responsibility is how efficiently a firm can make all its financial decisions so that the ultimate outcome is to do good for the environment, people, and society instead of maximizing profits.
Process to file form CSR-1 online
Form CSR-1 is filed online on the MCA portal:
Step 1: Login to MCA Portal and download Form CSR-1.
Step 2: Form CSR-1 will be made available in fillable PDF.
Step 3: The Form CSR-1 will be signed in an electronic form if:
- if it is pertaining to Section 8 Company: any non-disqualified director under Companies Act, 2013
- if it is pertaining to Registered Public Trust: One of the Trustee/ CEO
- In case of Registered Society: Chairman/ CEO/ Secretary
- In case of a body controlled by an Act of Parliament or State Legislature: Authorised representative on their behalf
Step 4: It shall also be made sure that the Form is electronically signed by a Chartered Accountant/ Company Secretary/ Cost Accountant in full time practice.
Step 5: Following signing, the subsequent step would be uploading documents.
Step 6: On uploading and successful filing of documents, an SRN will be generated. SRN generated under MCA will be used for the future purposes
Step 7: On successful filing, a challan showing fee paid by applicant will be generated.
Step 8: A CSR Registration number will be generated along with an approval letter which will be received in the mail id of the Company.
Penal Provisions
In case a company fails to abide by the stipulations with regard to CSR expenditure, the transfer and utilization of the unexpended balance, the company will be punished with a fine of Rs.1 crore or twice the amount that is required to be transferred by the company to the CSR fund described in Schedule VII of the Act or the Unspent Corporate Social Responsibility Account, whichever is less.
Also, every such company's officer who does not comply will have to pay Rs.2 lakh or one-tenth of the amount which should be transferred by the company into CSR fund included in Schedule VII or the Unspent Corporate Social Responsibility Account, whichever is less.
Conclusion
Companies which are covered under Section 135 are required to spend at least 2% of their average Net profit of the last 3 Financial years on the CSR activities. Terms and conditions of this section will be applicable on such companies that come under certain parameters. The Ministry of Corporate Affairs brought forth new guidelines on the CSR Amendment Rules in the year 2022 where the company can conduct their CSR activity directly or through another company under Section 8 of the Companies Act, or a public trust registered with the Charity Commissioner or a registered society established by the company itself either by the Central Government or State. Company Rules CSR Policy was effective in 2014 to provide direction to the companies on the manner in which they need to formulate their CSR policies. Such companies are obligated to adhere to these rules and invest in society and the environment as corporate citizens.