CSR SPENDING (Syllabus: GS Paper 3 - Economy)

Context:As the focus on sustainability gathered traction, CSR expenditure on the environment more than doubled in FY22 from a year before to ?2,837 crore and the sector emerged as the biggest recipient of such funds after health and education. 

• Similarly, the pandemic prompted companies to sharply raise spending on health, which has now beaten education as the top sector for CSR expenditure.

Corporate social responsibility (CSR) spending

• About: The Corporate Social Responsibility concept in India is governed by Section 135  and Schedule VII of the Companies Act, 2013 and Companies (CSR Policy) Rules, 2014.

• As per the Companies (Amendment) Act, 2019,CSR is applicable to companies before completion of 3 financial years.
• Companies are required to spend, in every financial year, at least 2% of their average net profits generated during the 3 immediately preceding financial years.
• For companies that have not completed 3 financial years, average net profits generated in the preceding financial years shall be factored in.
• The CSR activities in India should not be undertaken in the normal course of business and must be with respect to any of the 17 activities of CSR mentioned in Schedule VII of the act.

• Criteria: The Companies Act has made it mandatory for certain corporations to undertake CSR activities. The Act requires companies with: 

• (a) a net worth of INR 5 billion (500 crore) or more or; 
• (b) An annual turnover of INR 10 billion (1000 crore) or more or; 
• (c) Net profit of INR 50 million (5 crore) or more, to spend 2% of their average net profits of 3 years on CSR. 
• Prior to that, the CSR clause was voluntary for companies, though it was mandatory to disclose their CSR spending to shareholders.

• CSR Committee: Every company to which CSR criteria are applicable shall constitute a Corporate Social Responsibility Committee. 

• The CSR Committee should consist of 3 or more directors, with at least 1 independent director. 
• The activities to be undertaken under CSR are prescribed by the Government in Schedule VII of the Companies Act.