Standing at the CSR Crossroads

Context:  While the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021

Features of Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021:

• Mandated spending: 2% of the average net profit of the previous three financial years. Any unspent amount will be seized by government with the tool of a new corpus.
  • Every year, the mandated CSR funds have to be appropriated to a dedicated account and maintained in a separate bank account.
• Longer period available to complete CSR projects: 3 years.
• Widened CSR compliance framework:
  • Including Foundations/trusts: Capital assets created under the CSR obligation shall no longer remain under the ownership of the foundation but with the beneficiary making use of the asset.
  • No exceptions for Multinational companies (MNCs).
• Increased compliance:
  • Increased responsibilities of Chief Financial Officer (CFO):
    • Legal liability: for any lapse in undertaking the mandated CSR expenditure.
    • Ensuring the impact of CSR spending on society to be commensurate and quantifiable.
  • Compels companies to unfailingly publish impact assessment reports on their public websites.
  • For Non-Governmental Organizations (NGOs): Bundling of projects are banned, requiring a separate registration for each project to draw funds from donor corporates.

Concerns that are left unaddressed by new rules

• May not stop unethical practices: E.g. A company may pay an NGO a tidy sum to inflate its CSR spend and later asks it to return half of the sum to its related entity. (Payback practices)
  • According to Central Bureau of Investigation (CBI), less than 10% of India’s 32.97 lakh NGOs are ‘ethical’.
• Companies can escape independent assessment requirement: by breaking up their CSR project into smaller pieces.
• No mechanism to track CSR behaviour of unlisted companies: Ideally, a full-time regulator is needed.