Empowering Communities: A Roadmap to CSR Compliance

Introduction to the CSR Law of India

With the introduction of Section 135 in the Companies Act 2013, India became the first country to have statutorily mandated CSR for specified companies. The Act requires companies with a net worth of ₹500 crore or more, or turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during the immediately preceding financial year, to spend 2 percent of the average net profits of the immediately preceding three years on CSR activities. It enumerates the activities that can be undertaken and the manner in which the companies can undertake CSR projects.

Rules regarding monitoring and evaluation

IMPACT ASSESSMENT:

[Rule 8(3)] Every company having an average CSR obligation of ten crore rupees or more in the three immediately preceding financial years, shall undertake an impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study.

• The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.

• A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed five percent of the total CSR expenditure

Monitoring of Ongoing Projects 

[Rule 4(6)]: In case of the ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved timelines and year-wise allocation and shall be competent to make modifications, if any for smooth implementation of the project within the overall permissible limit.

• Any amount remaining unspent pursuant to any ongoing project, undertaken by a company in pursuance of its CSR Policy shall be transferred by the company to the unspent CSR Account.

Project Identification 

Step 1: SelfInspection

Self-inspection stands as one of the most vital steps in identifying a project within a company. It is imperative for the company to consider its core business values in order to construct a dynamic Corporate Social Responsibility framework. Only through this method can CSR become more effective and sustainable within the business ecosystem. If the project identification diverges from the core business values of the company, it may fail to reach its full potential and could feel like a detached task. Consequently, companies can leverage strategic CSR initiatives to achieve business stability.

Let's consider the example of banks and explore potential projects based on their core values:

Considering the core business values of banks, it is evident that they possess the resources and expertise in finance-related areas. Therefore, banks, in their CSR project identification, can consider:

• Startup incubation for young entrepreneurs in the country.

• Rural development initiatives, leverage their resources to reach even the remotest areas and establish banking ecosystems, enabling villagers to be integrated into the banking system.

• Livelihood development in remote areas through the provision of small loans without collateral requirements.

• Implementation of financial literacy and skill development programs.

The example of banks highlights the importance of aligning CSR projects with core business values to create dynamic and effective initiatives. For instance, if banks were to focus on projects like waste management or renewable energy instead, the projects might feel detached from their ecosystem and hence be less effective.

Similarly, in the FMCG industry, there are core areas where companies can excel:

• One major concern with the FMCG industry is the use of plastic in packaging. Plastic packaging constitutes a significant portion of daily waste, especially in countries like India where robust waste management ecosystems are lacking. Therefore, waste management emerges as a prime project for these industries.

• Additionally, these industries can support farmers by directly purchasing raw materials from them and creating an ecosystem where they can receive financial support. By aligning CSR projects with core business values, companies can maximize their impact and contribute meaningfully to society while reinforcing their own objectives.

Step 2: Assessment Study in Corporate Social Responsibility

Assessment studies play a pivotal role in the process of project identification within Corporate Social Responsibility (CSR), offering an authentic depiction of ground-level realities. They enable corporations to determine their course of action, identify priorities, and gain a deeper understanding of beneficiaries' immediate needs. The assessment study serves several key purposes:

• Assessment of Foundational Needs: Identifying the foundational needs of beneficiaries.

• Alignment with Community Needs: Ensuring that CSR actions align with expressed community needs.

• Course of Action Identification: Determining the course of action and identifying priorities.

• Goal Achievement: Aiming to achieve the desired goals set by the company.

While the assessment study is a potent tool for effective CSR project implementation, its effectiveness relies on a thorough and integrated approach. The following integrated steps are essential for conducting an impactful assessment study:

Step 1 – Define Objectives (Initiation):

The first step of an assessment study involves clearly identifying objectives and creating a platform for the study. This initiation phase requires the company to provide structure to existing knowledge, identify limitations, and formulate objectives. For instance, if the company plans a skill development project in a village:

• Clearly state the objective, such as providing skills to villagers for livelihood.

• Identify resources to understand the ground reality, such as consulting the village Pradhan or small help groups for information.

• Assess assets and barriers for the project, considering factors like mindset, education level, sources of income, and the political environment.

• These integrated steps are crucial for laying the foundation for the assessment study, helping the team identify areas of concern and opportunities.

Step 2 – Analysis and Data Gathering:

The second step involves analysis and data gathering to inform the final decision on project selection or to formulate an effective strategy. In the case of a skill development CSR project in a remote area, gathering information is essential:

• Collect information on the educational background of beneficiaries to tailor the syllabus and course content accordingly.

• Consider physically handicapped individuals and gather information to create a specialized skill course for them.

• Examine the financial background of families to identify the most vulnerable people in need of employment.

• Collect data on the future scope of the project, including sectors for potential employment, desired project outcomes, and relevant barriers.

This meticulous data gathering and analysis phase ensures that the company has a comprehensive understanding of the beneficiaries and can design a targeted and impactful CSR project.

Step 3: Finalizing a Project and Planning

Finalizing a project marks the conclusive stage wherein the concerned authorities make the ultimate decision on the project after thoroughly acquainting themselves with all pertinent aspects. Taking into account the opportunities, challenges, alignment with the business model, and future scope of the project, the company may opt to select a particular project and thus formulate a dynamic strategy accordingly.

The assessment study conducted by the company to finalize a project becomes pivotal in creating an action plan. These studies provide a head start to the planning team. Through this process, the company not only ensures that it chooses the right project but also devises a dynamic strategy.

Important Steps to Consider in Project Identification Pertaining to Indian CSR Laws:

The steps provide an overview of how to approach the project identification journey. However, along with these integrated steps, there are specific laws enacted by the Indian government under Section 135 of India's Companies Act, which must be considered while finalizing a project.

The laws pertaining are as follows:

 Schedule VII Activities: Activities listed in Schedule 7 include:

• Eradicating hunger, poverty, and malnutrition.

• Promoting healthcare, including preventive healthcare and sanitation.

• Promoting education, including special education and employment enhancing vocational skills.

• Promoting gender equality and empowering women.

• Ensuring environmental sustainability and ecological balance.

• Protection of national heritage, art, and culture.

• Measures for the benefit of armed forces veterans, war widows, and their dependents.

• Training to promote rural sports, nationally recognized sports, paralympic sports, and Olympic sports.

• Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the central government for socio-economic development and relief.

• Contribution to incubators funded by the Central Government or State Government, and contributions to public-funded Universities, Indian Institute of Technology (IITs), National Laboratories, and Autonomous Bodies engaged in conducting research in science, technology, engineering, and medicine.

• Rural development projects.

• Slum area development.

• Disaster management, including relief, rehabilitation, and reconstruction activities.

Explanation: The term 'slum area' refers to any area declared as such by the Central Government, State Government, or any other competent authority under any law currently in force.

These laws serve as guidelines for companies to ensure that their CSR initiatives are aligned with national priorities and societal needs while complying with legal mandates.

Additional Considerations in Project Identification:

In addition to ensuring alignment with Schedule VII activities and legal mandates under Section 135 of India's Companies Act, it is imperative to verify that the proposed activities do not contravene the following guidelines:

• Activities Undertaken Outside India: Ensure that the proposed activity is not undertaken outside India, except for sports activities representing at national and international levels.

•  Contributions to Political Parties: Avoid any direct or indirect contributions of funds to any political party.

• Benefits for Company Employees: Refrain from activities that primarily benefit the employees of the company.

•  Marketing Sponsorship Activities: Avoid engaging in activities supported by the company on a sponsorship basis solely for deriving marketing benefits for its products or services.

•  Statutory Obligations: Ensure that activities are not carried out solely for the fulfillment of any other statutory obligations under any law in force in India.

By adhering to these additional considerations, companies can ensure that their CSR initiatives remain ethically sound, legally compliant, and aligned with the intended objectives of corporate social responsibility.