Corporate Social Responsibility in Light of New Disclosure Requirements

Corporate Social Responsibility in Light of New Disclosure Requirements

Executive Summary:

This article describes:

• • • This Article explains the meaning and applicability of Corporate Social Responsibility.
    • It sheds insight on the Ministry’s recently implemented disclosure obligations.

Introduction:

Profit maximization is no longer the main business performance measure for corporations; instead, they must act as responsible corporate citizens by engaging in activities that benefit society and the environment. Corporate Social Responsibility is a broad term that refers to CSR. Organizations employ resources that belong to society, and it is expected that they function in a sustainable way and invest some money on the preservation and sustainability of those resources.

What is Corporate Social Responsibility?

Corporate social responsibility is a self-regulatory business model that enables a firm to be socially responsible—to itself, its stakeholders and the general public. Companies that practice CSR can indeed be aware of the influence they have on all parts of society, including the economic, social, and environmental. The phrase CSR refers to business activities and policies that aim to have a good impact on the world. Companies Act, 2013 is the legislation which deals with the provisions relate to CSR.

Applicability of CSR:

Companies that fulfill any of the following conditions during the immediately prior financial year shall be eligible for CSR provisions, according to section 135 (1) of the Act:

• i. A net worth of Rs.500 crore or more; or
• ii. A turnover of Rs.1000 crore; or
• iii. A net profit of Rs.5 crore or more

Every firm in this category is required to form a CSR committee of the Board of Directors.

New Disclosure Requirements for CSR:

The government has established a comprehensive disclosure structure for corporations’ CSR expenditure, which experts believe will assist raise transparency while also increasing compliance costs. The Ministry of Corporate Affairs has issued a new Form CSR-2 that enterprises must complete in order to comply with newly imposed disclosure standards. According to the Companies Act, 2013, certain types of profitable organizations are expected to devote at least 2% of their three-year annual average net profit to CSR activities in a given fiscal year. The form requests information on the amount of CSR spent on both ongoing and non-current initiatives. Other obligations include providing information on how much money was spent on impact assessments and if any capital assets were built or bought as a result of CSR spending in a given fiscal year.

Expert’s Comments on the new Disclosure Requirements Introduced:

One of the expert opined that there is some overlap with what the corporation is currently obligated to post on its website, as well as in its annual and board reports. It looks to be an attempt to collect data as well as supervise compliance. According to one of the experts from leading organization, the focus on CSR spending has shifted in recent years, and this appears to be another move in that direction.

While it is expected to increase corporate compliance costs, he believes it will improve openness and disclosures around CSR operations, as well as providing greater monitoring. Further ministry also explains all firms that are obligated to carry out CSR activities under the applicable rules or are voluntarily carrying out CSR activities are required to file the web-form Addendum to AOC-4 CSR as a separate form for FY 20-21.

Conclusion:

CSR promotes both society and a company’s image. This article explains the notion of corporate social responsibility in light of the ministry’s most recent announcement addressing new CSR disclosure rules. Corporate social responsibility programs are an excellent method to boost employee morale. This new disclosure requirement will put more pressure on businesses to comply with the new form that must be filed, but it will also promote openness in CSR activities in society. Furthermore, only time will tell whether or not these new disclosures are welcomed by the companies.

Regards,
Legal Team

Proind Business Solutions Private Limited
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