CSR Spending Estimates of BSE Top 100 and BRRs Analysis

After the Lok Sabha gave its approval in December last year, there arose some noise surrounding the New Companies Bill 2013. Media, companies, and that part of the general public that seems interested in the legislative affairs of the country dissected the Bill end to end, discussed and debated the likely impacts. A few days later, the noise ceased. Nobody seemed to know what ultimately would become of the bill.

Every Parliament session post December – 2012 saw increased anticipation among interested stakeholders as to when Rajya Sabha will formally take up the bill for consideration. After more than seven months, on August 8th, the bill was moved for consideration in the upper house. “This is a momentous day, as this will usher in a new era for the company law,” said Sachin Pilot, Minister of State for corporate affairs after the bill was passed, aptly encapsulating the end of a long and anxious wait.

The President gave his approval to the bill to be enacted into a law end of August 2013. The spanking new Act is simpler, with fewer clauses and pages and looks at contemporary issues such as corporate governance, investor protection, corporate social responsibility (CSR) and measures to check frauds. Further, a third of corporate boards have to necessarily comprise independent members, some boards would have to include more women, auditors will be compulsorily changed every ten years, minority shareholders and depositors can launch action suits against managements, among other sea changes.

What interests us, Partners in Change (PiC), as an organization that has been pioneering the understanding and practice of corporate responsibility issues in India, is Clause 135 that makes it mandatory for companies of a certain size and profitability to spend 2% of their average net profits of previous 3 years on CSR. The proposed draft CSR rules under Section 135 of the Act has been posted on the Ministry of Corporate Affairs (MCA) website for public comments till October 7, 2013.

The clause on CSR is being celebrated and criticized in, may we say, equal measure.  The development sector, as the world of NGOs and professionals working in the area of social and economic development has come to be known as, is rejoicing. It sees this clause as a late but welcome measure to make companies understand its responsibilities towards the society and act conscientiously. The other side of their joy is the opening up of much-needed funding options. Some in the sector, however, feel that the clause dilutes the meaning of a company’s commitment to ethical and responsible business and instead focuses on the end (under Schedule VII) as opposed to means of doing business.

 The reactions seem appear mixed on the other side as well. Some in the corporate sector are worried that making CSR spending mandatory would lead to what is informally referred to as “cheque-book CSR”. Others, while sounding positive about a law that encourages companies to act responsibly, find the list and scope of activities too small to comprehensively correspond to what entails a company’s responsibilities towards the society.

 Through this document, PiC has tried to analyze the likely impact of the new Act on the CSR landscape of the country. Although we do have an opinion on the subject, we have tried to keep this document unbiased and objective. PiC believes that the use or misuse of the CSR clause will be determined by the intent of the companies. As Plato said “Good people do not need laws to tell them to act responsibly, while bad people will find a way around the laws.”

 This document highlights the CSR funding part of the CSR Clause (135) and presents how companies are reporting on their Business Responsibility Reports.

 

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