The Ministry of Corporate Affairs has notified Section 135 and Schedule VII of the Companies Act 2013 as well as the provisions of the Companies (Corporate Social Responsibility Policy) Rules, 2014 to come into effect from April 1, 2014.
With effect from April 1, 2014, every company, private limited or public limited, which either has a net worth of Rs 500 crore or a turnover of Rs 1,000 crore or net profit of Rs 5 crore, needs to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities. The CSR activities should not be undertaken in the normal course of business and must be with respect to any of the activities mentioned in Schedule VII of the 2013 Act. Contribution to any political party is not considered to be a CSR activity and only activities in India would be considered for computing CSR expenditure.
The activities that can be undertaken by a company to fulfil its CSR obligations include eradicating hunger, poverty and malnutrition, promoting preventive healthcare, promoting education and promoting gender equality, setting up homes for women, orphans and the senior citizens, measures for reducing inequalities faced by socially and economically backward groups, ensuring environmental sustainability and ecological balance, animal welfare, protection of national heritage and art and culture, measures for the benefit of armed forces veterans, war widows and their dependents, training to promote rural, nationally recognized, Paralympic or 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 and welfare of SC, ST, OBCs, minorities and women, contributions or funds provided to technology incubators located within academic institutions approved by the Central Government and rural development projects.
For many of India's most loved brands, 'giving back' is not about fulfilling this legal obligation of having to donate to charity, but generating goodwill in their respective communities. These are times when CSR and NGOs go hand-in-hand. Companies, therefore, must spend in areas like literacy, women empowerment, environment, water, sanitation, child rights etc. Most companies around the world allocate 100% of their resources before they consider the need of CSR. The same holds true for India, and even after allocating CSR funding, and engaging employees with a mission of social good, companies struggle with their project's sustainability.
Many companies simply do not have the bandwidth (employees, consultants and supervision) to undertake consistent CSR implementation. These companies not only need to spend on CSR, but also on CSR training for their employees, or adding manpower dedicated to CSR capability. NGO’s in India pitch a streamlined, customised solution to these corporations. For NGOs, corporates are not only a source of consistent funding but also access to strategic resources. An IT giant, for example, can provide technology, processes, and support for educational initiatives.
Smart partnering is emerging as a way to create value for both the business and society simultaneously. Smart partnering focuses on key areas of impact between business and society and develops creative solutions that draw on the complementary capabilities of both to address major challenges that affect each partner.