This article has been written by Inayat Ahmed pursuing a Diploma in Legal English Communication – oratory, writing, listening and accuracy course from LawSikho.

This article has been edited and published by Shashwat Kaushik.

Introduction

Corporate social reporting is more commonly known as CSR (Corporate Social Responsibility)  reporting. It is a vital part of any company, a statutory requirement for any company that falls under the said category. It ensures that the company contributes towards the development of the environment and society. CSR reporting means disclosing the company’s accounts concerning CSR activity. The CSR activity can also be called an ESG activity, which stands for environment, social, and governance.

CSR reporting

The Companies Act, 2013, is a significant piece of legislation in India that has revolutionised the corporate social responsibility (CSR) landscape in the country. This act mandates certain companies to allocate a portion of their net profits towards CSR activities, ensuring that businesses contribute to social and environmental welfare.

The law stipulates that companies with a net worth of at least INR 500 crore, a turnover of INR 1000 crore or a net profit of INR 5 crore or more during the immediately preceding financial year must spend at least 2% of their average net profit for the last three years on CSR activities. This provision aims to foster a culture of giving back to society and promote sustainable business practices.

The Companies Act, 2013, provides a comprehensive framework for CSR implementation. It specifies that companies must establish a CSR committee consisting of their board members, including at least one independent director. This committee is responsible for formulating and implementing the CSR policy, identifying CSR projects, and monitoring their progress.

The act also mandates companies to disclose their CSR activities in their annual reports. This disclosure includes details about the CSR projects undertaken, the amount spent on each project, and the impact of these projects on society. This transparency measure ensures that companies are held accountable for their CSR commitments and encourages ethical business practices.

The Companies Act, 2013, has significantly impacted the CSR ecosystem in India. It has led to increased corporate involvement in social and environmental initiatives, resulting in positive outcomes such as improved education, healthcare, sanitation, and environmental conservation. The act has also encouraged collaboration between businesses, non-profit organisations, and government agencies, creating a more robust and sustainable CSR landscape in the country.

Overall, the Companies Act, 2013, serves as a powerful tool for harnessing corporate resources to address pressing social and environmental issues. It promotes responsible business practices, encourages stakeholder engagement, and contributes to the overall development and well-being of society.

The Ministry of Corporate Affairs (MCA) plays a crucial role in governing and overseeing the compliance of Corporate Social Responsibility (CSR) in India. According to the Companies Act, 2013, certain classes of companies are required to allocate a portion of their net profits towards CSR activities. The MCA ensures that these companies comply with the CSR regulations and guidelines.

One of the key mechanisms established by the MCA for CSR governance is the CSR committee. Every company that is required to undertake CSR activities must form a CSR committee. This committee is responsible for formulating and implementing the company’s CSR policy, identifying and selecting CSR projects, and overseeing the utilisation of CSR funds. The CSR committee typically comprises the company’s board of directors, independent directors, and CSR experts.

The CSR committee has several important functions and responsibilities. Firstly, it is responsible for developing the company’s CSR policy. This policy outlines the company’s CSR vision, mission, and objectives, as well as the areas of focus for CSR interventions. The CSR policy should be aligned with the company’s overall business strategy and values.

Secondly, the CSR committee is responsible for identifying and selecting CSR projects. The committee should conduct a comprehensive needs assessment to identify the most pressing social and environmental issues in the areas where the company operates. Based on this assessment, the committee should select CSR projects that are feasible, impactful, and sustainable.

Thirdly, the CSR committee is responsible for overseeing the implementation and monitoring of CSR projects. The committee should ensure that the projects are implemented in a timely and efficient manner and that they are aligned with the company’s CSR policy and objectives. The committee should also monitor the impact of the CSR projects and make necessary course corrections as needed.

The MCA’s role in CSR governance and the CSR committee’s functions are essential for ensuring that companies fulfil their CSR obligations and contribute positively to society. By fostering responsible and sustainable CSR practices, the MCA and the CSR committees help promote inclusive growth and development in India.

Importance of CSR reporting

Corporate social responsibility enhances the company’s development and recognises it’s name in society. Let’s look at some of the top points that explain the importance of CSR.

1. Brand value: CSR activities such as welfare programmes increase the goodwill of the company. 
2. Employee engagement: Companies that participate in CSR activities are relatively well known in society, thus increasing employee retention. And many people wish to work for such companies.
3. Poverty alleviation: The CSR activities include the development of society and many education awareness and educational development programmes. Thus, CSR activities help in providing education to the children of the economically backward.
4. Increase in customers: CSR activities increase the goodwill of the company and therefore more people get to know about the company which can increase its sales.

Enforcement of CSR

The Ministry of Corporate Affairs (MCA) has emphasised the importance of compliance with Corporate Social Responsibility (CSR) regulations, highlighting that non-adherence can result in significant fines and penalties. Under the Companies Act, 2013, certain companies are mandated to comply with CSR rules, which include disclosing CSR accounts within their annual reports.

The CSR accounts provide transparency and accountability regarding a company’s CSR activities. These accounts detail the company’s CSR spending, projects undertaken, and the impact of these initiatives. The disclosure of CSR accounts enables stakeholders, including shareholders, investors, and the general public, to evaluate a company’s commitment to social responsibility and its contribution to sustainable development.

The CSR accounts provide valuable insights into a company’s approach to CSR and its alignment with its business strategies. They showcase the company’s efforts in addressing social and environmental issues, such as poverty alleviation, education, healthcare, environmental protection, and community development. Through these accounts, companies can demonstrate their commitment to creating a positive social impact and contributing to a more inclusive and sustainable society.

The MCA’s emphasis on CSR compliance underscores the government’s commitment to promoting responsible business practices and encouraging companies to play an active role in addressing societal challenges. By mandating the disclosure of CSR accounts, the government aims to enhance transparency, foster accountability, and encourage companies to adopt sustainable CSR practices that benefit both their stakeholders and the broader community.

Section 135 of the Companies Act, 2013, mandates corporate social responsibility (CSR) for certain companies in India. It stipulates that companies with a net worth of INR 500 crores or more, a turnover of INR 1000 crores or more, or a net profit of INR 5 crores or more during any financial year shall spend a minimum of 2 percent of their average net profits of the previous 3 years on CSR activities.

This provision aims to promote responsible business practices and encourage companies to contribute to social welfare and sustainable development. The CSR activities undertaken by companies can include various initiatives, such as:

• Education and skill development programmes to enhance employability and uplift disadvantaged communities.
• Healthcare initiatives to provide medical facilities, awareness campaigns, and support for disease prevention and treatment.
• Environmental sustainability projects to reduce carbon emissions, conserve natural resources, and promote renewable energy.
• Social welfare programmes to address issues such as poverty alleviation, hunger, and homelessness.
• Community development projects to improve infrastructure, sanitation, and access to basic amenities in marginalised areas.

Companies are required to constitute a CSR Committee, comprising at least three directors, responsible for formulating and overseeing the CSR policy and ensuring its implementation. The CSR Committee is responsible for identifying and prioritising CSR projects, monitoring their progress, and evaluating their impact.

The Act also mandates companies to disclose their CSR activities in their annual reports, providing transparency and accountability. The CSR report must include details such as the amount spent on CSR activities, projects undertaken, and the impact achieved.

This provision recognises the vital role that businesses can play in addressing social and environmental challenges. By mandating CSR, the Companies Act encourages companies to allocate resources and expertise to create positive societal impact, fostering a more inclusive and sustainable economy.

CSR report

A Corporate Social Responsibility (CSR) report serves as a comprehensive document that outlines an organisation’s efforts to fulfil its social and environmental responsibilities. This report typically encompasses a range of data and information related to CSR funds and activities.

CSR funds:

1. Total CSR funds allocated: The CSR report discloses the total amount of funds allocated by the organisation for CSR initiatives during a specific period. This amount represents the financial resources earmarked for CSR activities.
2. Sources of CSR funds: The report provides information on the sources of CSR funds. These sources may include profits from business operations, voluntary contributions from employees, or external grants and donations.
3. CSR fund utilisation Policy: The report outlines the organization’s policy for utilizing CSR funds. This policy defines the principles and criteria guiding the allocation of CSR funds to various initiatives.

CSR activities:

1. CSR Activities Undertaken: The CSR report details the specific CSR activities undertaken by the organisation during the reporting period. These activities may encompass environmental initiatives, such as carbon emissions reduction or waste management programmes; social initiatives, such as education support or healthcare projects; and community engagement activities.
2. Objectives and goals: For each CSR activity, the report outlines the specific objectives and goals set by the organisation. These objectives may relate to reducing environmental impact, enhancing social well-being, or fostering community development.
3. Activity implementation plan: The report provides an overview of the implementation plan for each CSR activity. This plan outlines the key steps, resources, and timeline for executing the activity.
4. Stakeholder engagement: The CSR report highlights the organisation’s engagement with stakeholders, such as employees, customers, suppliers, and community members. It describes how stakeholders were involved in the planning, implementation, and evaluation of CSR activities.
5. Impact assessment: The report presents an assessment of the impact of each CSR activity. This assessment may include quantitative data, such as the number of beneficiaries reached or tonnes of waste diverted from landfills, as well as qualitative information, such as improvements in community well-being or employee morale.
6. Future plans and commitments: The CSR report outlines the organisation’s future plans and commitments regarding CSR. This section may include new initiatives planned for the upcoming year, as well as the organisation’s long-term CSR vision and goals.

The CSR committee is tasked with the duty to do research on which area/segment of society needs development be it infrastructure, water resources, educational institutions, electricity, etc. It is very important to analyse the needs of society and take necessary steps to best utilise the funds for the benefit of society.

A company shall not utilise its funds for any activity that is already developed and does not require any further development.

The CSR report shall ensure the following corporate governance, environmental impact, social responsibility, and economic performance. The company shall explain how its operations affect the environment and therefore, it is the responsibility of the company to utilise the CSR funds to make the environment better in the locality. 

Framework for CSR reporting

A CSR report shall be prepared with the following information. In other words, the following are the guidelines/key elements for a proper CSR report:

1. Collection of data: The information in the report shall be accurate. The research and analysis will be done properly.
2. Involvement of the stakeholders: The stakeholders play a vital role in the CSR policies and decisions. They can put forth their suggestions and are always concerned about the CSR decisions, even when they are not part of the CSR committee.
3. Statutory principles: A company shall at all times make sure that it adheres to the statutory provisions. 
4. Proper research: The CSR committee shall assess the environmental and social necessities of society and utilise the CSR funds to improve those particular areas.
5. Improvement: The CSR activity shall have only one objective, which is to improve and develop society.

Review the CSR report

The CSR report shall be reviewed by the CSR committee to ascertain the following:

1. The CSR report has been framed as per the statutory guidelines.
2. The entire data and explanation regarding why the CSR funds were utilised for the said purpose and how they were utilised shall be mentioned.
3. The CSR report shall be verified by the statutory authority. CSR report shall be included in the company’s annual reports.
4. The CSR reports shall be made available to all the stakeholders.
5. The CSR committee shall make sure that there is an improvement in society through the CSR activities.
6. They should also make decisions regarding the future goals of the company and its CSR funds.

CSR accountability and the latest trends

In recent times, corporate social responsibility (CSR) has gained significant momentum, with an increasing number of companies embracing its principles. This shift is driven by a growing recognition that businesses have a responsibility to contribute to the well-being of society beyond their profit-making activities. As a result, many companies have started actively utilizing their CSR funds to support various social and environmental initiatives.

One notable development in this regard is the introduction of mandatory CSR reporting for certain companies. This requirement aims to ensure transparency and accountability in CSR practices and encourage companies to take a more proactive approach to social responsibility. By mandating CSR reporting, governments hope to create a level playing field for businesses and foster a competitive environment that values ethical and sustainable practices.

To facilitate efficient CSR reporting, many companies have turned to specialised software solutions. These tools offer a range of features that help streamline the process of collecting, analysing, and presenting CSR data. They enable companies to track their progress on various CSR metrics, identify areas for improvement, and create comprehensive CSR reports that meet regulatory requirements.

The use of CSR reporting software has several benefits for companies. Firstly, it enhances accuracy and completeness by automating data collection and analysis processes, reducing the risk of human error. Secondly, it saves time and resources by streamlining the reporting process, enabling companies to focus on their core business activities. Thirdly, it improves transparency and accountability by providing stakeholders with a clear and comprehensive overview of the company’s CSR efforts.

CSR reporting software

TechCSR is one of the best software programmes available for CSR analysis and reporting. It is enabled by management information & location intelligence systems. This software can be accessed via web and mobile applications as well. The management information system helps in analysing the budget and expenditure of the CSR activity. It also keeps track of all the CSR activities, such as the completed activities, ongoing projects, and future projects as well. 

The Location analysis feature of this application helps in understanding the current socio-environmental condition of the society, village, area, etc. It provides real-time photographs and videos of the activity in any particular location. This feature enables us to have the best analysis as to the previous condition of the locality and the current situation. In other words, it can help in understanding the development of the area via CSR activity. This application can prepare the best CSR report with all the given information.

• Some of the other software applications that help with CSR reporting are:
  • Submittable
  • Alaya
  • Brightest
  • Catalyser
  • FundstakPRO
  • DonationXchange
  • Optimy
  • Smartsimple CLOUD
  • MaximusLife

Case law

Parikh Enterprises Limited case 

In the given case, the two managing directors of Parikh Enterprises Private Limited filed an application with the Registrar of Companies for compounding an offence under Section 134(3)(0) of the Companies Act, 2013, which is punishable under Section 134(8) of the Companies Act, 2013.

The application was forwarded to the tribunal by the ROC.

Facts of the case

Parikh Enterprises Private Limited became eligible for CSR as they earned a net profit of 5,35,44,880 INR in the 2013-14 financial year. However, the company failed to establish a CSR Committee, make a report, and explain the reasons for not spending on CSR activities.

The company, in their application, admitted the above offences and requested compounding of the offence. They explained that the non-compliance was not due to any malafide intentions.

Judgement of the court

Section 134(8) provides for punishment for non-compliance with Section 135 of the Companies Act, 2013. The company shall be punished with a fine of not less than Rs.50,000/- which may extend up 25,00,000/-. And the officer(s) in default shall be punished with imprisonment, which may extend to 3 years or a fine of not less than Rs.50,000/- or both.

The company stated in its application that they have constituted a CSR committee and have spent the required amount in the years 2015-16.

Based on the above statements, the tribunal levied a fine of Rs.1,00,000/- on the company, while the managing directors were given only a warning with no fine or imprisonment.

Conclusion

From the above case, we understand the importance of Corporate social reporting and its accountability. Therefore, it is clear that CSR reporting is an important part of the company. And shall be adhered to at all times. The accountability of   social reporting has become easier with the latest software developments and AI. CSR explains the responsibility of the company towards society. In a way, it is a social contract between the company and society.

References

• https://www.sopact.com/guides/csr-reporting#:~:text=CSR%20Reporting%2C%20or%20Corporate%20Social,and%20governance%20(ESG)%20activities.
• https://thecsrjournal.in/what-is-the-importance-of-csr/
• https://taxguru.in/company-law/csr-india-compliance-enforcement-future-directions.html#google_vignette
• https://www.cyberswift.com/in/products/csr-management-software#:~:text=TechCSR%20is%20a%20CSR%20Management,web%20%26%20mobile%2Dbased%20application.
• https://slashdot.org/software/corporate-social-responsibility-csr/in-india/
• https://homework.study.com/explanation/what-is-the-social-contract-why-has-it-become-prominent-in-csr.html#:~:text=The%20social%20contract%20has%20importance,responsibility%20to%20society%20as%20well