|Introduction: Contextual introduction.|
Body: Explain some issues with present CSR framework. Also write some measure to strengthen the CSR framework.Conclusion: Write a way forward.
Companies Act, 2013 mandates that corporates who are beyond a certain level of profits and turnover, should pay at least 2% of their net profits before tax to the development space. This law gives corporates the necessary drive to collaborate with non-state actors like Non-Governmental Organisations (NGOs) and Civil Society Organisations (CSOs). This strengthening of citizenry-private partnerships is a major component of development activities.
Issues with present CSR framework:
- Since the requirement of 2% is only a minimum requirement, companies should be encouraged to spend more than this.
- Many private companies have registered their own foundations/trusts to which they transfer the statutory CSR budgets for utilisation.
- According to the Act, the company should give preference to local areas around it where it operates. So, there occurs geographical bias as 54% of CSR companies are concentrated in Maharashtra, Tamil Nadu, Karnataka, and Gujarat while Uttar Pradesh and Madhya Pradesh receive little.
- Most CSR spending is on education (37%), health and sanitation (29%), and only 9% was spent on the environment.
- The information regarding CSR spending by companies is insufficient and difficult to access.
- The auditor is not mandated to qualify the accounts for non-compliance or inadequate CSR performance in the audit report.
Measure to strengthen the CSR framework:
- There is a need to curate a national-level platform centralised by the MCA where all States could list their potential CSR-admissible projects and preferential treatment to areas where companies operate.
- Companies need to prioritise environment restoration in the area where they operate.
- All CSR projects should be selected and implemented with the active involvement of communities, district administration and public representatives.
- Bringing CSR within the purview of statutory financial audit with details of CSR expenditure and mandatory independent third-party impact assessment audits.
- CSR non-spend, underspend, and overspend should be qualified by the auditor in the audit report as a qualification to accounts.
- The MCA and the line departments need to exercise greater direct monitoring and supervision over CSR spend by companies.
With nearly two-thirds of India still living in poverty by today’s quality-of-life standards and the climate situation worsening day by day, the importance of Corporate Social Responsibility (CSR) can’t be overestimated.