The newly enacted Companies Act, 2013 (2013 Act), which mandates certain classes of companies to spend 2% of their average net profits of the last three years on corporate social responsibility (CSR) activities, is getting India Inc to incorporate philanthropy and CSR as important strategies for their businesses. Corporates now need to find innovative ways to effectively utilise their CSR funds by undertaking initiatives aimed at promoting environmental sustainability, supporting community-based development, nurturing vocational skills, gender equity and women empowerment, etc.
This has brought to the fore the potential role that non-profit organisations (NPOs) can jointly play along with corporates in order to achieve a “collective impact”. Corporates can implement the CSR activities either on their own, through their own non-profit subsidiary, or partner with a local, independent non-profit organisation.
In the first edition of our biannual newsletter, we focus on how the mandatory CSR clause of the 2013 Act can reshape the NPO landscape in India. We also present the findings of the Charity Governance Review 2014, a study conducted by Grant Thornton UK’s Not for Profit practice, and an interview with Sandip Mookerjee, Deputy CEO, Hand in Hand India.
CSR clause of the 2013 Act: Impact on NPOs
While there may be no single universally accepted definition of CSR, each description of the term that currently exists outlines the responsibility on businesses towards the community and the environment. The CSR Rules part of the 2013 Act, notified on 27 February 2014, define CSR as activities including but not limited to:
- Projects or programs relating to activities undertaken by the Board of directors of a company (“Board”) in pursuance of recommendations of the CSR Committee of the Board as per declared CSR Policy of the company, subject to the condition that such policy will cover subjects enumerated in Schedule VII of the Act
- Corporates are required to constitute a CSR Committee comprising three or more directors, out of which at least one director should be an independent director. CSR Rules outline certain exceptions to this clause for unlisted public, private and foreign companies.
As per the clarifications issued by the Ministry of Corporate Affairs (MCA) on 18 June 2014, the statutory provision and provisions of the CSR Rules, 2014 is to ensure that while activities undertaken in pursuance of the CSR policy must be applicable to Schedule VII of the Companies Act 2013, the entries in the said Schedule VII must be interpreted liberally, in order to efficiently capture the essence of the subjects enumerated in the said Schedule (broad based and intended to cover a wide range of activities).