corporate social responsibility, Summaries of Law

Download corporate social responsibility and more Summaries Law in PDF only on Docsity! CORPORATE SOCIAL RESPONSIBILITY IN COVID-19 A Project Submitted to ARMY INSTITUTE OF LAW, MOHALI By Yashvardhan Singh (1922) Under the Guidance of Dr. Bhupinder Kaur In partial fulfilment of the requirements for the award of degree of BA.LLB. PANJABI UNIVERSITY, PATIALA (PUNJAB) DECLARATION It is certified that the project work presented in the report entitled “CORPORATE SOCIAL RESPONSIBILITY IN COVID-19” is the result of my original research work. All the ideas and references have been duly acknowledged. s Name: Yashvardhan Singh Roll No.: 1922 INTRODUCTION Corporate social responsibility (CSR) is procuring significant importance day by day. Majority of the organizations are presenting their commitments towards CSR either to be in competition or for enhancing their corporate image. Globalizations and changing market situations are imperative factors in adding heat to the CSR thought. Emergence of different marketing innovations demands has the direct linkage of corporate social responsibility practices with the business corporate strategies. Also, Indian companies in this relation have gone ahead of their legal and economic obligations to establish mutual trust and accept responsibilities coupled with the betterment of society. CSR is a self-regulating business model that helps a company to be socially accountable — to itself, its stakeholders and the public. By practicing corporate social responsibility, also called corporate citizenship, companies can be conscious of the kind of impact they are having on all aspects of society, including economic, social and environmental. To engage in CSR means that, in the ordinary course of business, a company is operating in ways that enhances the society and environment instead of contributing negatively to them.1 CSR is a broad concept that can take many forms, depending on a company and its industry. Through CSR programmes, philanthropy and volunteer efforts, businesses can benefit the society while boosting their brands. As important as CSR is for the community, it is equally valuable for a company. CSR activities can help forge a strong bond between employees and corporations; boost morale and help both employees and employers feel more connected with the world around them.2 CSR HISTORY IN INDIA India has a long, rich history of close business involvement in social causes for national development. 1 Chen, J. (2020, February 22). Part of the Dotdash publishing family. Retrieved August 28, 2020, from Investopedia: https://www.investopedia.com/terms/c/corp-social-responsibility.asp 2 Edmondson, B. (2020, July 7). DotDash Publishing Company. Retrieved August 31, 2020, from The Balance: https://www.thebalance.com/corporate-social-responsibility-csr-4772443 In the initial years, there was little documentation of social-responsibility initiatives. After Independence, JRD Tata — who always laid a great deal of emphasis to go beyond conducting themselves as honest citizens — pointed out that there were many ways in which industrial and business enterprises can contribute to public welfare beyond the scope of their normal activities. Since then, there has been a growing realisation towards contribution to social activities globally with a desire to improve the immediate environment. Slowly, it began to be accepted, at least in theory, that business had to share a part of social overhead costs.3 The last decade of the 20th century witnessed a swing away from charity and traditional philanthropy towards more direct engagement of business in mainstream development and concern for disadvantaged groups in the society. This has been driven both internally by corporate will and externally by increased governmental and public expectations. An ideal CSR has both ethical and philosophical dimensions, particularly in India where there exists a wide gap between sections of people in terms of income and standards. India is the first country in the world to make CSR mandatory, following an amendment to the Companies Act, 2012 in April 2014. CSR TRENDS IN INDIA Since the applicability of mandatory CSR provision in 2014, CSR spending by corporate India has increased significantly. According to a survey, companies spent 47 per cent higher in 2018 than in 2014-15, contributing $1 billion (around Rs 7,400 crore) to CSR initiatives.4 A regulation, only five-years-old, required companies to step outside their comfort zone onto a steep learning curve. On an average, the reporting rate among eligible companies in the last four years has been 64 per cent. Companies spent 68 per cent of the prescribed CSR amount in the last four years, totalling Rs 52,000 crore.5 3 Singh, R. G. (2010). Corporate Social Responsibility Practices in India - A study of top 500 companies. Global Business and Management Research, 45-46. 4 Associates, D. S. (2020, March 23). Dezan Shira and Associates. Retrieved August 29, 2020, from India Briefing: https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/ 5 Ventures, S. S. (2020, March 24). Samhita - A Better Normal. Retrieved December 5, 2020, from samhita.org: https://www.samhita.org/decoding-csr-trend-in-india-looking-back-to-look-forward/ Listed companies in India spent Rs 10,000 crore in various programmes — ranging from educational programmes, skill development, social welfare, healthcare and environment conservation. The Prime Minister’s Relief Fund saw an increase of 139 per cent in CSR contribution over last one year (2019-20). The education sector received the maximum funding (38 per cent of the total), followed by hunger, poverty and healthcare (25 per cent), environmental sustainability (12 per cent) and rural development (11 per cent). Programmes such as technology incubators, sports, armed forces, inequality-reduction saw negligible spends.6 CSR IN COVID-19 The COVID-19 pandemic has upended life as we know it. It has now become the moral responsibility of corporates to come forward and contribute to rebuilding India in this hour of need. Covid-19 related expenses that qualify as CSR spend under the Indian corporate law are as follows:  Contribution to PM CARES FUND  Contribution to State Disaster Management Authority to combat COVID 19  Creation of health infrastructure for Covid care  Establishment of medical oxygen generation and storage plants  Manufacturing and supply of oxygen concentrators, ventilators, cylinders, and other medical equipment for countering Covid-19  Setting up of a makeshift hospital or temporary Covid care facility  Eradicating hunger, poverty and malnutrition, promoting healthcare including preventive healthcare and sanitation via also contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and for making available safe drinking water  Disaster management, including relief, rehabilitation, and reconstruction activities 6 Associates, D. S. (2020, March 23). Dezan Shira and Associates. Retrieved August 29, 2020, from India Briefing: https://www.india-briefing.com/news/corporate-social-responsibility-india-5511.html/ Expenses incurred to provide free resources As we know, the Companies Act obligates certain companies to spend money on CSR activities. Now with the introduction of new provisions, there was ambiguity on whether the company needs to spend the amount in cash or kind. There is no restriction on spending in cash or kind, but the prime importance is given to the word 'spend'. The government clarified that any donation made by the company out of free company resources already held by them cannot be termed as a CSR expenditure. Actual spending is required for it to qualify as CSR expenditure. Let's take an example to understand it better. A company is donating clothes to poor people. The clothes were obtained free of cost by the company through some other means. Here, as the clothes have been obtained free of cost by the company, it cannot be termed a CSR expenditure under corporate laws. However, if the company is incurring some incidental expenses on the distribution of clothes, it might claim this up to 5% of their total CSR expenditure. The legislation allows manufacturing and supply of specified medical equipments as a CSR activity in the recent amendments. Thereby, if the supply of such products is made, it would be construed as a CSR activity. Administrative expenditure Under the amended rules, administrative expenses are only allowed to the extent of 5% of the total CSR expenditure of the company for the financial year. Administrative overheads have been defined as expenses directly incurred by the company on 'general management and administration' of CSR functions in the company. Also, the expenses incurred by the company on designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project will not be included as part of the administrative overheads but as a CSR expenditure. Let's understand the issue with a few examples. A company used its factory premises to build a temporary Covid care facility. During this period, it incurs overhead expenses like rent, electricity, water expenses, etc. Such payments fall in the nature of general management and administration. A company can utilize up to 5% of the total expenditure in CSR (other than the overheads) as administrative expenses. Although 5% expenditure is allowed, authorities might still disagree on the fixed expenses as CSR expense as it is not a CSR specific expense but a regular business expense. Salary paid to employees and directors on duty at the care facilities is also a contractual and statutory obligation. As the employees are dependent on the company for their day-to-day expenses, it becomes a moral responsibility as well. Thereby payment of such salaries too may not be construed as a CSR expenditure even when the salary is paid for the care facility. The company hires new doctors, consultants and other medical staff in order to take care of the patients. If emoluments to these employees are being exclusively paid for the implementation and monitoring of the CSR project; it would be allowed as a CSR expenditure. R&D spend on vaccines, medicines and medical equipment Expenditures in the normal course of businesses are excluded from the scope of CSR activities. However, any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to Covid-19 for financial years 2020-21, 2021-22, 2022-23 provided such research is carried out in collaboration with any institute or organization mentioned in Schedule VII and separately disclosed in the Board's Report. But now, research and development of vaccines, etc., have almost come to the completion stage, and not much expenditure will be incurred in FY 2021-22 and 2022-23. It is suggested that government should allow a weighted deduction for FY 2020-21 in order to benefit the companies already in business. Many corporates have already risen to the occasion and are helping the country in these desperate times of need. Thereby, the amendments in the rules are a welcome move. This will allow the companies to invest in healthcare and other related areas while complying with corporate social responsibility requirements. However, the government can be a little more liberal and permit the above activities as part of CSR. Government clarifications of all doubts on CSR spending will be a great initiative, and it can encourage many more corporates to join the movement. CONCLUSION Business houses all over the world are realising their stakes in the society and engaging in various social and environmental activities. The need of the hour is to formulate effective strategic policies and adopt various instruments, according to a company’s history, its content and peculiarity in relationship with its different stakeholders so that CSR can be best implemented towards its goals — sustained environmental, social and economic growth. Most companies use CSR practices as a marketing tool and many are only making token efforts towards CSR in tangential ways such as donation to charitable trusts, NGOs, sponsorship of events etc. Few have a clearly defined CSR philosophy. There are several companies in India involved in diverse issues such as healthcare, education, rural development, sanitation, micro-credit and women’s empowerment. Analysis of several surveys in India suggests that though many companies in India have taken on board the universal language of CSR, it seems to be in a confused state. Individual companies define CSR in their own limited ways and contexts. The end result being all activities undertaken in the name of CSR are mainly philanthropy or an extension of philanthropy. It seems that CSR in India has been evolving in domain of profit distribution. There is a need to increase the understanding and active participation of business in equitable social development as an integral part of good business practice.7 7 Singh, R. G. (2010). Corporate Social Responsibility Practices in India - A study of top 500 companies. Global Business and Management Research, 45-46.