Corporate Social Responsibility (CSR) is no longer just a buzzword; it’s a legal obligation for certain companies under the Companies Act, 2013. But beyond the mandatory compliance, CSR initiatives can significantly boost a company’s brand reputation, investor appeal, and employee morale. In this article, we’ll break down the CSR requirements under Section 135 of the Companies Act and explore how companies can turn CSR into a powerful tool for growth and sustainability.
Understanding CSR Under Section 135 of the Companies Act
The Legal Framework
Under Section 135 of the Companies Act, 2013, certain companies are mandated to spend a minimum of 2% of their average net profits over the last three years on CSR activities. This applies to companies that meet any one of the following thresholds during the preceding financial year:
– Net worth of ₹500 crore or more.
– Turnover of ₹1,000 crore or more.
– Net profit of ₹5 crore or more.
CSR activities must align with the areas specified under Schedule VII of the Companies Act, which includes promoting education, healthcare, environmental sustainability, and social welfare.
Key Highlights:
– Threshold for CSR obligation: Net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore.
– 2% CSR spend requirement: A mandatory minimum spend of 2% of average net profits.
– CSR Committee: Companies that qualify must establish a CSR committee to oversee CSR initiatives.
How CSR Can Create Brand Value and Attract Investors
Green Bonds and Green Securities: A New Age of Sustainable Investment
One of the emerging trends in CSR is the rise of green bonds and green securities. These are debt instruments issued to fund projects with environmental benefits, such as renewable energy, energy efficiency, and pollution reduction. Not only do these bonds support environmental sustainability, but they also help build a company’s reputation as a responsible, forward-thinking entity.
Example:
– ICICI Bank was one of the pioneers in India to issue green bonds, raising funds for renewable energy projects. The funds raised were used to finance wind and solar power projects, thereby supporting India’s transition to a low-carbon economy while fulfilling CSR requirements.
– Tata Power issued green bonds to fund clean energy projects, demonstrating a commitment to both CSR and sustainable financial growth.
By investing in projects aligned with green initiatives, companies can strengthen their CSR portfolios while meeting environmental targets. It’s a perfect intersection of social responsibility and financial performance.
CSR as a Tool for Investor Attraction
Investors today are increasingly inclined to put their money into companies that demonstrate strong CSR initiatives. Companies that invest in sustainable practices or engage in community welfare projects are perceived as lower risk and more likely to provide long-term value. Investors are keen on companies with robust CSR programs because these are often viewed as future-ready, socially responsible, and environmentally conscious.
Case Study: The Mahindra Group has made CSR a central part of its brand identity. Through its “Mahindra Rise” initiative, the company integrates CSR into every aspect of its operations, from environmental sustainability to rural development. This has not only enhanced their brand reputation but also attracted investors who are looking for companies with a strong social commitment.
What Can a Company Secretary (CS) Do for CSR?
As a company secretary, you are in a pivotal position to ensure that your company complies with CSR regulations and uses CSR funds effectively. Here’s how a CS can drive CSR initiatives and make them work for the company’s long-term benefit:
1. Establish and Oversee the CSR Committee
The CSR committee, which must include at least three directors, is responsible for formulating and recommending CSR activities. The CS can help in setting up this committee and ensuring that it functions properly, stays within budget, and adheres to all legal requirements.
2. Ensure Compliance and Reporting
A CS is also responsible for ensuring that the company complies with all reporting requirements. Under the Companies Act, companies must file an annual report on CSR activities, detailing the CSR expenditure and the impact of the projects. The CS plays a critical role in preparing this report and ensuring transparency.
3. Align CSR Activities with Company Values
It’s not enough to just fulfill the minimum CSR obligation. The CS should work with the management to identify CSR projects that align with the company’s core values and strategic objectives. This creates a more meaningful impact and enhances the company’s brand value.
4. Innovate CSR Strategies
The CS can also suggest innovative ways to integrate CSR with financial strategies, such as raising funds through green bonds for environmental projects or exploring impact investing opportunities.
5. Stakeholder Engagement
A CS can be the bridge between the company and its stakeholders, ensuring that the company’s CSR efforts are transparent, well-communicated, and aligned with the expectations of shareholders, employees, and the wider community.
Key CSR Areas Under the Companies Act
According to Schedule VII of the Companies Act, the areas in which CSR funds can be utilized include:
– Eradicating hunger, poverty, and malnutrition
– Promoting education and healthcare
– Environmental sustainability (including clean energy projects, afforestation, and renewable energy)
– Support for artisans and handicrafts
– Advancement of rural development
Example: Infosys Foundation has consistently used its CSR funds to support healthcare, education, and environmental sustainability. The Foundation’s initiatives have helped improve the quality of life in rural India by providing healthcare services, education, and sanitation infrastructure.
Case Studies: Successful CSR Initiatives
1. The ITC Limited CSR Model
ITC has been recognized for integrating sustainability with profitability. Its e-Choupal program, which provides farmers with access to technology and market information, has had a profound impact on rural India. The program is part of ITC’s larger commitment to sustainable agriculture and community development, which helps the company maintain a strong CSR profile and enhance its reputation.
2. Wipro’s Sustainability Journey
Wipro is another great example of how corporate governance and CSR can go hand-in-hand. The company has committed to carbon neutrality by 2040 and is heavily investing in clean energy projects and green IT solutions. Wipro’s CSR efforts are integrated into its overall business strategy, creating long-term value both for the company and for society.
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Conclusion: CSR as a Growth Opportunity
For directors and company secretaries, CSR is no longer just about compliance — it’s an opportunity to enhance a company’s brand reputation, attract impact investors, and foster long-term sustainability. By aligning CSR strategies with environmental goals and social impact, companies can not only meet their legal obligations under Section 135 but also turn CSR into a competitive advantage. Whether through green bonds, social projects, or environmentally sustainable initiatives, CSR offers a path to greater corporate responsibility and profitability.
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Key Takeaways:
– CSR under Section 135 requires certain companies to spend 2% of their profits on social and environmental initiatives.
– Green bonds and green securities offer exciting opportunities for companies to meet their CSR obligations while investing in sustainability.
– Company secretaries play a critical role in ensuring CSR compliance, aligning initiatives with business goals, and fostering transparency in CSR reporting.
– Investors are increasingly looking for companies with robust CSR strategies, making CSR a tool for attracting capital and enhancing brand value.