CORPORATE SOCIAL RESPONSIBILITY An overview of the Companies Act, 2013 Gayatri Subramaniam Indian Institute of Corporate Affairs

EVOLUTION OF CSR We are getting here Section 135 Compliance Investment in social development as part of the Business plan (NVGs) Good corporate citizenship Strategic Community investment Strategic giving linked to business interest Philanthropy Passive donations to charities Pure self interest Corporate profit 16-04-2017

FROM CORPORATE RESPONSIBILITY TO CORPORATE SOCIAL RESPONSIBILITY Compliance to 135 Nation Building Immediate Community development Sanitation, education, environment School for staff children, sanitation in staff colonies etc. Welfare of staff families Staff welfare Occupational safety 16-04-2017

GOVERNMENT & CSR 16-04-2017 2007 PM’s Ten-Point Social Charter 2009 Voluntary Guidelines on CSR 2010 2011 National Voluntary Guidelines on Social, Environmental and Economic Responsibilities (NVGs) 2012 SEBI mandate on disclosure in the form of Business Responsibility Reports (BRRs) on NVGs for top 100 listed companies 2013 PSE Guidelines Section 135 of Companies’ Act, mandating CSR spend of 2% profit DPE Guidelines 16-04-2017

MILESTONES IN CSR The New Companies Act 2013 18 Dec 2012 Companies Bill 2013 Approved by the Lok Sabha 08 Aug 2013 Companies Bill 2013 approved by the Rajya Sabha 30 Aug 2013 Gazette notification of the New Companies Act 2013 27 Feb 2014 Rules on Section 135 notified on MCA’s Website 16-04-2017

THE SIZE OF THE CSR SPACE – APPROXIMATELY 16,000 Companies 18,000 Crores Indian Rupees 30,000 Directors of Boards 16-04-2017

QUALIFYING CRITERIA Section 135, sub-section 1 of the Companies Act, 2013 provides the qualifying criteria; Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more, or a net profit of rupees five crore or more during any financial year is mandated to constitute a Corporate Social Responsibility Committee of the Board. Any financial year refers to any of the three preceding financial years. 16-04-2017 8

COMPOSITION OF CSR COMMITTEE A Corporate Social Responsibility Committee of the Board consists of three or more directors, out of which at least one director shall be an independent director. An unlisted public company or a private company covered under Section 135(1) of the Act, which is not required to appoint an independent director, shall have its CSR Committee without such director . 16-04-2017

COMPOSITION OF CSR COMMITTEE (CONT’D) A private company with two directors on Board should constitute its CSR Committee with only two directors; The CSR Committee shall institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company. 16-04-2017

BOARD AND THE COMMITTEE Role of the Board Form a CSR Committee Approve the CSR Policy Ensure Implementation of CSR activities Ensure 2% spend Disclose reasons for not spending CSR Committee Three or more directors with at least one independent Formulate and recommend a CSR policy to the board Recommend activities and the amount of expenditure to be incurred Monitor the CSR policy 16-04-2017

CSR PROJECT/PROGRAMME Baseline survey Duration of the Project Amount allocated to the Project Amount allocated to the Project in current FY Start Date / End Date Monitoring and Documentation Objective Evaluation 16-04-2017

CSR PROJECT: IMPLEMENTATION Directly by the company Own NGO Other NGOs (Three years) 16-04-2017

SCHEDULE VII – CSR THEMATIC AREAS 1. Eradication of extreme hunger and poverty, sanitation, Health 2. Promotion of education, special education and vocational training 3. Gender Equality-Women empowerment + senior citizens 4. Protection of National Heritage, art and culture 5. Benefit of armed force veterans, war widows 6. Ensuring environmental sustainability, ecological balance, wildlife conservation 7. Technology incubators within academic institutions 8. Rural sports, Paralympic and Olympic sports, 9. PM relief funds, Disaster relief work etc. 10. Rural Development projects 16-04-2017

RULES EFFCETIVE FROM 1st APRIL’2014 Provisions apply to every Indian company including its holding company or subsidiary company; Surplus arising out of the CSR Projects or programs or activities shall not form part of the business profit of a company; CSR projects or programs or activities undertaken in India only shall amount to CSR Expenditure. RULES EFFCETIVE FROM 1st APRIL’2014 16-04-2017

PROVISIONS for FOREIGN COMPANIES Section 135 applies to foreign companies having their branches or project offices in India; Net profit of such companies shall be determined as per the profit and loss account prepared under section 381(1)(a) read with section 198 of the Companies Act, 2013; CSR Committees of such companies shall comprise of at least two persons of which one shall be as specified under clause (d) of sub- section (1) of section 380 of the Act and another person to be nominated by the foreign company. 16-04-2017

CSR POLICY The policy shall include a list of CSR projects or programs which a company plans to undertake falling within the purview of the Schedule VII of the Act, specifying modalities of execution of such projects or programs and implementation schedules for the same; It will also elaborate the Monitoring process for such projects or programs. 16-04-2017

CSR EXPENDITURE CSR expenditure shall include all expenditure including contribution to corpuses of trusts/societies/section 8 companies which are created exclusively for undertaking CSR activities or for purposes directly relatable to a subject covered in Schedule VII; A company cannot make any contribution to any political party or political purpose. 16-04-2017

CSR EXPENDITURE Activities undertaken in pursuance of the normal course of business of the company will not count as CSR; CSR Projects or programs or activities that benefit only the employees of the company and their families shall not be considered as CSR activities. 16-04-2017

CSR EXPENDITURE ON CAPACITY BUILDING For building CSR capacities of their own personnel as well as of those of their implementing agencies, companies may incur expenditure up to 5 per cent of their CSR budgets; Must be done through institutions with established track records of at least 3 years. 16-04-2017

COLLABORATION AMONG COMPANIES FOR IMPLEMENTING CSR A company may also collaborate with other companies for undertaking projects or programs or CSR activities; Provided CSR Committees of respective companies are in a position to report separately on such projects or programs in accordance with these rules. 16-04-2017

THE SECTION 135: IMPLEMENTATION PROCESS Developing a CSR Strategy Operationalizing the institutional mechanism – team identification & capacity building Identifying the Implementing Agencies (conducting due diligence, if required) Project Development – Detailed Project Report (DPR) Clear identification of CSR Budget Finalizing agreement with the implementing agency Documentation, Monitoring (at Board and Sub-board level) Project Implementation Project impact assessment Preparation of reporting format and placement in public domain 1 3 5 2 4 Project approval – insertion of the approved projects in the policy 6 7 Evaluation (Concurrent, Final & preferably Third Party) 8 9 10

Let us show that we do care and together make a difference!! THANK YOU 16-04-2017