India’s new CSR law is a game-changer

India, the world’s largest democracy, is a land of many contradictions. Perhaps, the biggest one is that although over the years it has become a powerful economy and a prominent Asian power, it still houses a fairly large number of people living in poverty. The fact that it is the first country in the world to legally mandate Corporate Social Responsibility (CSR) is perhaps isn’t surprising. CSR’s core ideology is that “companies should take responsibility for their impact on society”.

The practice of CSR is not entirely new to Indian Companies. Ever since their establishment, companies like the Tata Group, the Aditya Birla Group, and the Indian Oil Corporation have been active in doing their part to serve the community. However, with the passage of the new CSR law under the Companies Act 2013, a wider range of companies have been called to action to address India’s development agenda. Over 3,000 companies are now estimated to fall under the purview of this law.

The Act, which came into effect on April 1 2014, requires companies – private limited or public limited – which either have (a) a net worth of Rs. 500 crore or (b) a turnover of Rs 1,000 crore or (c) net profit of Rs. 5 crore, to spend at least 2% of its average net profit for the immediately preceding three financial years on corporate social responsibility activities.

All companies included within the ambit of the figures mentioned above are required to constitute a Corporate Social Responsibility Committee of the Board that would comprise three or more directors, of which at least one director shall be an independent director. Another point that the Act stresses on is that preference should be given to local areas and communities that the corporate functions in.

Additionally, the act also delineates the activities that the companies should fund. Some of the activities that can be undertaken by a company include:

  • eradicating extreme hunger and poverty,
  • promotion of education,
  • promoting gender equality and empowering women,
  • reducing child mortality and improving maternal health,
  • combating human immunodeficiency virus, acquired, immune deficiency syndrome, malaria and other diseases,
  • ensuring environmental sustainability,
  • employment enhancing vocational skills,
  • social business projects,
  • contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for socio-economic development and relief and
  • funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women and such other matters as may be prescribed.

With the passage of the Act, spending in the CSR sector is forecast to increase significantly year-on-year. The law also states that it is now important for companies to ensure that this increased spending achieves results on the ground through regular impact measurement. Contributing to this culture of accountable spending, there are supporting monitoring and reporting parameters that corporates are now required to adhere to. The law additionally emphasises the importance of NGOs and ‘implementing agencies’ in facilitating this corporate spending.

India is home to around 3.3 million registered NGOs with several others classified as trusts, societies etc. Choosing the right NGO partner from such a large pool is a herculean task. This is where the likes of http://www.ngoimpact.com come in. The website allows companies to curate a tailored list of NGOs that meets its funding criteria and corporate objective. It not only helps corporates make the right choices regarding their CSR partners but also provides much needed visibility to NGOs located in remote locations that have generated positive results but may have been overlooked in terms of funding. Moreover, the technology platform it offers is a simple but unique solution to bridge the gap between companies and NGOs. It allows corporates to monitor their partners through real time data whilst giving NGOs the ability to easily collect their field data, digitally, thereby addressing some key pain points.

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