Laws

The government of Canada has adopted a national position that expects Canadian corporations to practice behaviors parallel to CSR. In 2007, Prime Minister Harper was aware of Canada‘s abundant investment into the resource/mineral extractive sector and encouraged the Canadian mining companies to meet Canada‘s newly developed CSR standards and expectations. The method of developing and implementing CSR policies was achieved through government-company consultation and government stakeholder cooperation. The successful relationship between the CSR actors within Canada‘s government and country, may advocate that cooperation amongst constituencies is the most imperative element to CSR regulation.

The European Union has recently done extensive work to try and find the best form of regulation. Some critics argue that the creation of a CSR organization with a democratically appointed minister focused solely on monitoring and enforcing socially responsible behavior will be extremely effective.

In the 1800s, the government in the primary establishment of corporate legislation could take away a firm’s license if it acted socially irresponsible. This was due to corporations being viewed as “creatures of the state” under the law. However in 1819, The United States Supreme Court in the Dartmouth College vs. Woodward case established a corporation as a fictitious being. This new ruling not only allowed corporations to be protected under the Constitution but also limited states from enforcing restrictions on firms that did not act in the public good. The laws legally binding the corporation‘s behavior and activity are quite insignificant in relation to the global consequences. Only recently have countries included CSR policies in government agendas legislature. Common types of countries who have implemented legislation and CSR laws generally consist of socio-economic and politically sophisticated countries. The level of political stability and effectiveness is inextricably linked to a countries capacity to ensure national CSR policies.

The increasing ability and influence corporations have on the economic, political, and social dynamics of society correlate to the recent studies by the UN Commission on Human Rights. More research and international political instruments are being explored to protect and prevent corporations from violating human rights.

Denmark has a law on CSR. On 16 December 2008, the Danish parliament adopted a bill making it mandatory for the 1100 largest Danish companies, investors and state-owned companies to include information on corporate social responsibility (CSR) in their annual financial reports. The reporting requirements became effective on 1 January 2009. The required information includes:

• Information on the companies ‘policies for CSR or socially responsible investments (SRI)
• Information on how such policies are implemented in practice, and
• Information on what results have been obtained so far and management‘s expectations for the future with regard to CSR/SRI.

CSR/SRI is still voluntary in Denmark, but if a company has no policy on this it must state its positioning on CSR in their annual financial report. More on the Danish law can be found at CSRgov.dk

The UN guiding principles provide assistance to states and businesses to fulfill their existing obligations towards respecting and protecting human rights and fundamental freedoms and comply with the existing laws. These principles act as global standards for addressing the risk of human rights violation related to business activity. In circumstances when these laws are breached or the guidance is not adhered to, suitable remedies have also been recommended. The primary focus is on the protection of human rights by both, the state and the business enterprises, and the principles broadly outline the manner in which the framework can be implemented.

With regards to Indian context, India`s Companies Act 2013 introduced several new provisions in CSR policies which changed the face of Indian corporate business. Ministry of Corporate Affairs has section 135 of the Companies Act which provides the threshold limit for applicability of the CSR to a Company i.e. (a) net worth of the company to be Rs 500 crore or more; (b) turnover of the company to be Rs 1000 crore or more; (c) net profit of the company to be Rs 5 crore or more. Further as per the CSR Rules, the provisions of CSR are not only applicable to Indian companies, but also applicable to branch and project offices of a foreign company in India.

CSR Committee and Policy

Every qualifying company requires spending of at least 2% of its average net profit for the immediately preceding three financial years on CSR activities. Further, the qualifying company will be required to constitute a CSR Committee of the Board of Directors consisting of three or more directors. The CSR Committee shall formulate and recommend to the Board, a policy which shall indicate the activities to be undertaken and recommend the amount of expenditure to be incurred on the activities.

Definition of the term under CSR Rules

The term CSR has been defined under the CSR Rules includes but is not limited to:

• Projects or programs relating to activities specified in the Schedule or
• Projects or programs relating to activities undertaken by the Board in pursuance of recommendations of the CSR Committee as per the declared CSR policy subject to the condition that such policy covers subjects enumerated in the Schedule.

This definition of CSR assumes significance as it allows companies to engage in projects relating to activities enlisted under the Schedule. Flexibility is also permitted to the companies by allowing them to choose their preferred CSR engagements that are in conformity with the CSR policy.

Activities under CSR

The activities that can be done by the company to achieve its CSR obligations 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.

Local Area

Under the Companies Act, preference should be given to local areas and the areas where the company operates. Company may also choose to associate with 2 or more companies for fulfilling the CSR activities provided that they are able to report individually. The CSR Committee shall also prepare the CSR Policy in which it includes the projects and programmes which is to be undertaken, prepare a list of projects and programmes which a company plans to undertake during the implementation year and also focus on integrating business models with social and environmental priorities and process in order to create share value.

The company can also make the annual report of CSR activities in which they mention the average net profit for the 3 financial years and also prescribed CSR expenditure but if the company is unable to spend the minimum required expenditure the company has to give the reasons in the Board Report for noncompliance so that there are no penal provisions are attracted by it.