Charity begins at home: Is legally mandated CSR the way to go?

The amendments made to the Companies (Corporate Social Responsibility) Rules, 2014 and Section 135 of the Companies Act, 2013 on January 22, 2021, introduced new provisions. The Government of India’s decision to revise Corporate Social Responsibility (CSR) rules means that COVID-19 related activities will now be counted as part of organizations’ CSR.

While it was a welcome move given the country’s dire situation amid the current COVID wave, the original amendment to CSR rule in 2014 has been a hotbed of controversies. Prior to the amendment, CSR was a voluntary aspect for companies. However, they had to disclose the exact spending on CSR activities to the shareholders.

The amendment of 2014 made CSR mandatory for all companies – firms worth Rs 5 billion or more, or having an annual turnover of Rs 10 billion or more or with a net profit of Rs 50 million and above, will have to spend 2 percent of their average three years’ net worth on CSR. This has understandably caused some dissent amongst the ranks who are of the opinion that it is court-mandated philanthropy.

A vocal proponent of this train of thought is IT czar and philanthropist, Azim Premji. The Wipro founder-chairman shared his thoughts on the development in corporate CSR rules. He said that companies should not be legally mandated to undertake CSR activities. “I do not think we should have a legal mandate for companies to do CSR. Philanthropy or charity or contribution to society must come from within, and it cannot be mandated from outside. But that’s my personal view,” he stated.

Differentiating between individual philanthropy and a company’s CSR efforts is another important point. However, with individuals being increasingly associated with a brand or an organization, the lines between personal philanthropy and company CSR activities are increasingly becoming blurred.

On one hand, the amendment ensures that companies are held responsible for their activities and they are giving back to the communities. On the other, enforcing a mandatory rule for CSR is not the best option either. It would result in CSR initiatives being launched just for the sake of meeting obligations. India needs to quickly revise its CSR rules and come up with a holistic solution before things take a turn for the worse.