In an effort to plug the loopholes in social activities by corporates, accounting regulator Institute of Chartered Accountants of India (ICAI) has decided to come up a proper definition of corporate social responsibility (CSR). ICAI has set up a sub-committee to frame a clear definition of what would constitute as CSR. The recommendations of the panel will be forwarded to the corporate affairs ministry for approval.
If the ICAI recommendations are accepted by the government, companies will have to invest in specific social projects to meet the requirements under the Companies Act.
The need for defining CSR has been felt as corporate houses often invest in activities that may not be necessary at all, resulting in CSR losing its meaning and not giving the desired results. A proper definition will address the lacunae in the existing system.
The move comes barely a fortnight after corporate affairs minister Murli Deora’s statement that it must be mandatory for Indian companies to invest in philanthropic activities as a part of their overall social commitments. ?We are going to define clearly what constitutes as CSR which would meet the government’s criteria,? the newly appointed president of the institute G Ramaswamy told FE.
As per the proposal mooted by the Yashwant Sinha-led parliamentary standing committee on finance, companies that have a networth of Rs 500 crore or more or a turnover of Rs 1,000 crore or more must set aside 2% of their average net profits in the previous three financial years for investing in CSR initiatives.
Ramaswamy said since there was no acceptable definition on what constituted CSR, it could create unnecessary confusion. ?It is a part of our initiative to find an acceptable meaning on CSR. The recommendation compiled by the sub-committee would then be put forth to the government,? he said.
Industry had strongly opposed the move of the ministry to make the CSR provisions binding upon companies. In an interview with FE Sinha had backed the decision arguing that companies in India were working within a social milieu which could not be ignored by corporate houses.
?Every company must spend 2% of their profits on CSR. We are trying to employ social responsibility for the corporate sector. If voluntary action has not worked, then it has to become mandatory,? he had said.