On 1 May 2018, an innocuous office memorandum titled ‘Corporate Environment Responsibility – reg.’ was released by the Ministry of Environment, Forest and Climate Change (MoEF&CC). The memorandum contained guidelines on the amount of money that companies seeking environmental clearances (ECs) need to spend on corporate environment responsibility (CER). The money to be spent on CER is over and above what is required by companies to implement the environmental management plan. Companies seeking EC to expand the capacity of projects (brownfield projects), would be required to earmark 0.125% – 1% of the capital investment on CER. The slab for new projects (greenfield projects), is in the range of 0.25% – 2% of capital investment.
So, what is CER? According to the same office memorandum, CER is investment in areas where a project is located, on activities such as drinking-water supply, sanitation, health, education, skill development, roads, and electrification. Two questions arise out of this definition: First, what is the difference between CER and CSR (Corporate Social Responsibility)? Second, under which law is MoEF&CC mandating companies to invest in CER?
Section 135 of the Companies Act, 2013, mandates that every company with a net worth of Rs 500 crore, or more, turnover of Rs 1000 crore, or more, or net profit of Rs 5 crore, or more, during a financial year, shall constitute a CSR committee on its board. This committee shall ensure that the company spends at least 2% of its average net profits in the three immediately preceding financial years, on CSR during every financial year. Further, the company shall give preference, for CSR investments, to the areas around which it operates.
Schedule VII of the Companies Act, 2013, lists activities that may be included in CSR. The activities are eradication of hunger and poverty, education, health, vocational skills, environmental sustainability, and contribution to the relief, and other funds, setup by the central and state governments, are examples of such activities. From the aforementioned, it is clear that activities included in CER are similar to those in CSR. Hence, CER is nothing but a euphemism for CSR. The big question is: Can the MoEF&CC mandate CSR?
The MoEF&CC has issued the office memorandum on CER as part of the EC process. EC is granted by the MoEF&CC, and the State Environment Impact Assessment Authority (SEIAA), under the Environment Impact Assessment (EIA) notification of 2006. This notification details the process for granting EC. It includes the structure of the EIA report, process of appraisal, and the conditions and safeguards that a company has to implement, including what the environment management plan should be. Nowhere in this entire notification are the terms CER, CSR or social investments, mentioned.
Appendix V of the EIA notification specifically deals with the procedure for appraisal. The appraisal is carried out by the Expert Appraisal Committees (EACs), which largely comprise of ‘professionals and experts’. The appraisal procedure clearly states, ‘in case the project or activity is recommended for grant of EC, then the minutes shall clearly list out the specific environmental safeguards and conditions.’ Again, socio-economic safeguards and CSR are not mentioned as part of the appraisal; the focus is on environmental safeguards, and not CSR.
Furthermore, EIA Notification 2006 was issued under the sub-rule (3) of Rule 5 of the Environment (Protection) Rules, 1986. This rule gives powers to the central government to impose certain restrictions and prohibitions on the location of an industry, or the carrying out of processes and operations in an area, based on their potential environmental impacts. These rules, therefore, do not give power to the central government to mandate investments in CSR. So, there is no legal basis for the MoEF&CC to mandate investments in CSR as part of an EC.
The office memorandum of 1 May, however, justifies CER by stating that the CSR investments under the Companies Act only apply to profitable companies and hence, non-profitable companies and greenfield projects, applying for EC, escape investing in CSR. Further, it states that the EACs have been prescribing different formulations of the CER (read, applying CER in a haphazard fashion), and hence the streamlining of CER investments is required. Both these justifications are untenable.
First, greenfield projects have to carry out a social impact assessment, and rehabilitation and resettlement (R&R), under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013 (Land Acquisition Act, 2013). They, therefore, will invest in social and economic infrastructure covered under CER. Similarly, most of the companies investing in brownfield projects are likely to be profitable and hence will be covered under the CSR law. So, the idea that the MoEF&CC will account for companies that do not fall under CSR, or the Land Acquisition Act, is a fallacy. In fact, the MoEF&CC involvement in CSR will create duplication and confusion on the ground. Consider the example of a profitable company that is investing in a greenfield project. This company will invest in social and economic infrastructure as part of R&R. As it is profitable, it will also invest 2% of its profits as CSR. In addition, it will now have to invest 0.25% – 2% of its capital investment as CER. How will this company apportion and account for these overlapping investments? How will these be monitored and enforced? It is clear that the MoEF&CC has not paid any attention to these details.
Second, the argument that EACs are already prescribing CER, and hence CER needs to be streamlined, is akin to correcting a mistake with another mistake. As explained, EACs have no authority under the EIA notification to prescribe CSR. So, rather than streamlining this practice, the MoEF&CC should stop it. All in all, the involvement of the MoEF&CC in CSR is bad in law and bad in practice.
The fact is that the EC process in India is defunct. It involves a lot of paperwork with nothing to show on the ground. Most EIA reports, based on which an EC is granted, are not worth the paper they are written on. Almost every project is cleared by EACs. EACs—a parking lot for retired bureaucrats and scientists—on the other hand, are not accountable to anyone. On top of all this, there is hardly any post-clearance monitoring. Hence, non-compliance of the safeguards and conditions is rampant. In fact, the situation is so bad that the MoEF&CC has allowed post facto clearances for regularisation of EC violations. That is, projects are granted EC after they have already come up.
The primary goal of the EC process is to ensure that projects are located and constructed in such a manner that they have the least possible impact on the environment. Unfortunately, the MoEF&CC is failing miserably in meeting this goal. So, instead of meddling in CSR, it would be better if the MoEF&CC focuses on improving the EC process.