New CSR rules shift the focus to “Impact”

Effective January 22nd, 2021, new rules have come in via amendment to existing CSR rules under Companies Act 2013.  

The rules have come after the government decriminalised the provisions related to CSR spending and exempted companies with under Rs 50 lakh annual obligation from setting up dedicated committees.

The idea is to provide greater transparency and flexibility to the corporate sector by allowing it to spend on projects that  run for several years apart from permitting setting off excess expenses over three years.

CSR funds can only be routed via not-for-profit companies registered under section 8 of the Companies Act, or public trusts or societies registered under the Income Tax Act  or entities set up by the government or Parliament.

To boost transparency, agencies implementing CSR projects for companies need to register with the ministry’s MCA  21 portal and the system will automatically generate a unique CSR registration number. To bring in more clarity and focus the new rules have highlighted “what does not constitute CSR” like contribution of any amount directly or indirectly to any political party under section 182 of the Act; activities benefitting employees of the company as defined in clause (k) of section 2 of the Code on Wages, 2019 (29 of 2019);activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services.

In addition to the Board of the company to ensure implementation of the CSR projects, the rules have also allocated responsibility to the CFO of the company. It states that  “The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect.”

And most notably, the new rules have made it mandatory for the impact assessment reports to be placed before the Board and annexed to the annual report on CSR.A company may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR. A company may also collaborate with other companies for undertaking projects or programmes or CSR.

SLSV Summary: By bringing in additional compliances, suggesting involvement of international experts and collaboration, Indian government hopes that the CSR law acquires more depth and will guide companies to engage in long term impactful projects. Deter non-compliance by tracking projects better and check false claims that are often made by companies.

Article Credit: Team SLSV