According to Section 135 of the Companies Act, 2013 it is mandatory for every company to allocate 2% of its average profit towards the CSR (Corporate Social Responsibility) policy. It is for companies with a net worth of ₹ 500 crores, turnover of ₹1,000 crores, and net profit of ₹ 5 crores in a financial year. The funds can be used by the company directly or through NGOs, trusts, societies, etc. on behalf of the company. CSR in general deals with socio-economic aspects/activities. Some of the activities are promoting gender equality, education, eradicating poverty, environmental sustainability, vocational skills, reducing child mortality, etc.
CSR and COVID-19
In this global crisis, the corporate sector can be socially responsible and put in efforts to help the government. There is no doubt that companies have suffered huge losses. However, in this time of distress, it can be addressed by using CSR values. One of the main principles of CSR is giving financial and moral support to the ones in need. This is the time when it would be proved beneficial for everyone trying to cope with this pandemic situation.
Beginning with your own company
The good deed can start within their own company only. Firstly, they can provide employees with comfort, safety, and flexibility to do their work. It is important to provide flexibility to keep them mentally healthy, as mental health is equally important.
By contributing towards the COVID-19 causes they would enhance their reputation by getting employee and community goodwill. It has also given the companies an opportunity to improve their environmental, social, and governance (ESG) scores.
Efforts by the Government
With the outbreak of coronavirus many efforts are taken by the Central and the State Government to control the spread of the virus. Every measure like financial packages for the poor, medical facilities, etc taken by the government needs an appropriate amount of funds. Prime Minister Narendra Modi introduced PM CARES COVID Fund for getting the contribution of the public to respond to the pandemic.
With a stricter definition of CSR, the government has introduced draft rules for corporate social responsibility. It has put the onus on the companies for providing detailed reports of CSR activities.
PM CARES Fund
On 26th May, the Ministry of Corporate Affairs (MCA) notified that contribution from companies to the PM CARES Fund would be counted as Corporate Social Responsibility (CSR). It would be concerning the promotion of sanitation, healthcare, and disaster management that is mention under item (i) and (xii) of VII Schedule. It came into effect retrospectively from 28th March, the day when PM CARES Fund was announced by Prime Minister. However, companies making contributions to the Chief Minister’s Relief Fund or the State Fund for COVID-19 are not considered as CSR.
Section 467(1) of the Companies Act, 2013 has been amended for PM CARES Funds to receive funds as CSR from companies. In Schedule VII, the Prime Minister’s Citizens Assistance and Relief Emergency Situations Fund are added to item viii.
Moreover, this was done for the socio-economic development in the light of emergency due to the COVID-19 pandemic. Advocate Sanchitta Sridhar said that CSR fund going to PM CARES Fund is in contradiction to the high-level committees constituted by MCA. Also, it is a convenient tool to soften the outcome of inadequate fiscal preparedness.
Other Causes and NGOs Affected
This year the pandemic would exhaust the majority of the funds of the companies which is kept for CSR activities. According to CRISIL Foundation, India Inc. has spent over 80% of the annual CSR budget for COVID-19 related issues. The funds are allocated for distribution of food, PPE for health workers, masks, PM CARES Fund, other relief funds, etc. As a result, it would affect the spending on other causes covered under the ambit of CSR activities. For example, L&T donated Rs 150 crore to PM CARES Fund. Consequently, it results in setting aside Rs. 500 crore per month which was to support 160,000 contract workers. The main focus of the companies funding by CSR would be COVID-19 and traditional CSR activity could be reduced by 30-60%.
This is certainly a huge loss as there are many NGO’s and other institutions serving caused covered under CSR activities. Moreover, this is so because many of them are majorly dependent on CSR funds. About 35-40% that Gram Vikas spends on social projects comes from the companies as their Corporate Social Responsibility (CSR). Even if companies would want to support NGOs they could not as the fund is allocated to COVID-19 causes.
In an interview, CSR funders said that they would not be able to keep up the commitments nor they would fund new partners. Most importantly, it will adversely affect small NGOs. NGOs have also been helping to cope up with this pandemic throughout it. For instance, in the first week of lockdown NGOs provided meals to 3 million people. This is the time when NGOs needed the companies’ support the most, but instead it reduced.
However, people from the NGO sector and some oppositions are not satisfied with this decision of CSR money going to PM CARES Fund. The reasoning behind this is that NGOs who are doing public service, dependent on the corporate sector would lack funds.
In such a time of distress, it is important to save people dying from COVID-19. However, it is also important to save them for other causes. They can ask their NGOs partner the work for which they would require funds. Afterward, they can at least fund that causes to keep them afloat and also help that very cause. The NGOs can also set their target to align their work maximum with the COVID-19 context.
Moreover, the decision taken to consider a contribution towards PM CARES fund is an appropriate one. As everyone is dealing with pandemic it would have been difficult for the companies to contribute and at the same time boost its CSR activity. Due to the lockdown, many companies in the corporate sector are in losses. Efforts taken by companies would always be appreciable as they forgo their short-term gains for fulfilling social responsibility. They have certainly built up goodwill.
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