CSR disclosure rules set to be tightened to increase accountability

The Ministry of Corporate Affairs will soon be changing the rules on the reporting of corporate social responsibility (CSR) activities by companies, a senior government official told Business Standard.

No longer, it appears, would it suffice companies to only state the amount spent on such projects. The government will demand details of the CSR activity and what was achieved, among other things, the official said.

However, the rules will be relaxed for companies with a smaller legal CSR obligation. “The new norms are on the anvil. We will trust your (company’s) disclosure. As of now, we are not getting the details of implementation,” the official added.

A committee was constituted last September to review these rules and the changes being considered are based on the panel's suggestions for effective monitoring and evaluation of CSR. “Companies have realised that CSR is not an act of benevolence but a legal obligation,” the senior official said. The ministry will set three different threshold limits for CSR spending. While there will be “minimum disclosure obligation for those at the bottom of the threshold, the degree of reporting would go up with the amount being spent by the company. “We will ask for some amount of detail above the minimum threshold but beyond that we may want a lot of detail.”

The idea is to also increase the accountability on company directors in this area. Section 166 of the Companies Act, 2013, provides for fiduciary duties such as the duty of such directors to act in good faith, in the best interest of the company, its employees, the shareholders, the community and for protection of the environment.

At least 33 companies or a third of those on the S&P BSE 100 list have fallen short of the required CSR spending.  The government has constituted a prosecution mechanism for companies that did not spend as much as they should have in 2015-16.

The obligation on CSR spending, above a specified threshold of company earnings, took effect from April 2014. The idea was to boost inclusive growth.