Govt makes CSR spending mandatory for public sector companies

The Department of Public Enterprises has come out with the revised guidelines following the new Companies Act

Coming out with revised guidelines, the government has made it mandatory for all profit-making central public sector companies to spend money on CSR activities.

Besides, these enterprises cannot include money spent on sustainable development efforts under the Corporate Social Responsibility (CSR) ambit.

The Department of Public Enterprises (DPE) has come out with the revised guidelines following the new Companies Act making social welfare spending compulsory for certain class of profitable corporates mandatory.

In comparison with provisions under the Companies Act, 2013, the latest DPE norms are more strict since it would be applicable on all profit-making central public sector enterprises.

As per the companies law, certain class of entities are required to shell out at least two per cent of their three- year annual average net profit towards CSR activities. This would be applicable to companies having at least Rs 5 crore net profit, or Rs 1,000 crore turnover or Rs 500 crore net worth.

According to revised DPE guidelines, issued on October 21, "it is mandatory for all profit-making CPSEs to undertake CSR activities as per provisions of the Act and CSR rules".

These guidelines are effective from April 1.

CPSEs that do not meet the eligibility criteria under the Companies Act but have made profit in the preceding year are now required to spend "at least two per cent of the profit made in the preceding year on CSR activities".

Under the guidelines, prepared after consultations with the Corporate Affairs Ministry, sustainability efforts cannot be considered as CSR activities.

"Amount spent on sustainability initiatives in the pursuit of sustainable development while conducting normal business activities would not constitute a part of the CSR spend from two per cent of the profits as stipulated in the Act and the CSR Rules," DPE, the nodal agency for all public sector companies, has said.

Besides, the public sector entities are required to carry forward the unspent CSR funds to the next year.

"In case of CPSEs mere reporting and explaining the reasons for not spending this amount in a particular year would not suffice and the unspent CSR amount in a particular year would not lapse.

"It would instead be carried forward to the next year for utilisation for purpose for which it was allocated," it said.

Among others, DPE has said that public sector companies should look at collaborations in CSR activities for "greater social, economic and environmental impact" of such works.

CPSEs have to adopt a CSR and Sustainability Policy with approval from their respective boards.