Companies Act, an enabler of CSR in chemical industry?

The CSR provisions in the Companies Act have been introduced with the intent of making Indian companies play a larger and a more active and inclusive role for the benefit of various stakeholder communities. While this has now become a legal requirement, there have been corporates, who have been actively engaged in socially relevant activities as a way of giving back to society, even before the legislation came in. “When one looks at the whole spectrum, there are companies that are now initiating these activities to comply with the CSR requirements under Companies Act, whereas others have sought to do more than that, carrying out activities that are in the broader spirit of good corporate citizenship,” says Sai Venkateshwaran, Partner and Head of Accounting Advisory Services, KPMG in India.
 
From a Companies Act standpoint, the CSR requirements are based on a ‘comply or explain’ principle, and there are no plans to make this a mandatory requirement. However, the Ministry of Corporate Affairs (MCA) is looking to put in place a monitoring framework to oversee the implementation of the CSR provisions, and has recently constituted a High Level Committee to suggest measures for improved monitoring of the implementation of CSR activities by companies.
 
“These measures are expected to cover both self-monitoring mechanisms to be put in place by companies as well as those to be carried out by expert agencies to evaluate efficacy of the CSR spend and quality of compliance. Therefore by looking at the direction in which the MCA is moving, companies would be expected to have strong reasons for not carrying out appropriate CSR activities,” adds Venkateshwaran.
 
So will the new Companies Act compel the chemical companies to become responsible corporate citizen? “With the Companies Act being implemented, the development projects will certainly get fillip as companies focus board and leadership attention on this in addition to setting aside funds. Also, the companies would need to be absolutely transparent about the initiatives they are spending on under CSR. This would be highly beneficial as it would mean increased spending in sustainability, thereby providing far-reaching results. The Act will also motivate the companies to devise the best way to make their CSR spend count and impact all the stakeholders effectively,” answers R Mukundan, MD, Tata Chemicals Ltd.
 
In order to ensure that CSR activities get the right level of sponsorship within the organisation, the Companies Act mandates that a company set up a CSR committee of the Board of Directors, which is expected to set out, subject to approval by the Board, the vision for the CSR activities by formulating and recommending a CSR policy indicating the activities to be undertaken, the amount expected to be incurred and then monitor the same from time to time, and provide related disclosures in the Board’s report. “Therefore, there is a lot of onus being placed on the Board to ensure that the policy is implemented in the spirit of the legislation, and accordingly, the directors who are on the CSR committee should have the right composition and skills to oversee this activity,” opines Venkateshwaran.