(The following post has been contributed by Satvik Varma)It has been reported in yesterday’s Economic Times that the Ministry of Corporate Affairs is perhaps doing away with the mandatory spend of 2% on Corporate Social Responsibility (“CSR”). While details of any such changes are not available on the Ministry’s website, based on the news report, it is most likely that the Companies Bill will now only contain a provision requiring corporations to disclose to their shareholders whether they have made a 2% contribution to CSR and, if not, their reasons for not making the said contribution. Thus, while the disclosure to corporate shareholders may be made mandatory, the actual implementation of the prescribed percentage will not.
I had written on the proposed mandatory 2% spend last week and the provision as it was previously drafted was more in the nature of a tax and took away from the whole concept of CSR. Based on what has been reported, it is extremely unclear on what gets achieved by this change (rather than doing away with the whole provision) and what also remains to be seen is whether such a benign provision can help achieve the larger objective of getting corporates to accept their responsibility to society, their stakeholders and the environment in which they operate. Such provisions only make their compliance a check-the-box obligation and can in fact deter from the larger and more desirable social objectives. If nothing else, the Ministry should look into making public the list of corporate defaulters so that the customers and other stakeholders are aware of such non-compliance and can at least impose moral pressure on corporations to comply with their CSR obligations, both which are prescribed by law and those which corporations should themselves be fulfilling.
- Satvik Varma