Introduction to CSR Policy
Corporate Social Responsibility (“CSR”) has become an integral part of the business landscape, reflecting a company's commitment to balancing economic growth with social and environmental stewardship. This article delves into the concept of CSR policy, its regulatory framework, permissible activities, and the governance structures that oversee its implementation.
CSR is defined as a proactive and balanced business approach that integrates economic, environmental, and social considerations. It emphasizes that a company's success is not solely measured by its profitability but also by its role as a responsible corporate citizen. Businesses utilize societal resources and are therefore expected to operate sustainably, contributing to the preservation and enrichment of those resources. The evolution of the global economy has led to increased scrutiny of corporate behavior, with governments worldwide implementing regulations to enhance accountability, disclosure, and transparency. This regulatory environment challenges the traditional view that a company's sole objective is to maximize shareholder wealth.
In India, the Companies Act, 2013, has formalized CSR, making it a statutory obligation for companies to undertake social, environmental, and economic responsibilities. This legislation mandates that companies report their CSR initiatives to stakeholders, positioning India as a leading nation in enforcing CSR through legal provisions. The key legal documents governing CSR in India are Section 135 of the Companies Act, 2013, and the Companies (Corporate Social Responsibility Policy) Rules, 2014 (“CSR Rules”).
The primary objective of CSR is to involve the corporate sector in nation-building activities by utilizing innovative thinking and management skills to complement social upliftment goals. This involvement aims to improve society and living conditions, providing support to those in need, while the government refrains from direct or indirect involvement in company-led CSR initiatives.

CSR and Permissible Activities
Rule 2(c) of CSR Rules read with Schedule VII of Companies Act define "Corporate Social Responsibility” as the activities undertaken by a company to fulfill its statutory obligations under Section 135 of the Companies Act, 2013. These rules specify what qualifies as CSR and, importantly, what does not. 

Activities Not Included in CSR
Activities undertaken in the normal course of business are generally excluded from CSR. However, activities related to research and development of new vaccines, drugs, and medical devices, particularly concerning COVID-19, are an exception under specific conditions for the financial years 2020-21, 2021-22, and 2022-23. These activities must be conducted in collaboration with specific institutions and disclosed in the annual CSR report.
CSR activities must be conducted within India, except for the training of Indian sports personnel at national or international levels. Contributions to political parties under Section 182 of the Companies Act, 2013, are not considered CSR. Activities that solely benefit the company's employees, as defined in the Code on Wages, 2019, are excluded. Sponsorship-based activities that provide marketing benefits are not CSR. Activities that fulfill other statutory obligations under Indian law are also excluded.

Permissible CSR Activities
Schedule VII of the Companies Act, 2013, outlines the activities that can be included in a company's CSR Policy. These activities aim to address various social and environmental issues:
  • Eradicating hunger, poverty, and malnutrition; promoting healthcare and sanitation; This includes medical and legal aid, treatment for accident victims, support for differently-abled individuals, trauma care, nutritional support, and improving public health systems.
  • Promoting education, including special education, vocational skills, and livelihood enhancement projects. Activities include driver training, road safety awareness, farmer capacity building, consumer protection, and support for educational institutions.
  • Promoting gender equality, empowering women, and setting up facilities for women, orphans, senior citizens, and backward groups. This includes women's empowerment training, infrastructure for senior citizens and women, and slum redevelopment.
  • Ensuring environmental sustainability, ecological balance, and protection of flora and fauna. This includes activities like environmental protection, conservation of resources, promoting renewable energy, and animal welfare.
  • Protecting national heritage, art, and culture. This includes restoration of historical sites, promoting traditional arts, and setting up public libraries.
  • Benefiting armed forces veterans, war widows, and their dependents.
  • Promoting rural and nationally recognized sports.
  • Contribution to the Prime Minister's National Relief Fund or the Prime Minister's Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women.
  • Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organization (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs).
  • Rural development projects
  • Slum area development.
  • Disaster management, including relief, rehabilitation, and reconstruction activities.

Applicability and Corporate Social Responsibility Committee
Section 135 of the Companies Act, 2013, mandates the constitution of a Corporate Social Responsibility Committee ("Committee") by the Board of Directors of every company that meets specific financial thresholds during the immediately preceding financial year. These thresholds are:
  • Net worth of INR 500 Crore or more.
  • Turnover of INR 1,000 Crore or more
  • Net profit of INR 5,00,00,000.- (Indian Rupees Five Crore Only) or more.
The term "or" between these criteria indicates that fulfilling any one criterion necessitates the constitution of a CSR Committee.

Composition of CSR Committee
The CSR Committee's composition varies depending on the company's status:
  • Listed companies must have at least three directors, with one being independent.
  • Unlisted companies with an independent director follow the same rule; those without one can have two or more directors.
  • Private and foreign companies must have at least two directors.
  • However, a CSR committee is not mandatory if the CSR spending is less than INR 50,00,000/- (Indian Rupees Fifty Lakh Only), in which case the Board of Directors can discharge the CSR functions.

Functions of the CSR Committee
The Committee is a crucial element in the governance and implementation of CSR activities within a company. The Companies Act, 2013, mandates the formation of a Committee for companies that meet specific financial thresholds. This requirement underscores the importance of having a dedicated body to oversee CSR initiatives. The Committee's existence ensures that CSR is not treated as a mere formality but is given due attention and resources. The Committee is entrusted with several key responsibilities:
  • Formulation of CSR Policy: The Committee is responsible for formulating and recommending the CSR policy to the Board of Directors. This policy outlines the framework for the company's CSR activities, ensuring alignment with the objectives of the Companies Act, 2013, and the overall vision of the company.
  • Preparation of Annual Action Plan: The Committee prepares an annual action plan, detailing the CSR projects or programs to be undertaken, the manner of execution, modalities of fund utilization, implementation schedules, and monitoring and reporting mechanisms

Disclaimer: The above article solely remits information and discusses relevant issues, it shall in no way be used for soliciting legal solutions. The information and/or observations contained in this article do not constitute legal advice and should not be acted upon in any specific situation without appropriate legal advice.