Practical Steps for Ensuring CSR Compliance

 

Practical Steps for Ensuring CSR Compliance

Here’s a practical breakdown of how to ensure CSR compliance for your company under the Companies Act, 2013:

Step 1: Identify CSR Applicability

• Review the company’s financials to determine if it meets the criteria (net worth of ₹500 crore, turnover of ₹1,000 crore, or net profit of ₹5 crore) for CSR compliance.

  • If your company meets any one of these conditions in the last financial year, then CSR is mandatory.

Step 2: Form a CSR Committee

• Ensure the formation of a CSR Committee, consisting of at least 3 directors, with one independent director on the board.

• The committee should be responsible for:

  • Formulating CSR Policy.

  • Recommending CSR projects and their execution.

  • Monitoring CSR spending.

Step 3: Develop a CSR Policy

• Draft a CSR policy aligned with the activities listed under Schedule VII of the Companies Act, 2013.

  • Include the focus areas (education, healthcare, environment, etc.) and the implementation strategy for the CSR projects.

  • Ensure board approval of the CSR policy and ensure it is available publicly.

Step 4: Allocate the CSR Budget

• Ensure that the budget for CSR is at least 2% of the average net profit for the last three years. The spending must comply with the focus areas mentioned in Schedule VII.

• Track expenditures carefully to ensure full utilization of CSR funds.

Step 5: Implement CSR Activities

• If your company is executing CSR projects directly (e.g., through employee-led initiatives), ensure clear planning and monitoring mechanisms are in place.

• Alternatively, if CSR activities are outsourced to third-party organizations (NGOs, Section 8 companies, etc.), ensure proper due diligence and regular monitoring of how funds are being utilized.

Step 6: Monitor and Report CSR Activities

• Prepare detailed reports for each CSR project, documenting the objectives, funding, implementation, and impact.

• Ensure that the CSR spending is aligned with the approved CSR policy.

• File the CSR form (CSR-2) with the Registrar of Companies (RoC) along with the annual financial report. The CSR activities should also be disclosed in the Board’s Report.

Step 7: Evaluate CSR Impact

• Evaluate the social impact of the CSR projects periodically and ensure that the funds are being used effectively.

• Use third-party audits or independent evaluations to assess the effectiveness of CSR initiatives.