Ministry of Corporate affairs developing a reporting framework for CSR activity

MUMBAI: The ministry of corporate affairs is developing a reporting framework for corporate social responsibility (CSR), which could potentially be a game-changer for CSR in India, sources close to the development told ET.

The government is formulating guidelines to classify what activity can be qualified as CSR and what expenditure can be counted as CSR spend, even as companies prepare to comply with a new guideline that encourages them to spend 2% of their net profits on such causes.

The new Companies Bill, passed in the Lok Sabha in December, made it mandatory for firms to report on how much they spend on CSR every year. If companies spend less than 2% of their average net profit over the last three years, they are required to explain the reasons. India is the first nation in the world to frame such legislation.

If companies in the BSE 100 were to comply with this fully, their combined CSR spend could total up to about 5,800 crore.

The ministry is developing guidelines and reporting framework for companies to implement and report their CSR initiatives as per Clause 135 of the Companies Bill, 2012. The Indian Institute of Corporate Affairs is the nodal agency spearheading this effort along with the MCA. The final guidelines are expected to be announced after the Bill gets passed in the Rajya Sabha, according to sources. The government expects it to get passed in the second half of the Budget session.

These guidelines will include an extended Schedule-7 of the Companies Bill including more activities that qualify as CSR spends. Some of these activities in the pipeline include promotion of sports and games, promotion of art and culture, welfare measures for differently abled and adoption of villages, among others. The guidelines also include the types of organisations: trusts, societies, etc, that are eligible consumers of CSR capital, sources said.

Investment in startup incubation centers has already been certified as a valid CSR activity, as announced by FM P Chidambaram, during his budget speech this year. Email queries sent to the MCA and IICA did not to elicit response. Firms like NextGen, which help companies in sustainability, are working closely with the government in developing the enabling ecosystem for implementation of the CSR norms of the Companies Bill, 2012.