Not just how much, but companies will also have to disclose to their shareholders where they have spent the 2 per cent of net profit earmarked for corporate social responsibility (CSR) initiatives, once the Companies Bill 2009 is passed by Parliament.
"Although we do not plan to make implementation of the provisions mandatory, companies will have to mention in the footnote of their annual reports how much and where they have spent the money kept for CSR," a senior Corporate Affairs Ministry official told PTI.
He said that disclosure is necessary for shareholders to be able to discuss and raise questions on the initiatives taken up or announced by the companies.
"Transparency is important even for us (the Ministry) to keep a check that money is not routed somewhere else. It will also help in ensuring that companies do not take up just anything in the name of corporate social responsibility," the official said.
The suggestion for earmarking a part of a company's profit for CSR was floated by the Parliamentary Standing Committee on Finance, which scanned the Companies Bill 2009.
Subsequently, the MCA proposed that "every company having (net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more) or (a net profit of Rs 5 crore or more during a year) shall be required to formulate a CSR Policy ... as may be approved and specified by the company."
"In case any such company does not have adequate profits or is not in a position to spend prescribed amount on CSR activities, the directors would be required to give suitable disclosure/reasons in their report to the members," says the bill.
Industry has been of the view that they should be allowed to monitor implementation of CSR themselves without government intervention.
While industry body FICCI said, "If this reported stance is of the Ministry of Corporate Affairs, then we are in agreement with this stance." Another body, CII, said, "The law should not specify any amount to be spent on CSR activities. It should be left to the decision of the board."
While PSUs whose net profit is less than Rs 100 crore have to contribute 3-5 per cent of their bottomline for CSR, PSUs with profits between Rs 100-500 crore earmark 2-3 per cent.
In case of public sector companies earning a profit of Rs 500 crore and above, CSR spending should be between 0.5 to 2 per cent of the net profit.
