The Ministry of Corporate Affairs has issued a new circular on the CSR mandate in Clause 135 of the Companies Act 2013. There are some interesting clarifications around Schedule VII, the areas in which CSR monies can be spent. The key points to note are:
- It recommends that Schedule VII (the ten spending areas) are “interpreted liberally”, covering the broad essence of the area, instead of being taken literally or exhaustively.
- Spending should be on ongoing “projects/programmes” and not on one-off events (although obviously events can be part of an ongoing programme). For example, sponsoring a marathon would not count, but if it was part of a long-term preventative health campaign to get the nation exercising then it could be included potentially.
- Included in the reportable CSR spend are “Salaries paid by the companies to regular CSR staff as well as to volunteers of the companies”. That means any staff specifically engaged in managing CSR, plus a financial equivalent for any employee volunteering time for CSR activities, calculated against their company salary.
- Contribution to the corpus of a trust or society is also included, providing it gets spent on activity that fits within schedule VII. That means companies can give a cheque to charity for their ongoing work in a specific area, rather than having to establish specific CSR programmes from scratch.
This is broadly good news as it means companies have more freedom to implement projects that create shared value without be restricted by the wording of Schedule VII.
But the more "liberal" the interpretation is allowed to be, the more open it becomes to misuse - so let's see how this pans out by next April.