The ministry of corporate affairs has urged all companies to create a separate fund for their corporate social responsibility (CSR) activities in the interest of greater transparency.
The recommendation is part of a set of voluntary guidelines for companies, especially those listed on the stock markets, that the ministry issued at the end of February.
The ministry has suggested that a specific amount should be set aside in the annual corporate budget that is linked to profit after tax or any other suitable metric or expressed in terms of the cost of planned CSR activities.
This marks the first time the government has issued guidelines on CSR.
Ministry officials said they were considered necessary, first, because they clearly demonstrated a company’s CSR commitment and, second, allowed shareholders to compare programmes.
“Companies typically meet such expenses out of the profit after tax, so shareholders should know how the company proposes to invest and plan to spend this money. If the company concerned is budgeting for CSR, the shareholder should have some tangible guidelines with which to compare,” said an official close to development.
The guidelines have also laid down a fundamental principle that every business entity should formulate CSR policies in coordination with various levels within the company and the policy should be approved by its board.
As an overall approach, the guidelines say the policy should be governed by ethics, transparency and accountability and consider its impact on all stakeholders – shareholders, employees, customers, suppliers, project affected people and society at large.
Under CSR, the ministry has directed all companies to provide a safe, hygienic and humane workplace environment to all employees. The policy should respect human rights, environment and aim at social and inclusive development.
Apart from this, the guidelines outline the need for the company to provide an implementation strategy for the specific CSR project it proposes to fulfil at the beginning of the year.
This would include identifying the project, setting measurable physical targets with time-frames, an organisational mechanism and responsibilities, time schedules and monitoring.
The ministry has also recommended independent evaluation of selected projects and the dissemination of information on CSR activities to stakeholders and to public at large through websites, annual reports and other media.
