LAW YOG

Corporate Social Responsibility in Human Rights Jurisprudence

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“The quality of corporate governance affects the cost for corporations to access capital for growth and the confidence with which those that provide capital – directly or indirectly – can participate and share in their value-creation on fair and equitable terms.”

Corporate Social Responsibility (CSR)

The concept of Corporate Social Responsibility (CSR) is generally understood to mean that corporations have a degree of responsibility not only for the economic consequences of their activities but also for the social and environmental implications. This is sometimes referred to as a ‘triple bottom line’ approach that considers the economic, social and environmental aspects of corporate activity.

Various terms are used to describe CSR initiatives, including ‘Corporate Responsibility,’ ‘Corporate Accountability’, ‘Corporate Citizenship’ and ‘Sustainability.’

The meaning and value of CSR may differ in various contexts, depending on local factors including culture, environmental conditions, and the legal framework. The term corporate social responsibility refers to corporate decision-making, management, practice, performance and reporting which is:

  • ethical;
  • sustainable; and
  • has regard to local, social, community and environmental interests as well as financial considerations.

Human rights and Corporate social responsibility

Human rights are relevant to the economic, social and environmental aspects of corporate activity. For example, labour rights requiring companies to pay fair wages affect the economic aspect. Human rights such as the right to non-discrimination are relevant to the social aspect. And the environmental aspects of corporate activity might affect a range of human rights, such as the right to clean drinking water.

So, while the primary responsibility for the enforcement of international human rights standards lies with national governments, there is a growing acceptance that corporations also have an important role to play. Corporations impact on human rights in significant ways. These impacts have increased over recent decades as the economic might and political influence of corporations has grown, and as corporations have become more involved in delivering services previously provided by governments.[1]

Corporations have come to recognize that part of being a good corporate citizen includes respecting the human rights of those who come into contact with the corporation in some way. This might be direct contact (for example, employees or customers), or indirect contact (for example, workers of suppliers, or people living in areas affected by a corporation’s activities).

Corporations are also responding to the fact that many consumers and investors expect corporations to act in a socially responsible manner. The extent to which a company implements a comprehensive CSR program can influence consumer and investor decisions.

CSR and Human Rights at the International level

Over the past decade, the international community has made significant advances in examining and clarifying the links between corporations and human rights. A wide variety of voluntary initiatives have been developed by individual companies, industry bodies, NGOs, inter-governmental bodies and multi-stakeholder groups. These initiatives include voluntary guidelines and codes of conduct, monitoring and reporting procedures, and socially responsible reporting indexes.

Under such initiatives, hundreds of corporations worldwide have publicly committed to uphold specific human rights standards. This illustrates the growing acceptance of the need for corporations to simultaneously protect the interests of their shareholders, employees, customers and the community in which they operate.

Some prominent examples of international standards and initiatives regarding corporations and human rights include:

The United Nations is further developing expertise on corporations and human rights. In 2005, the UN Secretary-General appointed Professor John Ruggie as his Special Representative on business and human rights. One of the Special Representative’s main tasks is to “identify and clarify standards of corporate responsibility and accountability for transnational corporations and other business enterprises with regard to human rights.”

CSR and Human rights at the National level

Respect for human rights as a part of its social philosophy has existed in the Indian ethos for a long time. It is important to note that since inception, the Indian Constitution incorporated most of the rights enumerated in the UDHR in two parts, the Fundamental Rights[2] and the Directive Principles of State Policy[3], that covered almost the entire field of UDHR[4]. This relates to the first pillar of Ruggie Framework i.e. the State Responsibility to ‘Protect’ against human rights abuses. These constitutional provisions have been in many instances applied horizontally against companies[5]. For example, in Vishakha v. State of Rajasthan[6], a case dealing with sexual harassment of working women, the Supreme Court extended the protection of Article 21 to non-state actors[7]

Irrespective of these human rights initiatives, there are issues in relation to businesses and human rights which is evident from the two key events – one is the disastrous Bhopal Gas Leak disaster of 1984 which clearly exposed the limitations of legal norms in holding the multinational company accountable for a number of human rights violations but also triggered the amendment of laws and evolution of new legal principles through the judiciary. The second event was the adoption of the New Economic Policy of 1990 which led to the environment of liberalization, privatization, and disinvestment giving companies an opportunity to exploit people and natural resources for economic gains.

CSR in Indian law

The Companies Act, 2013  has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR.

Applicability of CSR Provisions: 

On every Company including its holding or subsidiary having:

·         Net worth of Rs. 500 Crore or more, or

·         Turnover of Rs. 1000 crore or more, or

·         Net Profit of Rs. 5 crore or more

during the immediately preceding financial year

A foreign company having its branch office or project office in India, which fulfills the criteria specified above

However, if a company ceases to meet the above criteria for 3 consecutive financial years then it is not required to comply with CSR Provisions till such time it meets the  specified criteria.

CSR Committee: 

Every Company on which CSR is applicable is required to constitute a CSR Committee of the Board:

  • Consisting of 3 or more directors, out of which at least one director shall be an independent director. However, if a company is not required to appoint an independent director, then it shall have in 2 or more directors in the Committee.
  • Consisting of 2 directors in case of a private company having only two directors on its Board
  • Consisting of at least 2 persons in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company

Functions of CSR Committee:

The CSR Committee shall—

  • Formulate and recommend to the Board, a CSR Policy which shall indicate the activities to be undertaken by the Company
  • Recommend the amount of expenditure to be incurred on the activities referred to in clause (i)
  •  Monitor the CSR Policy of the company from time to time
  • Institute a transparent monitoring mechanism for implementation of the CSR projects or programs or activities undertaken by the company.

Responsibility of Board of Directors (Board of Directors):  

“The Board of Director of every company on which CSR is applicable shall:

  • after considering the recommendations made by the CSR Committee, approve the CSR Policy for the Company and disclose contents of such Policy in Board report.
  • ensure that the activities as are included in CSR Policy of the company are undertaken by the Company
  • shall disclose the composition of the CSR Committee in Board Report
  • ensure that the company spends, in every financial year, at least 2% of the average net profits of the company made during the 3 immediately preceding financial years, in pursuance of its CSR Policy. The CSR projects/programs/activities undertaken in India only shall amount to CSR Expenditure.[8]

Note: The Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities and shall specify the reasons for not spending whole of earmarked amount (if it fails to spend some) in Board Report.

Display of CSR Activities on its Website

The Board of Director shall disclose contents of CSR policy in its report and the same shall be displayed on the company’s website if any.

CSR Policy 

The CSR Policy of the company shall, inter-alia, include the following namely :-

  • A list of CSR projects or programs which a company plans to undertake specifying modalities of execution of such project or programs and implementation schedules for the same
  • The monitoring process of such projects or programs
  • A clause specifying that the surplus arising out of the CSR projects or programs or activities shall not form part of the business profit of the company.

CSR Activities 

  • The CSR activities shall be undertaken by the company, as per its CSR Policy, excluding activities undertaken in pursuance of its normal course of business.
  • The Board of Director may decide to undertake its CSR activities approved by the CSR Committee, through
  • ·a section 8 company or a registered trust or a registered society, established by the company, either singly or along with any other company, or
  • a section 8 company or a registered trust or a registered society, established by the Central Government or State Government or any entity established under an Act of Parliament or a State legislature
  • a section 8 company or a registered trust or a registered society, other than those specified in clauses (a) and (b) above, having an established track record of 3 years in undertaking similar programs or projects;
  • collaboration with other companies,

for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programs.

  • The CSR projects or programs or activities not to be considered as CSR Activities:
  • Expenses for the benefit of only the employees of the company and their families
  • Contribution of any amount directly or indirectly to any political party. 

Other Important Points: 

  • The balance sheet of a foreign company to be filed under section 381(1)(b)[9] shall contain an Annexure regarding a report on CSR.
  • The Board of Directors shall ensure that activities included by a company in its CSR Policy are related to the areas or subjects specified in Schedule VII (given below) of the Act.

Activities which may be included by companies in their Corporate Social Responsibility Policies relating to:

  • Eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set-up by the Central Government for the promotion of sanitation and making available safe drinking water.
  • Promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly and the differently-abled and livelihood enhancement projects.
  • Promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, daycare centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups.
  • Ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining the quality of soil, air and water including contribution to the Clean Ganga Fund set-up by the Central Government for rejuvenation of river Ganga.
  • Protection of national heritage, art and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional art and handicrafts;
  • Measures for the benefit of armed forces veterans, war widows and their dependents;
  • Training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports
  • Contribution to the Prime Minister’s national relief fund or any other fund set up by the central govt. for socio-economic development and relief and welfare of the scheduled caste, tribes, other backward classes, minorities and women;
  • Contributions or funds provided to technology incubators located within academic institutions which are approved by the central govt.
  • Rural development projects
  • Slum area development.”

Conclusion

The conclusion can be said by quoting the Prime Minister’s Message[10] emphasize on the important relationship between business and society in the following terms

“The philosophy of giving back to the society has been an integral part of the culture, which has also been imbibed in traditional Indian businesses since time immemorial. In order to integrate this into the core business philosophy, the Government has obligated companies to take 3 responsibility for society by incorporating it as part of the fiduciary duties of a director. The National Guidelines on Responsible Business Conduct, 2018 (NGRBC), which is an improvement over the existing National Voluntary Guidelines on Social, Environmental & Economic Responsibilities of Business, 2011 (NVGs), are a means of nudging businesses to contribute towards wider development goals while seeking to maximize their profits. The NGRBC is dovetailed with the United Nations Guiding Principles on Business & Human Rights (UNGPs). The NGRBC intends to not just make companies more responsible and accountable but also to create a whole ecosystem to ‘Protect’, ‘Respect’ & ‘Remedy’ as envisaged in the UNGPs.

Businesses constitute powerful forces capable of generating economic growth, reducing poverty, and increasing demand for the rule of law, thereby contributing to the realization of a broad spectrum of human rights[11]. The concept of state and individual responsibility for human rights abuses are now being supplemented with a new paradigm of company in which respect for minimum international human rights standards has become an issue inextricably linked to the process of building a responsible company. Increasingly a number of companies are linking human rights to their CSR strategy upstream as a basis for CSR screening (policy), and downstream as a resource for CSR measurements and evaluation (practice)[12].

References

  1. Avatar Singh, Company Law, EBC University Press, (2017)
  2. J. P. Sharma, Corporate Social Responsibility- concept and cases, Excel Books Pvt. Ltd., 2nd edition, (2019)
  3.  The institute of company secretaries of India, Company Law-I, ICSI (2019)
  4. C.V.Baxi, Corporate Social Responsibility- concept and cases, Excel Books, (2005)
  5. Sumati Reddy, Corporate Social Responsibility -concept and cases, vol. 1, ICFAI University, 2012
  6. A. Ramaiya : Guide to the Companies Act; Lexis Nexis, Butterworths Wadhwa, Nagpur, 2013
  7. A.K. Majumdar, Dr. G.K. Kapoor, Sanjay Dhamija : Company Law and Practice; Taxmann, 2019
  8. D.K. Jain : Company Law Ready Reckoner; Bharat Law House Pvt. Ltd., 2019
  9. R. Suryanarayanan : Company Law Ready Reckoner; Commercial Law Publishers, Delhi, 2016
  10. L.C.B. Gower : Principles of Modern Company Law; Stevens & Sons Ltd., London, 1970
  11. Taxmann‟s : Circulars & Clarifications on Company Law; Taxmann, New Delhi, 2019
  12. Singh, Vijay Kumar, Corporate Social Responsibility in India: A Human Rights Perspective (July 4, 2013). 5 Madras Law Journal, Vol. 276, Part I, pp. 5 (2013).
  13. Singla Ankita, Corporate Social Responsibility in India (2019)

Endnotes

[1]Singh, Vijay Kumar, Corporate Social Responsibility in India: A Human Rights Perspective (July 4, 2013). 5 Madras Law Journal, Vol. 276, Part I, pp. 5 (2013).

[2] The first set of rights are enunciated in Articles 2 to 21 of the Declaration and incorporated under the Fundamental Rights – Articles 12 to 35 of the Constitution. These include the Right to Equality, Right to Freedom, Right Against Exploitation, Right to Freedom of Religion, Cultural & Educational Rights, Saving of Certain Laws and Right to Constitutional Remedies.

[3] The second set of rights enunciated in Articles 22 to 28 of the Declaration is incorporated under Directive Principles of State Policy – Article 36 to 51 of the Constitution. These include ‘right to social security, right to work, to free choice of employment, to just and favourable conditions of work and protection against unemployment, right to equal pay for equal work, right to existence worthy of human dignity, right to rest and leisure, right to freely participate in the cultural life of the community, right to free & compulsory education, promotion of welfare of people, equal justice & free legal aid and the principles of policy to be followed by the State.’

[4] India took active part in drafting of the UDHR. The Indian delegation to the UN made important contributions in drafting of the Declaration, especially highlighting the need for reflecting gender equality. India is a signatory to the six core human rights covenants, and also the two Optional Protocols to the Convention of the Rights of the Child.

[5] Access to Justice: Human Rights Abuses Involving Corporations, A Project of the International Commission of Jurists (2011), available at < http://www.icj.org/dwn/database/AccesstoJustice-IndiaElecDist-July2011.pdf>

[6] AIR (1997) SC 3011; also see Apparel Export Promotion Council v. Chopra, AIR (1999) SC 625

[7] Courts have interpreted “other authorities” expansively, so that any state “agency or instrumentality” will fall within its ambit. However, despite this significant broadening of the concept of ‘other authorities’ in Ajay Hasia AIR (1981) SC 487, it is arguable that the test might not afford adequate protection of fundamental rights against private companies given the current climate of liberalization and free market economy in India. See

[8] The Company shall give preference to the local area and areas around it where it operates, for spending the amount earmarked for CSR activities and shall specify the reasons for not spending whole of earmarked amount (if it fails to spend some) in Board Report.

[9] of the Companies Act,2013

[10] In the National Guidelines on Responsible Business Conduct 2018

[11] The UN “Protect, Respect and Remedy” Framework for Business and Human Rights, A/HRC/8/5 7 April 2008

[12] For example, Hitachi has a specific human rights mention in Hitachi Group Codes of Conduct in 2010, available at http://www.hitachi.com/csr/society/respect/index.html

Deepanshi Trivedi<br>Student, Symbiosis Law School, NOIDA<br><br>Deepanshi is Human rights and Corporate Law Enthusiast. She  is an avid reader and Researcher. She doesn't likes sitting idle and keeps herself updated with the latest happenings around the World. For any Clarifications, feedback, and suggestion, you can  her at <a href="mailto:deepanshitrivedi@gmail.com" class="ek-link">deepanshitrivedi@gmail.com</a>  <br>
Deepanshi Trivedi
Student, Symbiosis Law School, NOIDA

Deepanshi is Human rights and Corporate Law Enthusiast. She is an avid reader and Researcher. She doesn’t likes sitting idle and keeps herself updated with the latest happenings around the World. For any Clarifications, feedback, and suggestion, you can her at deepanshitrivedi@gmail.com

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