Key takeaways:
- Understand CSR requirements under the Companies Act, 2013, especially Section 135.
- Learn practical aspects of CSR reporting, including the 2% expenditure rule.
- Grasp the essentials of sustainability reporting with the Global Reporting Initiative (GRI) framework, supported by a real-world company example.
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Over the past decade, the accounting profession has witnessed a paradigm shift. No longer, success is measured solely by shareholder returns. Today, the legitimate interests of employees, communities, and even future generations must be recognized in the corporate ledger. Have you wondered why companies issue glossy sustainability reports or why the law now mandates spending on social causes? The answer lies in CSR and sustainability reporting.
Corporate Social Responsibility under Companies Act, 2013
a. CSR Provisions: Section 135
Section 135 of the Companies Act, 2013, introduced a legal framework for CSR in India. According to this section, every company meeting one or more of these criteria in the preceding financial year must comply:
- Net worth of ₹500 crore or more, or
- Turnover of ₹1,000 crore or more, or
- Net profit of ₹5 crore or more.
Such companies must:
- Constitute a CSR Committee of the Board.
- Formulate and recommend a CSR Policy.
- Recommend the amount of expenditure to be incurred.
- Monitor the implementation of CSR projects.
b. Reporting Requirements: Expenditure & the 2% Rule
Section 135 mandates that qualifying companies spend at least 2% of their average net profits (calculated over the preceding three years) on CSR activities specified in Schedule VII. The key reporting requirements are:
- Disclose the composition of the CSR Committee in the Board’s Report.
- Detail the CSR policy and its implementation.
- State the reasons for not spending the prescribed amount, if applicable.
- Provide a breakdown of CSR projects, funds allocated, and outcomes achieved.
| Criteria | Requirement |
|---|---|
| Net Worth | ₹500 crore or more |
| Turnover | ₹1,000 crore or more |
| Net Profit | ₹5 crore or more |
| CSR Spending | 2% of average net profits (last 3 years) |
Failure to spend or explain unspent amounts attracts penalties for the company and every defaulting officer. CSR is, therefore, both a statutory obligation and a matter of public accountability.
Global Reporting Initiative (GRI) and Sustainability Reporting
a. GRI Framework
The Global Reporting Initiative (GRI) provides an internationally recognized framework for sustainability reporting. Unlike traditional financial statements, GRI-based reports cover:
- Environmental impact (e.g., emissions, resource use)
- Social performance (e.g., labor practices, community impact)
- Governance (e.g., corporate ethics, transparency)
GRI Standards help organizations disclose both qualitative and quantitative information, enabling stakeholders to assess a company’s broader impacts. Companies adopting these standards typically structure reports under categories such as:
- Economic (GRI 200 series)
- Environmental (GRI 300 series)
- Social (GRI 400 series)
The GRI framework integrates with other global initiatives (like the UN Sustainable Development Goals) to provide a holistic view of sustainability. For exam purposes, focus on understanding the main categories and the purpose of GRI in promoting transparency and comparability among organizations worldwide.
CSR & Sustainability
a. Example: Tata Group CSR Report Snippet
Tata Group, one of India’s most respected conglomerates, provides a clear example of CSR reporting. In a recent Tata Steel Annual Report, the company disclosed:
"During the year, the Company spent ₹329 crores on CSR activities, focusing on education, health, and rural development. The CSR Committee monitored the implementation and ensured alignment with the approved CSR Policy."
The report further specified the projects undertaken, funds allocated, and measurable outcomes. Such disclosures not only meet regulatory requirements but also build trust with stakeholders.