Print

Corporate Social Responsibility Vs. Corporate Environment Responsibility: different but with same purpose?

Published: Mar 30, 2022

By Apeksha Bansal, Principal Associate, Lakshmikumaran & Sridharan, New Delhi 

Introduction:

The impact companies have on society increased in the past decades, requiring them to fulfil their "social" responsibility towards the public. To achieve this goal, companies often adopt the Corporate Social Responsibility (CSR) approach, which allows them to fulfil their responsibility towards people and the planet. It means they have to give priority to people (like employees, customers, local communities) and the planet (like reducing carbon emissions, protecting natural resources) while earning profits (increasing shareholder value) in the CSR approach.

It raises a question: if CSR covers the environmental responsibility of a company, then why do companies need to separately spend on Corporate Environment Responsibility (CER)?

This article discusses whether the amount spent on corporate environment responsibility ("CER") can be treated as an amount spent towards corporate social responsibility ("CSR")? Whether CER and CSR are different responsibilities required to be fulfilled under different laws or CER can be treated as a part of CSR by the companies to fulfil the responsibility?

What is CSR?

CSR is policies and practices undertaken by companies to invest in social and environmental causes to have a positive impact on the world.

Companies (CSR Policy) Rules, 2014 ("CSR Policy Rules") defines 'CSR' as activities undertaken by a company in pursuance of a statutory obligation laid down in Section 135 of the Companies Act, 2013 ('Companies Act") but does not include certain activities as mentioned therein.

One of the activities which is excluded from CSR is the activity carried out for the fulfilment of any other statutory obligations under any law in force in India. Meaning, if companies invest any money to fulfil their legal obligations (pursuant to any law in India), it is not considered as CSR activity.

For example, the expenses incurred by companies for fulfilment of any act or statute or regulations (such as labour laws, land acquisition Act, 2013, apprentice Act, 1961 etc.) will not qualify as CSR expenditure under the Companies Act. (Refer General Circular No. 01/2016 dated January 12, 2016, issued by Ministry of Corporate Affairs ) .

What is CER ?

Prior environmental clearance ("EC") from the Ministry of Environment and Forests ("MoEF") is required for undertaking new projects, expansion, modernization or any change in product-mix in an existing project, as per Environment Impact Assessment Notification dated September 14, 2006 ("EIA Notification") issued under Environment (Protection) Act, 1986 ("Environment Act").

MoEF imposes certain standards as well as specific conditions at the time of granting EC. One of the conditions is CER, based on the needs of the affected area around the proposed project. The activities which can be carried out under CER includes sanitation, health, education, roads and rainwater harvesting.

It is worthy to take note of the legal memorandum ("LM") issued by MoEF:

(a) LM dated August 11, 2014 ("LM 2014") :

"Section 135 of the Companies Act, 2013 deals with corporate social responsibility and Schedule-VII of the Act lists out the activities which may be included by companies in their CSR Policies. The activities relating to "ensuring environmental sustainability" are listed in this schedule.

The costs and the timelines for various activities as prepared by the project proponent may be looked into by the concerned Expert Appraisal Committee (EAC) for their reasonableness and appropriate recommendations in the matter reflected in the minutes of EAC meeting. In case these activities (or some of these activities) are proposed to be covered by the project proponent under CSR activities, the project proponent should commit providing for the same . In either case, the position regarding the agreed activities, their funding mechanism and the phasing should be clearly reflected in the EC letter."

(b) LM dated May 01, 2018 ("LM 2018") :

"The fund allocation for the CER shall be deliberated in the EAC or SEAC or DEAC, as the case may be, with a due diligence subject to maximum percentage as prescribed below for different cases.

The entire activities proposed under CER shall be treated as a project and shall be monitored. The monitoring report shall be submitted to the regional office as a part of half-yearly compliance report, and to District Collector. It should be posted on the website of the project proponent."

As per LM 2014, it appears that the activities performed by companies to fulfil CER conditions were considered as CSR activity, whereas, an opposing view was given in LM 2018 in which activities done under CER were considered as a separate project.

LM 2018 has dropped the commitment towards CER activity as CSR. Both the LM's have differently treated CER.

(c) LM dated September 30, 2020 ("LM 2020") :

"……the Expert Appraisal Committee or State Level Expert Appraisal Committee shall deliberate on the commitments made by the project proponent to address the concerns raised during the public consultation and prescribe specific condition(s) in physical terms while recommending the proposal, for grant of prior environment clearance instead of allocation of funds under Corporate Environment Responsibility."

It is worthwhile to note that unlike LM 2018, LM 2020 does not deal with the fund allocation for CER on the basis of specified percentage of investment for greenfield projects and brownfield projects.

CSR and CER are same or different?

The question arises that since the activity relating to "ensuring environmental sustainability" can be included in CSR ¹, whether the activities performed by companies under CER for the grant of EC can be considered as CSR activity.

The statutory provisions of CSR and CER do not deal with the issue as to whether fulfilment of CER obligation will be treated as the fulfilment of CSR obligation per se by the companies.

In such a case, one can argue that CER activities are undertaken according to EIA Notification issued under Environment Act whereas CSR is undertaken according to the Companies Act. Both of them are separate laws and the definition of CSR excludes any other activity that is conducted to fulfil statutory obligations under any law in force in India. Therefore, CER should not form part of CSR.

A counter-argument can be made that the number of activities included under CSR is wide enough. Accordingly, CER activity should be treated as fulfilled when CSR obligations are undertaken by the companies. The intention behind both CSR and CER is to return to the society and environment. The independent treatment of CER and CSR may create challenges for companies, both in terms of compliance as well as financial expenditure requirement.

Penal provisions

The non-compliance of conditions imposed by MoEF may lead to revocation or cancellation of EC.

Conclusion:

To summarize , it may be worthwhile for the companies to evolve a mechanism to fulfil their CER obligations while engaging in CSR activities, which will reduce financial expenditure and compliance requirements for them.

[The views expressed are strictly personal.]

¹ Schedule VII of Companies Act