RBI Proposes Changes to India’s CSR Laws to Promote Corporate Action on Climate Change

The Reserve Bank of India (RBI) has released a paper outlining five strategies to promote corporate action on climate change through the use of Corporate Social Responsibility (CSR) funds. The report focuses on the decade-old CSR laws regulated by Section 135 of the Companies Act, 2013 and the potential to amend them to support the country’s green transition plans.

The RBI has recommended several changes to the current CSR laws, including diversifying the geographies, businesses, and timelines over which green projects are undertaken by companies. The paper highlights the need for more effective CSR interventions to align business strategies with pro-planet goals in response to the increasing demand from investors, shareholders, and other stakeholders for environmental sustainability.

The Current CSR Laws in India

The CSR laws in India are regulated by Section 135 of the Companies Act, 2013, and Schedule VII defines the activities that companies may include in their CSR policies. The law requires companies with a net worth of INR 500 crore or more, or a turnover of INR 1,000 crore or more, or a net profit of INR 5 crore or more to allocate 2% of their net profit to CSR activities. The laws have been amended several times, most recently in 2022.

Since the enactment of CSR provisions in April 2014, companies have spent nearly 1.27 trillion rupees or 1.27 lakh crore rupees in a span of seven years as per the data available on the National CSR Portal based on the disclosures made by companies. This money has been spent across 29 different sectors such as health, education, environment, welfare, development, and others While, the education and healthcare sectors have attracted a significant share of the CSR expenditure, environmental sustainability has increased but at a slower pace. The majority of the CSR expenditure is concentrated in a few states such as Maharashtra, Gujarat, Karnataka, and Tamil Nadu due to the geographical spread of industries in India and the requirements in the CSR laws.

Proposed Changes to the CSR Laws

The RBI paper proposes several changes to the CSR laws to incentivise and strengthen corporate India’s green-transition efforts. Firstly, the paper proposes making geographical diversification of CSR spending mandatory for companies with large CSR budgets. Secondly, companies should be allowed to pursue CSR activities in their business operation domains to utilise their natural expertise in conducting socially responsible business. Thirdly, the number of activities that are included under the CSR policies should be rationalised to a few broad areas, with an indicative list of activities that cover CSR. Fourthly, the duration of multi-year projects should be extended to incentivise companies to take up long-term projects, such as afforestation, that require extended periods of funding. Lastly, CSR funds should be used to adopt climate-friendly technologies and processes in companies that operate in hard-to-abate and polluting sectors.

Expert Opinions

Environmentalists and experts welcome the RBI’s push to embed environmental responsibility in CSR and bring climate change goals to the centre stage of discussions. Sudhir K Sinha, founder-director of Centre for Sustainability and Responsibility Inc, said while speaking to ET Prime that the philanthropic model of CSR under the act is inadequate and incompetent to address climate change issues. The RBI’s proposals will widen the scope of CSR and include critical elements of sustainable development, mainly global warming and climate change, among other environmental needs. However, companies need to go beyond philanthropic responses to CSR and be part of the global action to manage and curb climate risks.

The RBI’s proposals have also been welcomed by environmentalists and civil society organisations. They believe that the move will help in addressing the pressing issue of climate change and its impact on the economy and society. Activists argue that climate change is a global crisis and requires collective action and responsibility from all stakeholders, including governments, businesses, and citizens.

The RBI’s push to embed environmental responsibility in CSR and bring climate change goals to the centre stage of discussions is a welcome move. It highlights the urgency for climate action and emphasises the need for businesses to go beyond philanthropic responses to CSR and be part of the global action to manage and curb climate risks. However, it is important to note that achieving the goals of climate action requires a collective effort from all stakeholders, including governments, businesses, and citizens. The time for action is now, and we must act together to mitigate the risks posed by climate change and ensure a sustainable future for all.