Corporate Environmental Responsibility and Disclosure

In one line

A company's environmental obligations now come from three directions at once: the environmental statutes, a spending duty under the Companies Act 2013, and a disclosure duty imposed by the securities regulator.

The three sources

One, the environmental statutes. Consents, authorisations, clearance conditions, the Form V statement under rule 14, the half-yearly compliance reports under paragraph 10, extended producer responsibility, and liability under rule 23 of the waste rules, at common law and before the National Green Tribunal. Everything in this book up to this point.

Two, a spending duty. Section 135 of the Companies Act 2013 and Schedule VII.

Three, a disclosure duty. Section 134(3) of the Companies Act, and the Business Responsibility and Sustainability Reporting requirement imposed by the Securities and Exchange Board of India on listed companies.

The three are of different kinds and that is the point of the chapter. The first regulates conduct. The second compels expenditure. The third compels an account. A regulator is behind the first, a company law behind the second, and an investor behind the third.

Section 135, the spending duty

Who is caught, sub-section (1). Every company having, during the immediately preceding financial year, a net worth of five hundred crore rupees or more, or a turnover of one thousand crore rupees or more, or a net profit of five crore rupees or more. Any one threshold is enough.

The committee. Such a company shall constitute a Corporate Social Responsibility Committee of the Board of three or more directors, of whom at least one shall be an independent director, with a proviso reducing it to two or more directors where the company need not appoint an independent director under section 149(4). And by sub-section (9), where the amount to be spent does not exceed fifty lakh rupees, no committee is required and the Board discharges its functions.

What the committee does, sub-section (3). Formulate and recommend a Corporate Social Responsibility Policy indicating the activities to be undertaken in areas or subjects specified in Schedule VII; recommend the expenditure; and monitor the policy.

The obligation, sub-section (5). The Board shall ensure that the company spends, in every financial year, at least two per cent of the average net profits made during the three immediately preceding financial years, in pursuance of its policy, with preference to the local area and areas around it where it operates. Net profit is calculated in accordance with section 198.

And the change that made it a duty rather than an explanation. If the company fails to spend, the Board must give reasons in its report under section 134(3)(o), and, unless the unspent amount relates to an ongoing project, transfer the unspent amount to a Fund specified in Schedule VII within six months of the end of the financial year. Where it does relate to an ongoing project, sub-section (6) requires transfer within thirty days to a special account called the Unspent Corporate Social Responsibility Account, to be spent within three financial years, failing which it goes to a Schedule VII Fund within thirty days of the end of the third year. Excess spending may be set off against future years as prescribed.