TBL: Global picture
To promote firms' support of sustainable development, in 2001, France passed Article 116 of
its "Nouvelles Régulations Economiques" (NRE), becoming the first country to mandate
(contribution is non-mandatory) public "triple bottom line" (Financial, environmental and
social) reporting for public-traders.
In the United States, the BCorp movement has been part of a call for legislation change to
allow and encourage a focus on social and environmental impact.
In Western Australia, the triple bottom line was adopted as a part of the State Sustainability
Strategy and accepted by the Government of Western Australia which was later repealed.
UK, Canada, New Zealand, and Switzerland have issued directives for TBL.
CSR in India
On April 1, 2014, India became the first country to legally mandate corporate social responsibility.
The new rules in Companies Act,2013 make it mandatory for companies of a certain turnover and
profitability to spend two percent of their average net profit for the past three years on CSR. Some
see this as a clear underscoring of the triple bottom line approach by the Indian state, whereby
the business of business is no longer business only. It also details processes and formats for CSR
policy framing, monitoring, and reporting.
Entities Covered by the CSR Obligations
The Section 135 is applicable to companies which have an annual turnover of Rs.1,000 crore or more
or a net worth of Rs.500 crore or more or a net profit of Rs.5 crore or more
How law is implemented
1. Company covered in CSR is required to set up a CSR committee consisting of at least three
directors, one of whom is required to be an independent director. Private limited companies
have been permitted a lower requirement of just two directors (whether independent or
non-independent).
2. The CSR committee must formulate a CSR policy for the company, setting forth the activities
and the company’s proposed expenditure on them. It will keep meeting periodically to
monitor the CSR policy from time to time, subject to its approval by the board of directors.
3. Over the course of year company will spend 2% of its profit in local areas through registered
trust, registered society, or non-profit company for listed specific purposes:
poverty alleviation, nutrition, sanitation, empowerment of disadvantaged sections of the society,
preventive healthcare, education, gender equality, national heritage (including art and culture), war-
veteran welfare, sports, rural development, animal welfare and technology incubation.
The law strictly excludes expenditure incurred outside India, political contributions and expenditure
incurred for the exclusive benefit of company employees or their families from CSR activity list.
4 The board must disclose the composition of the CSR committee and the contents of the CSR
policy in its annual report. The contents of the CSR policy must also be published on the
company website and the statement of profit and loss must reflect CSR expenditure.
5 The new law strives to achieve a fine balance between state-motivated and voluntary CSR
spending by following a ‘comply-or-disclose’ model. Companies will be penalized not for
their lack of spending but for their failure to disclose their CSR spending, or to explain
publicly why they have not spent the required amount. Thus, the law relies predominantly
on the persuasive value of shareholder disapproval or public disdain to motivate companies
into undertaking CSR activities.
If two or more companies are collaborating on CSR activities, each company must fulfil its reporting
obligations individually.
Companies failing to comply with CSR invite hefty penalties of up to 2.5M and/or up to three years’
imprisonment for responsible directors.