Companies may have to disclose more on CSR

In a bid to turn companies' management decisions more transparent, the corporate affairs ministry may mandate more disclosures in their annual financial statements and the reports of boards of directors.

The manner in which companies carried out their Corporate Social Responsibility (CSR) activities during the year will become part of the annual mandatory disclosure. The details of the policy adopted by the company, the way it was implemented and the result achieved will all be reflected in the report.

The proposals are expected to be part of the new Companies Bill, 2011. A debate is still on over whether CSR will be made mandatory in the Bill or not. Recently, Corporate Affairs Minister Veerappa Moily had said India Inc needed to develop a culture of voluntary CSR. "CSR cannot be considered only as a charity, it is more of a social business," he had said.

A proposal in the earlier Companies Bill, 2009 to make it mandatory had evoked a heated response from corporations. Companies may escape mandatory expenditure on CSR, but will not be able to escape disclosure. That may serve as an indirect inducement to them to go for CSR, officials said.

Similarly, companies may be asked to develop a risk-management policy reflecting its preparedness to face unforeseen business setbacks. It would list potential risks and possible solutions, an official said. In the case of public companies, the boards will be asked to explain the rationale behind conclusions made in their annual reports to shareholders.

According to a Delhi-based corporate lawyer, many such suggestions are not new to the corporate world. "There are several disclosure requirements mandated by market regulator Sebi for listed companies. By bringing some of these under the Companies Act, the ministry is trying to make the managements more responsible," he said.