To speed up green transformation, the Reserve Bank of India (RBI) has proposed amending the decade-old corporate social responsibility laws regulated by Section 135 of the Companies Act, 2013. In keeping with the country’s green-transition ambitions, the central bank proposes a five-pronged CSR fund strategy to encourage business climate action in its annual Report on Currency and Finance.
The RBI thought paper calls CSR regulations “an important supplementary tool for achieving, inter alia, climate goals.” The CSR regulations “could be tweaked to widen the scope of geographies, businesses, and timelines over which green projects are adopted and undertaken by companies” to encourage corporate India’s green transition.
The RBI report suggests requiring large CSR spenders to diversify geographically.- The report suggests CSR legal amendments to address the unequal distribution of CSR spending. The law currently favors local CSR spend.
- Current CSR guidelines prohibit CSR in business activity. The RBI feels this prevents enterprises from exploiting their natural skills in socially responsible business. According to the proposal, firms should be allowed to engage in CSR.
- Another option is to limit CSR activity to a few broad categories. CSR actions may be indicative rather than prescriptive.
- Multi-year projects with extensive durations may impact climate action. CSR laws limit projects to three years. This could encourage firms to fund long-term projects like afforestation if it passes.
- CSR monies could be used to implement climate-friendly technologies and practices in polluting enterprises.