Skip to main content

India passes world's first corporate responsibility law

<p>The law requires large Indian firms to spend a portion of their profits on sustainability initiatives, such as solar panels.</p>

India is the first country to pass a corporate responsibility law requiring larger companies to spend 2 percent of each year's profit on those kinds of initiatives.

The law kicks in for companies with a profit of at least $80 million over the past three years.

It outlines nine "pillars" that can fulfill the requirement, one of which is "ensuring environmental sustainability," under which installing solar systems falls. This likely will incentivize more solar development because it's an area that provides businesses with a return in investment.

Demand for solar is light at the moment because the Ministry of New and Renewable Energy has delayed introducing subsidies for rooftop solar, reports CleanBiz Asia.

The concept beyond the legislation is to ensure equitable, sustainable growth in India. It updates the Companies Act of 1956, the country's version of corporate law.

Some elements are quite progressive, according to First Post Business:

Companies will be audited each year on these efforts and face penalties if they don't comply.

And it establishes rules for auditors: Companies must use a new auditor every five years and any given auditor can't serve more than two five-year terms; an auditor can't serve more than 20 companies; and auditors can be criminally liable if they knowingly or recklessly omit information in their reports.

As part of its rules on corporate governance, independent board members must constitute a third of the board and have term limits of five years. At least one board member must be female.

Corporations are required to disclose the difference in salaries between directors. And if companies shut down, they must pay employees two years of salary.

The law also gives more authority to the government's Serious Fraud Investigation Office, which investigates corporate fraud.

This article originally appeared at Sustainable Business News.

Lord Krishna image by Shyamalamuralinath via Shutterstock.

More on this topic

Tune in starting at 10:25am ET for keynotes and conversations on the latest in sustainable finance.