While large and small companies across the globe have been addressing issues of corporate responsbility and sustainability for many years now, India has became the first country to pass a law that requires large companies to spend a percentage of their profits on corporate sustainability initiatives. The law, which updates India’s Companies Act of 1956, applies to those companies with profits of over ~$80 million over the last 3 years and is intended to ensure equitable, sustainable growth in India. The law allows some flexibility in determining which corporate responsibility efforts may satisfy the requirements. Included among the nine “pillars” or categories outlined in the law are “ensuring environmental sustainabilty,” “eradicating extreme hung[e]r and poverty,” and ”promoting gender equality and empowering women.” Companies must be audited each year and face penalties for non-compliance. On the diversity and corporate governance front, the law requires that independent board members constitute a third of the board and there must be at least one female board member. If companies shut down, the law requires that they pay employees two years of salary.
The law applies to foreign companies which are more than fifty percent owned “by one or more citizens of India or by one or more companies or bodies corporate incorporated in India, whether singly or in the aggregate.”