Mandatory spending on corporate social responsibility (CSR) is one of the most significant provisions the Companies Bill, which has already been cleared by the Lok Sabha.

The Bill, which will be introduced in the Rajya Sabha during the budget session, states that any company with net worth or net profit of over Rs 500 crore or turnover of more than Rs 1,000 crore will have to make sure that it spends no less than 2 per cent of its average net profits generated in the past quarter towards CSR activities. If the company does not, then it will have to provide an explanation for that and will also have to reveal it in the annual accounts.

While the corporate sector has expressed concerns over the mandatory nature of the CSR provision, analysts say that consumers and investors are now more socially aware, and they prefer companies that have a good tract record on fulfilling their social responsibilities.

Commenting on the Bill, Kaushik Dutta, director of Thought Arbitrage Research Institute (TARI), says there is co-relation can be estimated between a company's valuation and the amount that it spends towards the society. Speking on the topic, Dutta added, "There are certain social funds which invest only in such companies which have ethical investments."

He further said that more awareness among people about their environment, surroundings and social values would make it a lot easier for the CSR concept to gain ground.

Analysts acknowledge that the concept of mandatory CSR spends may not work well in a short run, but they add that those companies that will adhere to the CSR norms will likely be preferred by investors, job seekers as well as advertisers in the long run.