CSR IN INDIA: FROM STATUTORY DUTY TO STRATEGIC SUSTAINABILITY

Written by : Mallika Chadha , B.A. LL.B , Lovely Professional University

Corporate law

INTRODUCTION:

• Corporate Social Responsibility (CSR) in India represents a transformative fusion of legal obligation and sustainable business strategy. Anchored in Section 135 of the Companies Act, 2013, CSR has evolved from an optional philanthropic exercise to a mandatorycompliance requirement for qualifying companies. Thisregulatory mandate compels corporations to allocate atleast 2% of their average net profits toward socially beneficial initiatives outlined in Schedule VII—aninnovative legislative approach that positions India among the few nations with statutory CSR enforcement.

• More than a legal checkbox, CSR is a dynamic businessphilosophy aligned with global development agendas. As defined by the United Nations Industrial Development Organization (UNIDO), CSR is “a management conceptwhereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.” Indian corporations are increasingly embracing this ethos, leveraging frameworks like Porter and Kramer’s "Creating Shared Value" to align profit-making with progress. From rural education and healthcare access (SDG 3 & 4) to climate resilience (SDG 13), Indian CSR strategies reflect a paradigm shift—where People, Planet, and Profit coalesce into a sustainable corporate future.

DEFINITION AND SCOPE OF CSR:

• Corporate Social Responsibility (CSR) is officially defined by the United Nations Industrial Development Organization (UNIDO) as “a management concept whereby companies integrate social and environmentalconcerns in their business operations and interactions with their stakeholders. This concept embodies the Triple Bottom Line approach balancing economic performance with social welfare and environmental protection—to meet stakeholder expectations while pursuing profitability.

• Under Indian law, Rule 2(f) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 codifies CSR to include “projects or programmes relating to activities specified in Schedule VII of the Act, or projects or programmes undertaken by the Board on the recommendations of its CSR Committee”.

• Schedule VII enumerates eligible activities—such as poverty eradication, education promotion, gender equality, healthcare, environmental sustainability, and rural development—providing a clear legislative boundary for corporate engagement.

• CSR is closely related to but distinct from Environmental, Social, and Governance (ESG) criteria: while ESG provides measurable metrics for investors and rating agencies, CSR emphasizes holistic stakeholder engagement and ethical leadership to build public trust and corporate accountability.

• Corporations map CSR initiatives—like quality education (SDG 4), clean water (SDG 6), and climate action (SDG13)—to specific SDG targets, enabling standardized impact measurement and stronger stakeholdercommunication Beyond legislation, CSR practice spans responsible supply-chain management, employee volunteering, and multi-sector partnerships, reflecting UNIDO’s emphasis on value creation across the corporate ecosystem and the importance of cross-functional integration In effect, CSR scope today coversboth compliance with legal mandates and voluntary initiatives that drive social innovation and shared value, ensuring companies contribute meaningfully to national and global development agendas

HISTORICAL EVOLUTION OF CSR:

• The philosophical underpinnings of CSR in India trace back millennia to the Vedic principle of “Sarva loka hitam” (welfare of all), which upheld a societal duty to collective well-being and equitable resource distribution. Such ancient precedents laid the moral groundwork for corporate philanthropy and ethical stewardship.

• In the 19th century, Western industrialists like the Cadburys and Carnegies institutionalized philanthropic acts—founding schools, libraries, and hospitals— demonstrating how private fortunes could underwrite public goods long before CSR became a formal concept.

• Howard R. Bowen’s 1953 book Social Responsibilities of the Businessman is widely recognized as CSR’sconceptual genesis, arguing that businesses bear moralobligations beyond profitability, to contribute to societal welfare.

• The 1970s witnessed the emergence of stakeholder theory and the “social contract” notion: the U.S. Committee for Economic Development asserted that corporations operate with society’s implicit consent and thus hold a “license to operate”.

• By 1999, the World Business Council for SustainableDevelopment (WBCSD) defined CSR as “the continuingcommitment by business to contribute to sustainableeconomic development, working with employees, theirfamilies, the local community and society at large toimprove quality of life”. This broadened CSR’s remitfrom ad hoc charity to integrated corporate strategy.

• In 2011, Michael E. Porter and Mark R. Kramer’s“Creating Shared Value” framework reframed CSR as a source of competitive advantage, urging firms to address societal challenges through core business activities and creating both economic returns and social benefits The21st century has seen CSR evolve into a globalmovement—guided by ISO 26000, the UN Global Compact, and investor-driven ESG standards— solidifying CSR as an indispensable element of modern corporate governance and sustainability agendas.

LEGAL AND STATUTORY FRAMEWORK OF CSR ININDIA:

1. Statutory Backing under the Companies Act, 2013: Themost significant legal milestone in the institutionalization ofCSR in India was the introduction of Section 135 in theCompanies Act, 2013, making India the first country in the world to legislate CSR obligations. This provision mandatescompanies meeting a certain financial threshold—net worth of₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more—to constitute a CSR Committee and spend at least 2% of their average net profits from the preceding three financial years on CSR activities. The Act defines CSR not merely as philanthropy, but as a corporateresponsibility to contribute to sustainable and inclusivedevelopment. The provision ensures that companies are no longer passive contributors to social causes but are actively involved in planning, implementing, and evaluating CSR programs. This marked a paradigm shift from voluntary CSRto regulated responsibility, making corporate engagement withsocial issues a matter of compliance rather than choice.

2. The Role and Composition of the CSR Committee: The CSR Committee plays a central role in ensuring that companies do not treat CSR as a checkbox exercise but integrate it meaningfully into their operational ethos. Asmandated under Section 135, the Committee must consist of three or more directors, including at least one independent director. Its primary responsibilities include formulating a CSR policy, recommending the amount of expenditure, and monitoring implementation.

The Committee acts as a bridge between the Board ofDirectors and the CSR objectives of the company. It ensures that CSR activities are in alignment with Schedule VII of the Act and reports periodically to the Board. The inclusion of independent directors strengthens accountability, preventing misuse or superficial implementation of CSR.

3. Schedule VII: Defining the Scope of CSR Activities:Schedule VII of the Companies Act, 2013 outlines the categories of activities that qualify as CSR, giving direction and thematic clarity to corporate efforts. The list includes awide array of social domains such as eradicating hunger, promoting education, gender equality, environmental sustainability, and rural development, among others. Notably, it has evolved over time to include areas like disaster management, promoting sports, contributions to PM CARES Fund, and COVID-19 relief measures. This schedule ensures that companies align their CSR activities with national priorities and measurable impact. However, it also offers flexibility through broad wording, allowing companies to adapt their CSR programs to local and sector-specific needs. The emphasis is on development-oriented activities, not on employee welfare or business promotion. Thus, Schedule VIIacts as both a guiding compass and a boundary line, striking a balance between regulatory clarity and strategic discretion.

4. Amendments and Evolving Compliance Mechanisms: The legal framework governing CSR has undergone severalkey amendments aimed at strengthening compliance andincreasing accountability. The Companies (Amendment) Act, 2019 brought significant changes by making CSR spending compulsory and empowering the central government to impose penalties for non-compliance. Companies failing to spend the requisite amount are now required to disclosereasons in their annual report, and unspent CSR funds must betransferred to specified government funds or a separate CSR account to be used within three financial years. Theseprovisions, combined with increased powers of inspection andinquiry granted to the Registrar of Companies (RoC), indicatea move toward stricter enforcement. This shift from “comply or explain” to “comply or face penalties” reflects the government’s intent to elevate CSR from a moral duty to a legal obligation.

5. Disclosure and Reporting Requirements: Transparency and public accountability are cornerstones of the CSR framework, and to this end, the Act mandates detailed disclosures in the Board's report and on the company’s website. Companies must publish their CSR policy, composition of the CSR Committee, the amount spent orunspent, and reasons for shortfalls, if any.

The format for reporting is governed by Rule 8 of the Companies (CSR Policy) Rules, 2014, and must be included as an Annexure to the Board’s Report under Section 134. This comprehensive reporting requirement ensures that CSR is not carried out in isolation or secrecy, but becomes a part of the public domain, encouraging external scrutiny by shareholders, civil society, and regulatory bodies. Moreover, many companies also opt to follow voluntary global standards such as the Global Reporting Initiative (GRI) or UN Sustainable Development Goals (SDGs) to add legitimacy and comparability to their CSR disclosures. Hence, the legalframework effectively integrates transparency into CSRstrategy, making it both measurable and visible.

6. Penalties, Sanctions, and Enforcement: With the 2019amendment and later modifications in 2021, the CSR regime has incorporated penal provisions for non-compliance. Companies that fail to comply with CSR obligations—such as not spending the prescribed amount, or failing to transfer the unspent funds within the stipulated time—can now face monetary fines. The company can be fined ₹50,000 to ₹25lakh, while officers in default may be fined up to ₹5 lakh or face imprisonment for up to 3 years. While the imprisonment clause has since been relaxed, the threat of financial penalties and reputational damage remains a strong deterrent. The Ministry of Corporate Affairs (MCA) and the Registrar of Companies are the primary enforcement bodies, empowered to inspect, investigate, and seek compliance. The increasing number of show-cause notices issued to companies over theyears demonstrates the active role of regulators in ensuring adherence. This transition from soft regulation to enforceable compliance highlights the maturity of India’s CSR regime and its evolution from voluntary charity to statutory social responsibility.

7. Judicial Interpretations and Administrative Guidance: Although CSR is relatively new as a statutory concept, Indiancourts and tribunals have already begun shaping itsinterpretation. While no major constitutional challenge to CSR law has emerged, judicial forums have clarified procedural aspects, such as in the case of Technip India Ltd. v. Registrar of Companies, where the National Company Law Appellate Tribunal (NCLAT) emphasized the importance of fulldisclosure and timely compliance. Additionally,administrative clarifications by the Ministry of CorporateAffairs, through General Circulars and FAQs, have helpedresolve doubts over CSR implementation during emergencies such as the COVID-19 pandemic.

GLOBAL OUTLOOK: KEY DIFFERENCESWORLDWIDE:

1. Mandatory vs. Voluntary Regimes: CSR frameworks vary significantly between jurisdictions, shaped by each country’s legal systems, socio-political environment, and economic priorities. In India, the Companies Act, 2013—particularly Section 135—mandates that firms with specified net worth, turnover, or profit margins must allocate 2% of their average net profits over the previous three years toward CSR activities. This has institutionalized CSR, steering corporate funds towards causes like education, sanitation, and rural development.

In China, although CSR is not yet legally mandatory in auniform manner, there are tightening disclosure normsthrough policies like the Guidelines for State-OwnedEnterprises on Fulfilling CSR, which are increasinglyextending to private firms. In contrast, the United Statesadopts a market-driven, voluntary approach, where CSR is influenced largely by ESG metrics and investor pressure. Frameworks like the SASB (Sustainability Accounting Standards Board), TCFD (Task Force on Climate-related Financial Disclosures), and GRI are widely adopted voluntarily by companies, but not mandated by federal law. However, regulatory bodies like the SEC are increasingly pushing for climate-risk disclosures, signaling a shift toward more structured accountability. Latin American countries, such as Mexico and Brazil, also follow voluntary models, though often linked to reputation and foreign investment considerations.

2. Reporting Standards and Transparency: Europe leads in CSR reporting due to comprehensive frameworks and stringent EU regulations. The European Union’s Non- Financial Reporting Directive (NFRD) and the upcoming Corporate Sustainability Due Diligence Directive (CSDDD) require large companies to disclose policies and due diligence measures regarding environmental and social impacts, human rights, and anti-corruption efforts. Companies are also encouraged to use Global Reporting Initiative (GRI) standards to ensure global comparability and transparency.

In the United States, CSR reporting remains heterogeneous,with firms choosing from various standards—SASB, GRI, or TCFD—depending on stakeholder expectations. This leads to inconsistent disclosures but offers flexibility. Meanwhile, South Africa mandates Integrated Reporting (IR) through theKing IV Code, linking financial and non-financialperformance for holistic corporate accountability. The move toward standardized metrics globally—driven by initiatives like the ISSB reflects a growing consensus that transparent, consistent CSR disclosures are essential for stakeholder trust and regulatory alignment.

3. Cultural Drivers and Stakeholder Expectations:: Cultural values play a pivotal role in shaping CSR practices. In Europe and Africa, collectivist cultures and stronger community orientation have led to CSR being perceived as a moral obligation rather than just a strategic move. Public-private partnerships and cooperative models thrive in these regions, often aligning with national goals.

For example, German Mittelstand companies often engage in vocational training programs that benefit both the companyand the local workforce—demonstrating a community-integrated CSR approach. Similarly, South African firms, influenced by Ubuntu philosophy and Broad- Based Black Economic Empowerment (B-BBEE), often tailor CSR to promote racial equity, education, and social mobility.

In contrast, East Asian companies, particularly in Japan and South Korea, may adopt low- profile CSR strategies due to cultural preferences for humility and indirect social recognition. Instead of media campaigns, firms engage in silent philanthropy, long-term employment, and disaster relief—embedded in corporate duty rather than branding.

4. Enforcement Mechanisms and Penalties: Legal enforcement mechanisms differ widely. In India, failure to spend the mandated 2% CSR fund invites financial penalties and public scrutiny. Amendments to the Companies Act have introduced stringent compliance measures including penalties and even imprisonment for willful non-compliance.

The EU, under the CSDDD, is pushing toward penalizing companies that fail to perform adequate human rights and environmental due diligence across supply chains. Germany’s Supply Chain Due Diligence Act (LkSG) is an example, requiring large firms to monitor and mitigate risks related tochild labor, environmental pollution, and unfair wagesglobally. In the U.S., enforcement is indirect—often driven by investor activism, class-action lawsuits, or reputational risks.Regulatory penalties are rare, but market backlash andshareholder litigation act as potent deterrents. Brazil and South Africa operate hybrid models: while CSR is largely voluntary, they impose obligations through related legislation, such as environmental laws or social empowerment acts (e.g., B-BBEE in South Africa).

5. Strategic Integration: North American and EuropeanMNCs often embed CSR deeply into their business models,leveraging innovation and sustainability for competitiveadvantage. For instance, IKEA’s circular economy model, Patagonia’s environmental activism, and Apple’s carbon-neutral supply chains showcase how CSR can be profit-aligned and strategic.

By contrast, companies in many emerging economiestraditionally treated CSR as philanthropy or compliance, rather than as a business imperative. However, this is rapidly changing due to globalization, investor demands, and pressure from transnational agreements like the UN Global Compact and ISO 26000. In India, conglomerates like Tata Group and Mahindra & Mahindra are integrating sustainability into core product development and rural skilling programs, reflecting a paradigm shift toward shared value rather than charity.

6. Scale and Scope of Initiatives: CSR initiatives scale differently across countries. In the U.S., companies like Google.org and Microsoft Philanthropies fund large-scale global initiatives in AI, education, and digital literacy. In Europe, energy giants like Ørsted and Enel invest billions in renewable energy infrastructure, aligning business goals with climate action.In India, CSR focuses more on local impact, such as water conservation (e.g., HUL's Swachh Bharatprojects), rural electrification, and skill development. Thisvariation highlights that CSR initiatives must be contextualized—what works in Silicon Valley may not address grassroots needs in rural Asia or Africa.

7. Collaboration Models: Collaboration is a key theme globally, but models vary. In Japan, CSR is often executedthrough Keiretsu networks—business conglomerates thatcollaborate on regional development, disaster response, andworkforce inclusion. South Africa favors public- private partnerships (PPPs), especially in health, housing, and education, tackling inequality with shared responsibility. For example, mining companies partner with the government on housing for workers. In Brazil, multi-stakeholder platforms like the Ethos Institute bring together corporations, civil society, and academia to craft ethical business practices and sustainability strategies. This coalition-building approach helps overcome institutional gaps and improve corporate accountability.

STRATEGIES FOR EFFECTIVE CSR:

1. Embedding CSR into Corporate DNA: To make CSRtruly impactful, it must be embedded at the strategic core of acompany’s operations rather than treated as an external orphilanthropic obligation. This means integrating social and environmental goals into business planning, governancestructures, product design, and even marketing strategies.Companies like Unilever have demonstrated this by linking executive performance bonuses to sustainability targets— ensuring leadership accountability for both profit and purpose. Such integration transforms CSR from a checkbox activity to a guiding philosophy that informs decision-making at every level of the organization.

It also helps ensure consistency, continuity, and authenticity ininitiatives, making CSR a long- term commitment rather than a one-time campaign. Embedding CSR into the corporate DNA also enhances resilience during crises, as ethical considerations and stakeholder wellbeing are already built into operational frameworks. It signals to investors, employees, and consumers that the company sees value beyond immediatefinancial gain. Ultimately, this approach fosters a sustainable business ecosystem where CSR and corporate growth reinforce one another, creating a competitive advantage in the long run.

2. Creating Shared Value (CSV): Porter and Kramer’s theoryof Creating Shared Value (CSV) goes beyond traditional CSR by aligning societal progress with business success. The idea is that companies can generate economic value by addressingsocial problems that intersect with their business—such ashealth, education, environmental impact, and communitydevelopment. For example, Nestlé’s work with coffee growers helps secure a steady supply chain while enhancing farmer incomes and sustainable practices. CSV involves three main strategies: reconceiving products and markets to serve underserved populations, redefining productivity and enabling local cluster development through investment in infrastructure, suppliers, and skill development. The CSV approach encourages businesses to identify areas where their expertise and resources can create mutual benefits—such as improving agricultural productivity (aligned with SDG 2), expanding access to financial services (SDG 8), or promoting inclusive hiring practices (SDG 10). Unlike philanthropy, CSV is not about allocating a percentage of profits but about generating profits through purposeful innovation. It thus repositions businesses not as donors, but as drivers of social and economic transformation.

3. Responsible Supply Chain Management and CircularEconomy Models: A modern CSR strategy must extend intothe supply chain, recognizing that the ethical footprint of acompany is shaped not just by its own operations but by thoseof its vendors, suppliers, and distributors. With the emergence of global regulations like the European Union’s Corporate Sustainability Due Diligence Directive (CSDDD) and the U.S. Uyghur Forced Labor Prevention Act (UFLPA), companiesare legally required to conduct human rights due diligence,ensuring their supply chains are free from exploitation, environmental degradation, or unsafe labor conditions. Moreover, responsible CSR today embraces circular economy models—which aim to design out waste and keep products and materials in use. This includes initiatives such as product take-back programs, waste recycling, and repair services.

For instance, electronics companies offering old-devicereturns for recycling not only reduce landfill waste (SDG 12) but also save on raw material costs and enhance brand loyalty. Integrating responsible sourcing and circular economy principles not only mitigates legal and reputational risks but also opens up new business opportunities and positions firms as leaders in sustainability and innovation.

4. Employee-Driven CSR and Organizational Culture: One of the most underutilized yet powerful strategies in CSRimplementation is the inclusion of employees as activeparticipants and co-creators of social initiatives. When CSR is employee-driven, it cultivates a sense of ownership, purpose, and motivation that top-down models cannot replicate. Google’s famed “20% time” for employees to work onprojects outside their core roles—including community- based or social impact projects—has sparked innovations whilebuilding a culture of trust and creativity. Similarly, manycorporations today establish CSR committees or volunteerprograms that allow employees to participate in community development, environmental clean-ups, or fundraising activities.

This bottom-up approach makes CSR part of theorganizational culture rather than a mandated duty. It alsoenhances internal communication, teamwork, and cross-functional collaboration— benefits that directly impactworkplace productivity. As younger generations increasinglyseek values-driven employers, fostering employee-led CSR can also help attract and retain talent. By weaving CSR into the employee experience, companies not only amplify impact but cultivate a socially conscious and emotionally connected workforce.

5. Crisis Response and Adaptive CSR: The COVID-19 pandemic and other global crises have underscored the need for companies to adopt adaptive CSR strategies capable of addressing unforeseen emergencies with speed and effectiveness. Adaptive CSR involves having flexible structures and dedicated funds that allow businesses to mobilize resources rapidly in response to crises—whether it’sa natural disaster, pandemic, or geopolitical conflict. For example, many manufacturing companies repurposed their production lines to produce masks, PPE kits, or oxygen concentrators during COVID-19, playing a direct role in saving lives. Beyond temporary relief, crisis-responsive CSR can also support long-term resilience by rebuilding livelihoods, supporting affected communities, and integrating risk preparedness into company strategy.

6. SDG-Aligned Impact Measurement: Effective CSR strategies require rigorous monitoring, evaluation, and impactmeasurement aligned with the United Nations SustainableDevelopment Goals (SDGs). Increasingly, businesses are adopting SDG-referenced dashboards to assess their contributions—whether it's the number of women entrepreneurs supported (SDG 5), carbon emissions reduced (SDG 13), or clean water projects initiated (SDG 6). These metrics help companies set clear targets, measure progress, and make data-driven decisions. The use of digital tools—like blockchain for fund tracking, IoT sensors in environmental monitoring, or AI for predictive analytics—enables real-time evaluation and course correction.

7. Digital Innovation in CSR: With the rise of digital technologies, companies now have unprecedented tools to amplify the reach, efficiency, and creativity of their CSR programs. Artificial Intelligence (AI), for instance, can optimize water usage in rural irrigation systems or predict disease outbreaks for timely interventions. Mobileapplications have revolutionized health and financial education by delivering bite-sized learning in regional languages. Social media platforms, when creatively leveraged, can gamify volunteering and fundraising— engaging youth through challenges, leaderboards, and real-time impact sharing.

For example, campaigns that link user participation to direct donations or community action (like tree planting or food drives) have gone viral, turning CSR into a collective movement rather than a top-down initiative. Digital innovation also allows for hyperlocal targeting— using data to identify specific community needs and tailoring interventions accordingly.

CONCLUSION: In today’s rapidly evolving global economy, Corporate Social Responsibility (CSR) has emerged not merely as a moral obligation but as a strategic imperative that aligns business growth with societal progress. From addressing global challenges such as climate change and inequality to fulfilling legal mandates and enhancing brand value, CSR has grown beyond philanthropy into a comprehensive framework.

However, the true impact of CSR depends on the strategies adopted. As seen through the detailed approaches—from embedding CSR into the organizational DNA and leveraging digital innovation to aligning with the UN’s SustainableDevelopment Goals. When companies move beyond superficial gestures and genuinely integrate CSR into their values, governance, and operations, they become catalysts ofpositive change. In a world that increasingly demands accountability and transparency, businesses that prioritize people and the planet alongside profit are more resilient, respected, and ready for the future. Ultimately, CSR is not just about giving back—it's about moving forward, together.

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