Corporate Social Responsibility: Evolution, Benefits & Challenges

Table of contents

Recently, the Prime Database Group report highlighted that CSR spending by listed companies in India rose by 16% in 2023–24, reaching ₹17,967 crore from ₹15,524 crore the previous year. This surge, fueled by increasing corporate profits and the ongoing impact of the 2014 CSR mandate, signifies the corporate sector’s more profound commitment to social and environmental responsibility.

Corporate Social Responsibility (CSR) integrates social and environmental considerations into business operations. In India, the CSR framework is established by Section 135 of the Companies Act, 2013, which mandates eligible companies to contribute towards societal development.
Eligibility Criteria for CSR: The CSR law applies to companies that meet any of the following criteria: a net worth of ₹500 crore or more, an annual turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more in the previous financial year.
CSR Spend Requirement: Eligible companies must allocate at least 2% of their average net profit from the previous 3 years towards CSR activities.
Penalty for Non-Compliance: Penalties are imposed if companies fail to meet the 2% CSR spend requirement and do not transfer the unspent amount to a specified fund.
CSR Registration: Companies intending to undertake CSR activities must register with the Registrar of Companies. This ensures their CSR initiatives comply with the legal framework and are monitored.

Evolution of CSR in India

Corporate Social Responsibility (CSR) has evolved from a philanthropic activity to a strategic business approach, integrating societal and environmental concerns into business practices.
Early Stages (1950s-1970s): CSR was initially viewed as a moral obligation, with businesses focusing on charities and basic community needs without strategic alignment.
Expanding Dimensions (1980s-1990s): In the 1980s and 1990s, CSR adopted the Sustainable Impact Nexus; people, planet, profit, focusing on ethics and sustainability, which marked a shift towards long-term strategies.
21st Century Comprehensive Approach: CSR is central to business strategy, emphasising human rights, labour rights, environmental sustainability, and transparency. Companies incorporate CSR for long-term value.

Benefits of CSR Funding in India

Education: CSR funding has significantly improved education, particularly in underserved and rural areas, bridging the education gap and empowering future generations. E.g., TCS invested in rural digital education, helping communities access quality education.
Healthcare: CSR investments have enhanced healthcare infrastructure and supported public health initiatives, especially in rural regions, improving health outcomes. E.g., Reliance Industries focused on rural healthcare and COVID relief initiatives.
Environmental Sustainability: CSR has played a key role in promoting environmental sustainability, with investments in renewable energy and conservation projects. E.g., ONGC’s investments in renewable energy align with India’s climate goals.

Economic Impact

Corporate Profits: CSR spending is linked to profitability, as companies leverage success to contribute to society, promoting business growth and social welfare. E.g., HDFC Bank’s CSR investment of ₹945 crore highlights the connection between profits and CSR.
Job Creation and Skill Development: CSR initiatives in skill development have enhanced employability in rural areas, boosting livelihoods and economic growth. E.g., HDFC Bank’s financial literacy programs have empowered rural communities.

Governance Impact

Enhanced Transparency: CSR committees have ensured efficient fund management, promoting better outcomes.. E.g., 990 companies formed CSR committees to provide better transparency in fund allocation.
Efficient Fund Management: The transfer of unspent CSR funds to the Unspent CSR Account ensures that funds are efficiently utilised for future projects. E.g., Unspent funds are transferred for future use.

Sector-Specific Impact

National Heritage Preservation: CSR funding has supported the preservation of national heritage, enhancing cultural pride & promoting tourism. E.g., TCS played a role in preserving national monuments.
Infrastructure and Community Development: CSR has funded infrastructure and healthcare projects, particularly in underserved areas, contributing to inclusive development.

Societal Impact

Improved Quality of Life: CSR investments in education, healthcare, and sustainability have directly improved the quality of life for millions of Indians. E.g., CSR investments in education and healthcare have improved access to services.
Community Empowerment: CSR has empowered local communities, providing access to resources, skills, and opportunities, thus fostering social inclusion. E.g., Many CSR programs focus on women’s empowerment and skill development.

Challenges to CSR Funding in India

Regional and Sectoral Disparity: CSR spending remains concentrated in a few developed states (like Maharashtra, Tamil Nadu) and sectors (mainly education and health), leaving backwards states and critical areas like the environment neglected.
Lack of Transparency and Impact Assessment: Many companies do not disclose detailed CSR activities, making it difficult to track outcomes, build public trust, or ensure accountability.
Superficial CSR and Greenwashing: Some firms view CSR as a mere statutory obligation, engaging in superficial projects for branding rather than achieving meaningful social or environmental impact.
Weak Community Participation: CSR initiatives often exclude local communities from decision-making, leading to a mismatch between actual needs and project execution.
Poor Coordination and Strategic Gaps: Lack of cooperation between corporations, NGOS, and local bodies leads to duplication of efforts and reduces the effectiveness of CSR projects.

Way Forward

Develop a Centralised CSR Platform: Establish a national repository for States to list priority projects, enabling companies to align CSR funds with real needs in underserved regions like Aspirational Districts.
Enhance Community Participation: Ensure CSR projects are planned and implemented with active involvement of local communities, district administration, and public representatives for better outcomes.
Prioritise Sectoral Balance and Environmental Focus: Mandate companies in resource-intensive sectors to allocate 25% of CSR funds to environmental restoration and climate resilience.
Strengthen Monitoring and Impact Assessment: Make third-party audits mandatory; integrate CSR spending details into financial audits to increase transparency, accountability, and reduce greenwashing.
Foster Collaboration with NGOs and Government Agencies: Promote partnerships among companies, NGOs, and government to avoid duplication, maximise reach, and achieve greater social impact.

CSR in India has grown, but it must shift from compliance to creating long-term societal impact. Focusing on transparency, community involvement, and sustainability is key. Strengthening partnerships between corporations, NGOs, and the government will help CSR support India’s development.

Reference: Indian Express | PMFIAS: CSR in India

PMF IAS Pathfinder for Mains – Question 172

Approach

Introduction: Highlight CSR’s current compliance-driven nature in India and the need for transformation.
Body: Discuss regional imbalances, transparency issues, and superficial engagement; suggest community involvement, sustainability, and enhanced monitoring.
Conclusion: Stress that shifting CSR to a strategic, transformative model will foster long-term societal and economic growth in India.