- Supreme Court of India ruled that corporations have a fundamental duty to protect the environment under Article 51A(g) of the Constitution.
- The Court held that corporate social responsibility (CSR) must inherently include environmental responsibility.
About Corporate Social Responsibility (CSR)
- Statutory Basis: Section 135 of the Companies Act, 2013, requires certain companies to allocate a part of their profits for social development.
- Applicability: CSR provisions apply to every company meeting any of these thresholds in the immediately preceding FY: ₹500 crore net worth, ₹1,000 crore turnover, or ₹5 crore net profit.
- Foreign Companies: The provisions extend to foreign companies with offices in India.
- Spending Mandate: Eligible companies must spend at least 2% of their average net profits over the three immediately preceding financial years.
- Surplus Rule: Any surplus generated from CSR activities cannot be included in business profits. It must be reinvested in the same project or transferred to an unspent account or a specified fund.
- Sectoral Skew: In FY 2023-24, education received 35% of CSR funds, healthcare 20%, while environment received about 10%.
Need of Environmental CSR
- Constitutional Duty: Under Article 51A(g), corporations as legal persons have a fundamental duty to protect and improve the natural environment.
- Fiduciary Duty: Section 166(2) of the Companies Act requires that directors prioritise the interests of the environment and community alongside those of shareholders and employees.
- Polluter Pays: Companies damaging fragile ecosystems are legally liable to internalise costs by funding habitat restoration and climate mitigation.
- Greenwashing Check: Mandatory reporting frameworks like Business Responsibility and Sustainability Reporting (BRSR) ensure that corporate claims are backed by measurable outcomes.
- Circular Innovation: A CSR mandate can drive firms to adopt circular economy models that transform industrial waste into sustainable secondary resources.
Challenges with Environmental CSR
- Operational Exclusion: Current rules prohibit CSR spending on activities that directly benefit a company’s own business, limiting investments in circular economy and green supply chains.
- Temporal Mismatch: CSR regulations follow a rigid financial cycle of up to four years, which conflicts with the 10-15-year gestation periods required for ecological restoration.
- Measurement Gap: Quantifying intangible environmental outcomes remains difficult due to a lack of standardised metrics and monitoring frameworks.
- Spending Disparity: Over 60% of CSR funds are concentrated in a few industrialised states, leaving ecologically fragile regions (like the Northeast and tribal belts) severely underfunded.
- Regulatory Complexity: Overlapping environmental laws, land acquisition rules, and approvals from state forest departments can stall meaningful environmental interventions for years.
Government Initiatives Complementing Environmental CSR
- Incentivised Restoration: Under the Green Credit Programme (GCP), companies earn tradable credits for verified environmental actions such as reforestation and water conservation.
- Audited Transparency: The BRSR Core framework mandates that top-listed companies provide reasonable assurance on key ESG metrics.
- Lifecycle Responsibility: Mandatory Extended Producer Responsibility (EPR) rules shift the financial burden of recycling plastics and e-waste from the state to manufacturers.
- Emissions Trading: Carbon Credit Trading Scheme (CCTS) creates a domestic market for trading emission certificates to achieve Net Zero targets.
- Statutory Afforestation: Under Compensatory Afforestation Fund (CAMPA), industries diverting forest land are legally required to fund restoration at alternative locations.
- Energy Optimisation: The PAT Scheme (Perform, Achieve and Trade) incentivises energy-intensive sectors to reduce consumption through tradable efficiency certificates.
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Strengthening Green CSR
- Mandatory Spending: Mandate minimum 25–30% of CSR funds for environmental restoration, especially in high-impact industries like mining, energy, and manufacturing.
- Restoration Partnerships: Develop a national restoration project registry, enabling companies to adopt degraded landscapes and ensure accountability.
- Capacity Building: Strengthen CSR partner skills through certification programs in forestry, biodiversity, soil science, and ecological restoration.
- Ecological Reporting: Reform CSR reporting standards to include verified ecological outcomes, making independent third-party audits mandatory.
- Incentivize Performance: Link corporate environmental performance to regulatory approvals, tax benefits, and public procurement eligibility to encourage genuine ecological investment.
Integrating environmental responsibility into CSR is no longer optional, it is a legal, ethical, and strategic imperative for sustainable business and a healthier planet.
Reference: The Hindu | PMFIAS: Corporate Social Responsibility: Evolution, Benefits & Challenges
PMF IAS Pathfinder for Mains – Question 605
Q. Environmental CSR in India remains largely compliance-driven with limited ecological outcomes. Examine the structural and institutional constraints and suggest measures to reorient it as a strategic tool for ecosystem restoration and climate resilience. (250 Words (15 Marks)
Approach
- Introduction: Write a brief introduction about the Environmental CSR in India.
- Body: Write structural and institutional constraints for Environmental CSR in India and suggest measures to reorient it as a strategic tool for ecosystem restoration and climate resilience.
- Conclusion: Emphasis on effective implementation of Environmental CSR for sustainable business and a healthier planet.
