In recent years, the global business landscape has witnessed a significant shift towards sustainable practices, with Corporate Social Responsibility (CSR) playing a pivotal role in Environmental, Social, and Governance (ESG) frameworks. In India, this transition reflects a deep-rooted tradition of philanthropy, now evolving into structured corporate mandates aimed at sustainable development. This blog delves into the evolution of CSR in India, its current regulatory framework, pertinent data, and illustrative examples, highlighting its integral role in the ESG paradigm.

Understanding CSR and ESG

CSR (Corporate Social Responsibility): CSR refers to a company’s commitment to manage its social, environmental, and economic impacts responsibly. It involves voluntary initiatives that go beyond legal compliance to contribute to societal well-being.

ESG (Environmental, Social, and Governance): ESG is a framework used by investors and stakeholders to assess a company’s sustainability and ethical practices. It evaluates how a company manages environmental risks, treats its employees, and governs itself.

While CSR is often seen as a subset of ESG, the two are interconnected. CSR initiatives contribute to the "Social" and "Environmental" aspects of ESG, while governance practices align with the "Governance" pillar.

Evolution of CSR in India                               

The concept of CSR in India has traversed a remarkable journey, evolving through distinct phases:

i. Philanthropic Era (Pre-1950s): During this period, business leaders like Jamsetji Tata and G.D. Birla engaged in charitable activities, establishing educational institutions, hospitals, and supporting social causes, driven by personal values and a sense of moral duty.

ii. Social Development Era (1950s-1980s): Post-independence, influenced by Mahatma Gandhi's concept of trusteeship, businesses began viewing themselves as trustees of societal wealth, contributing to nation-building activities such as rural development, healthcare, and education.

iii. Statutory Compliance Era (1980s-2013): With economic liberalization, there was a growing recognition of the need for businesses to integrate social and environmental concerns into their operations. This period saw the emergence of guidelines and voluntary codes encouraging CSR activities.

iv. Mandatory CSR Era (2013-Present): A landmark development occurred with the enactment of the Companies Act, 2013, making India the first country to mandate CSR for certain categories of companies. Section 135 of the Act requires companies meeting specific financial thresholds to allocate at least 2% of their average net profits from the preceding three years towards CSR activities.

Current Regulatory Framework

The Companies Act, 2013, along with subsequent amendments and rules, outlines the CSR obligations for companies in India:

1) Applicability: Companies with a net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or a net profit of ₹5 crore or more during any financial year are mandated to comply with CSR provisions.

2) CSR Committee: Eligible companies must constitute a CSR Committee comprising at least three directors, including one independent director, to formulate and recommend a CSR policy to the Board.

3) CSR Expenditure: Companies are required to spend a minimum of 2% of their average net profits from the preceding three financial years on CSR activities specified under Schedule VII of the Act, which includes areas like education, healthcare, environmental sustainability, and rural development.

4) Reporting: Companies must disclose details of their CSR initiatives in the annual Board report and on the company’s website, ensuring transparency and accountability.

CSR Data and Insights 2022-23

As per the latest CSR data from the csr.gov.in website for the financial year 2022-23, key trends and insights emerge regarding corporate social responsibility (CSR) spending in India. The data provides an overview of company participation, sector-wise expenditure and contributions by top states and companies.

CSR Expenditure: Summary

1. Total Companies Involved: 24,392 companies participated in CSR activities.

2. Total CSR Spend: ₹29,986.92 crores were spent on CSR initiatives.

3. States and UTs Covered: CSR projects were implemented across 40 states and union territories.

4. Total CSR Projects: 51,966 projects were undertaken across various sectors.

5. Development Sectors: 14 key development sectors received CSR funding, including health, sanitation, education, and rural development.

CSR Spent: Development Sector-wise

1. Health & Sanitation: A significant portion of CSR funds went to health and sanitation initiatives.

2. Education & Skill Development: Education and skill-building programs received a major share of CSR expenditure.

3. Rural Development: Investments were made in rural infrastructure and welfare projects.

4. PM Cares & Swachh Bharat: Specific government initiatives like the PM CARES Fund and Swachh Bharat Abhiyan were notable CSR beneficiaries.

5. Environmental Conservation: CSR funds supported sustainable development projects, including the Clean Ganga Fund and climate-related initiatives.

CSR Spent: Top 10 States

i) Maharashtra Led CSR Spending: The state received the highest CSR allocation, exceeding ₹8,000 crores.

ii) Gujarat and Karnataka Followed: These states ranked second and third in CSR spending.

iii) Delhi, UP, and Rajasthan Among Top Recipients: Other industrial and populous states also saw significant CSR contributions.

iv) Southern & Western India Dominated: Most CSR funding was concentrated in South and West India.

v) Eastern & North-Eastern States Lagged: These regions received comparatively lower CSR investments.

CSR Spent: Top 10 Companies

i) Infosys Limited Led CSR Spending  Infosys was the top spender with over ₹805 crore allocated to CSR activities.

ii) TCS and Reliance Industries Among Top Contributors  These companies also spent significantly on CSR.

iii) Oil & Gas Sector Contributed Heavily Oil and Natural Gas Corporation (ONGC) and Indian Oil Corporation (IOC) featured among top CSR spenders.

iv) Tech & IT Companies Invested in Education & Skill Development IT firms focused on education, digital literacy, and employment-linked training.

v) Diverse Industry Representation Companies from finance, manufacturing, IT, and energy sectors were among the top CSR spenders.

CSR's Role in ESG Frameworks

CSR serves as a foundational element within the broader ESG framework:

i. Environmental Stewardship: CSR initiatives focusing on environmental sustainability contribute to the 'E' in ESG, addressing issues like resource conservation, pollution control and biodiversity preservation.

ii. Social Responsibility: By investing in community development, education and healthcare, CSR fulfils the 'S' component, enhancing social equity and quality of life.

iii. Governance: Transparent reporting and ethical business practices mandated under CSR regulations strengthen the 'G' aspect, promoting accountability and stakeholder trust.

Challenges in Implementing Corporate Social Responsibility (CSR)

1. Lack of Community Participation in CSR Activities – There is minimal interest and awareness among local communities about CSR initiatives, making it difficult for companies to gain grassroots support.

2. Need for Capacity Building of Local Organizations – Many local NGOs lack the necessary skills, expertise, and efficiency to implement CSR initiatives effectively, limiting the impact of corporate efforts.

3. Challenges in Transparency and Accountability – Companies often struggle with a lack of transparency from local implementing agencies regarding the disclosure of funds, audit issues, and impact assessment, leading to trust issues.

4. Non-Availability of Well-Organized NGOs in Rural Areas – In remote and rural regions, there is a shortage of reliable NGOs to assess community needs and collaborate with businesses for CSR implementation.

5. Absence of Clear and Standardized CSR Guidelines – The lack of well-defined statutory regulations creates inconsistencies in CSR approaches, leading to uncertainty in corporate contributions and social impact.

Opportunities in Corporate Social Responsibility (CSR)

1. Strengthening Brand Reputation and Public Trust – Companies that effectively implement CSR initiatives can significantly improve their brand image, enhance customer loyalty, and build long-term trust with stakeholders.

2. Building Strategic Partnerships with NGOs and Government – Stronger collaborations between corporations, NGOs, and government agencies can help in amplifying CSR impact and ensuring sustainable development.

3. Driving Economic and Social Upliftment – CSR initiatives can play a crucial role in poverty alleviation, skill development, and better access to education and healthcare, leading to overall socio-economic progress.

4. Promoting Sustainable Business Growth – A well-integrated CSR strategy aligned with core business values can result in financial benefits, increased employee engagement, and long-term business sustainability.

5. Gaining Regulatory Benefits and Competitive Edge – Companies that proactively engage in CSR may benefit from favorable regulatory treatment, reduced legal scrutiny, and a stronger competitive position in attracting investors and customers.

Conclusion

Corporate Social Responsibility (CSR) has evolved from being a voluntary activity to a strategic and legally mandated initiative, especially in India. Despite its significant potential to drive economic and social development, CSR faces multiple challenges such as lack of community participation, transparency issues, and the absence of clear guidelines. However, the opportunities it presents—including brand enhancement, sustainable business growth, and socio-economic development—make it a crucial element of corporate strategy.

For CSR to be truly impactful, businesses need to adopt a collaborative approach, working closely with government agencies, NGOs, and local communities. Transparency, capacity building, and stakeholder engagement must be prioritized to overcome existing barriers. By integrating CSR into core business strategies, companies can contribute to inclusive and sustainable growth while securing long-term benefits for both society and themselves.

References:

1.     Legal Dimensions of Corporate Social Responsibility in India

2.     Historical Evolution of CSR in India: From Philanthropy to Corporate Strategy • CSR Education

3.     https://proteantech.in/articles/indias-csr-10-year-transformation-06112024/

4.     https://www.csr.gov.in/content/csr/global/master/home/home.html

5.     IJRTI