CORPORATE SOCIAL RESPONSIBILITY: MANDATE OR MARKET ADVANTAGE?

ABSTRACT

In modern-day corporate business, the principle of Corporate Social Responsibility (CSR) has become the pillar in determining the identity and sustainability of business firms. CSR is the ethical responsibility of a firm to give back to society as well as pursue profit. It encompasses activities that are aimed at the advancement of education, preservation of the environment, rural development, gender equality, and other social welfare issues. Worldwide, CSR has become a voluntary pledge based on ethical necessities, stakeholders’ expectations, and sustainability principles. India, however, went a different way with CSR in 2013 when it became the first nation to make CSR expenditure obligatory through its Companies Act.The addition of Section 135 to the Companies Act, 2013, was a legislative landmark in requiring companies having a specified amount of finance to invest a minimum of 2% of their average net profits in CSR initiatives. The new requirement fanned a debate long in the making: Is CSR to be taken as a statutory mandate by companies or can it be viewed as an opportunity for growth, brand-building, and stakeholder engagement?

This paper attempts to break down the intricate phenomenon of CSR in the Indian context by examining its evolution from a voluntary practice to a statutory mandate, and examining if this mandate serves to create real social value or is tokenistic in purpose. It also attempts to examine how companies can view CSR not only as a compliance expense, but as a strategy to position their business strategy in line with the movement of society, establish long-term credibility with their stakeholders, and generate inclusive growth. In this exercise, this article provides a comparison of India’s CSR legal architecture with global models of CSR, examines corporate case studies, examines the success of the existing approach, and suggests ways of realizing the maximum potential of CSR as a force for change for society.

EVOLUTION OF CSR

The history of Corporate Social Responsibility in India dates back to ancient days when it was a corporate culture to adopt philanthropic practices as part of ethical responsibility (Dharma). Merchants used to give to temples, education, and local welfare through voluntary charity. Over time, especially during the freedom movement, business leaders like Jamsetji Tata, G.D. Birla, and others promoted social progress as part of nation-building. But those were voluntary and personality-driven, and not institutionalized.

The idea of CSR in its official form began taking shape in the 20th century, but the Indian government began pressuring firms to adopt official CSR practices only in the first decade of the 2000s. Voluntary guidelines were issued by the Ministry of Corporate Affairs in 2009, and the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business (NVGs) were issued in 2011. The guidelines promoted the inclusion of responsible business practices by companies but did not make it mandatory to invest in CSR.

There has been a paradigm shift due to the implementation of the Companies Act, 2013, effective from 1st April 2014. India was the first country in the world to implement CSR through a legislation. Section 135 of the Act requires the companies with specified levels of net worth, turnover, or net profit to spend at least 2% of average net profits of the three immediately preceding financial years on the CSR activities listed in Schedule VII of the Act.

This legislating sought to make it obligatory for firms to actively contribute to the socio-economic growth of the country. It made CSR a legal requirement, rather than an ethical voluntary responsibility, and embedded social responsibility in the corporate governance process of firms.

Over the last decade, CSR in India has grown not only financially in terms of expenditures but also in strategic importance, with many companies making CSR an integral part of their corporate strategy. However, the real query is, has mandatory CSR led to genuine social contributions, or did it lead only to compliance spending? The second part explores the issue deeper in a longer analysis of the legal regulation that exists for CSR in India.

LEGAL FRAMEWORK: CSR AS AN OBLIGATION

The Companies Act, 2013 ushered in a new age of corporate governance in India by introducing Corporate Social Responsibility (CSR) into the legal realm of the corporate sector. Section 135 of the Act and the Companies (CSR Policy) Rules, 2014 mandate certain types of companies to adhere to CSR provisions, thereby making CSR a matter of law rather than voluntary ethics

Applicability of Section 135

Under Section 135(1) of the Act, CSR obligations are mandatory for all private, public, or listed companies with:

• Net worth of ₹500 crore and above, or
• Turnover of ₹1,000 crore or more, or
• Minimum net profit of ₹5 crore and above in the just concluded financial year.
• These companies are required to:
• Establish a CSR Committee of the Board.
• Create a CSR Policy.
• Ensure implementation and monitoring of CSR activities.
• Invest at least 2% of the average of the net profits of the past three years in CSR activities as per Schedule VII.

Variety of CSR Initiatives

Schedule VII of the Act makes CSR activities lawful which are:

• Eliminating poverty and hunger
• Promoting education, gender equality, and women’s empowerment
• Environmental sustainability
• Protection of national heritage
• Rural development
• Disaster relief, among others
• Schedule VII has been loosely construed over the years, and the scope has been applied to finance COVID-19 relief, pandemic research, and even innovation incubators.
• Reporting and Non-Compliance

The firms must report their CSR spending in the report of the Board as well as on the website. If the firm does not spend the amount that is needed, then the firm must report the reason for the same in the report.

Notably, under the Companies (Amendment) Act, 2019, unspent CSR funds have to be transferred:

To a particular account (if it is linked with an active project), or

To a fund appropriated in Schedule VII within six months of the closing of the financial year.

Noncompliance will risk sanctions on the company and officers—something of a step towards enforceable accountability in CSR practice.

Argument For Mandated CSR

This mandatory legislation has attracted much controversy. Critics argue that requiring the spending of firms on social causes distorts the voluntary nature of CSR and turns it into another regulatory necessity. Others are of the view that if there were no mandate, firms would nonetheless prioritize shareholder returns over stakeholder well-being. Whereas legal requirement establishes a floor of social investment, the question is—does legal mandate ever guarantee effective impact? The second section describes how, if pursued, CSR can transcend this sense of duty and become an enduring value business opportunity.

CSR AS A STRATEGIC OPPORTUNITY

Though CSR in India is framed as a compliance requirement, top companies are beginning to see it as a strategic investment with tangible and intangible benefits. When aligned with the business strategy of a company, CSR can shift from being a mere compliance requirement to a rich brand-building, market-positioning, innovation, and stakeholder-trust opportunity.

1. Enhancing the Brand Reputation and Public Confidence

In a socially and environmentally conscious consumer society, businesses that proactively take the initiative to engage in responsible business also enjoy a better brand image and customer loyalty. CSR initiatives that engage the imagination of the public—such as sustainability, education, or healthcare—can only meaningfully contribute to a business’s reputation. Tata Group is not just admired for its business sense, but also for its unapologetic commitment to social causes, which translates into brand equity across generations.

2. Attracting Investors and ESG Funds

With greater Environmental, Social, and Governance (ESG) investment, corporations with good CSR performance are being sought out by local and foreign investors more and more. International investment funds and institutional investors now take CSR performance into consideration as a key measure of corporate health and governance. Good CSR practice and reporting, then, open the gates to capital and build investor confidence.

3. Employee Engagement and Talent Retention

Employees, particularly millennials and Gen Z employees, are drawn to companies that share their values. CSR initiatives give employees a sense of purpose beyond their job, resulting in improved job satisfaction, employee morale, and employee retention. Infosys and Mahindra & Mahindra are two companies that have leveraged CSR to craft compelling internal cultures founded on inclusiveness, accountability, and innovation.

5. Innovation and Competitive Advantage CSR leads firms to innovate on sustainable production, green tech, and shared prosperity. It can result in breakthrough products and services aimed at under-served markets. Firms that invest in clean energy, accessible healthcare, or education technology, for example, are not just doing social good—they’re future-proofing the company as the market continues to shift. Instead of perceiving CSR as a burden, visionary business companies perceive it as a strategic facilitator of resilience, relevance, and growth. The subsequent section will set this Indian strategy within the global context in order to observe how CSR is being implemented worldwide, and whether India’s legal requirement is contrary to, or congruent with, world trends.

COMPARISON WITH OTHER COUNTRIES

Whereas India has been proactive in enacting CSR as a statutory mandate, the rest of the world is still voluntary or self-regulated. The distinction offers interesting insights into the mindset towards CSR—whether as a moral obligation, business strategy, or statutory mandate—in different jurisdictions.

1. United States

In the United States, CSR is voluntary, shareholder activist-driven, consumer-driven, and market-driven. It is not a legal requirement for companies to spend at least a percentage of their profits on CSR. Public opinion and ESG investing have, however, prompted large corporations such as Google, Microsoft, and Walmart to make large investments in climate action, racial justice, and community development. The U.S. model is corporate citizenship-focused with responsibility embedded in business objectives and brand reputation.

2. European Union

European countries, specifically Scandinavia, Germany, and the Netherlands, have a deeply rooted culture of CSR in their corporate governance and sustainability law. While not necessarily compulsory in most cases, companies are either required to publish non-financial information under EU directives, such as the Non-Financial Reporting Directive (NFRD) and the Corporate Sustainability Reporting Directive (CSRD). In essence, there is disclosure required, but not necessarily spend. CSR in the EU is viewed as a tool for strategic sustainable development and is aligned with the UN Sustainable Development Goals (SDGs).

4. Brazil and South Africa

These countries have voluntary frameworks with sectoral promotion of CSR, especially in mining, oil, and infrastructure. South Africa has, however, been systematic by way of the King IV Report on Corporate Governance, which introduces ethics and stakeholder engagement into corporate practice.

 Globally, CSR is moving in the direction of measuring impact, stakeholder engagement, and mainstreaming sustainability, as opposed to expenditure emphasis. India also has to move away from input measurement  to outcome measurement and strategy alignment with national development goals. The contrast is to emphasize that although India’s legal requirement ensures minimum contribution, positive impact occurs when CSR is adopted as a business philosophy. The following section will analyze the operational challenges and criticisms of having CSR introduced through India’s existing legal framework.

CHALLENGES AND CRITICISM

Although the legal requirement under Section 135 of the Companies Act, 2013 has certainly led to greater CSR engagement in India, it has also raised some practical problems and issues that impact the quality, transparency, and effectiveness of CSR projects.

1. Box-Ticking and Tokenism

One of the strongest criticisms is that a number of companies use CSR as a compliance exercise. Rather than undertaking high-impact, long-term projects, firms tend to opt for symbolic or short-term activities to meet legal requirements. This results in tokenism, when the emphasis is on spending 2% as opposed to creating real or tangible change.

2. Overconcentration of CSR Spend in Urban Regions

Research has demonstrated that CSR investments are unevenly concentrated, with developed and urban states accounting for an overwhelming proportion of investments. Maharashtra, Karnataka, and Tamil Nadu states frequently receive greater CSR inflows, whereas backward or distant areas are overlooked—contrary to the very principle of inclusive growth.

3. Misutilization and Poor Monitoring

There are increasing fears about lack of accountability and weak monitoring processes. In certain instances, money has been diverted or given to questionable NGOs with poor accountability. CSR tends to be outsourced by companies to third parties without strong systems for tracking results or auditing effect, and thus efficiency is lost as well as the possibility of misuse.

4. Lack of Clarity in Legal Interpretation

Despite regular changes and clarifications, it still remains unclear what constitutes legitimate CSR. For example, action taken as a matter of routine business or activities that accrue benefits to employees are often not permitted. This confuses and deters even smaller enterprises.

5. Administrative Burden on Smaller Companies

For firms just reaching the threshold points of applicability, establishing a CSR committee, creating policies, and facilitating reporting can be administratively onerous, especially when they are not endowed with in-house expertise. This may precipitate disproportionate resource investment for compliance as opposed to innovation.In spite of all these drawbacks, CSR still is a potent instrument for corporate India. The way ahead is to turn the turnaround from compliance to conscious collaboration—where industry, civil society, and the government collaborate towards profounder, more enduring social change

CONCLUSION

Corporate Social Responsibility in India is at a strategic juncture, caught between being a legal requirement and as a business opportunity for delivering enduring social value. The notification of Section 135 of the Companies Act, 2013, has clearly amplified the size and scope of CSR, making India the world leader in imposing corporate contributions towards social good. But this legislative instrument by itself cannot ensure revolutionary social changes.The key to CSR success is to go beyond compliance toward integrating social responsibility into the core business values of the firm. When businesses approach CSR as a chance rather than a cost, they can use it as a means of improving brand reputation, promoting innovation, engaging employees, and establishing stakeholder trust. Top Indian businesses are good examples of this strategy in action by incorporating CSR into their strategic long-term objectives, thereby creating shared value for both business and society.

In order to achieve this potential, some fundamental recommendations arise:

• Outcome-Based Evaluation: Transition from emphasis on mere financial expenditure to quantifiable social outcomes. Establish strong impact assessment systems to monitor and report the CSR initiative’s effectiveness.
• Strategic Integration: Invite firms to integrate CSR into their core competencies and business goals, that projects may be sustainable, scalable, and innovative.
• Inclusive Distribution: Encourage fair CSR investment by regions with a special focus on under-developed and rural regions to enable inclusive development.
• Transparency and Accountability: Enhance the monitoring system and mandate third-party auditing to avoid misappropriation of funds and ensure greater public confidence.
• Capacity Building: Facilitate small firms by offering advice, training, and support to comply with CSR in an effective way without excessive administrative costs.
• Collaborative Partnerships: Encourage multi-stakeholder partnerships with government, NGOs, and communities to achieve greatest impact through collective expertise and resources.

In summary, the question of whether CSR is a responsibility or chance is answered within the thinking of companies. If seen as part of company identity and strategy, CSR is not only a statutory responsibility but a source of inclusive and sustainable development—growing the company, communities, and country altogether.