Corporate Social Responsibility (CSR)
22.12.2025
Corporate Social Responsibility (CSR)
In a landmark judgment delivered in August 2025, the Supreme Court of India held that Corporate Social Responsibility (CSR) is not merely a statutory compliance requirement but has a clear constitutional foundation. The Court ruled that environmental protection is an intrinsic obligation flowing from Article 51A(g), the Fundamental Duty of every citizen and institution to protect and improve the natural environment. Consequently, CSR expenditure on environmental protection was declared not a matter of corporate charity, but a mandatory contribution towards safeguarding the nation’s ecological health.
Definition of CSR
Corporate Social Responsibility (CSR) refers to a management and governance approach in which companies consciously integrate social, environmental, and ethical concerns into their business operations and stakeholder interactions. The objective is to ensure that economic growth occurs alongside social equity and environmental sustainability.
Legislative Background
India became the first country in the world to legally mandate CSR spending through the Companies Act, 2013, under Section 135. Initially, CSR followed a relatively flexible “comply or explain” framework. Over time, this evolved into a stricter “comply or penalize” regime, under which failure to spend prescribed CSR amounts attracts statutory consequences, including mandatory transfers of unspent funds to designated accounts or government funds.
Eligibility and Mandatory Spending (Section 135)
CSR provisions apply to every company, including foreign companies operating in India, that meets any one of the following criteria in the immediately preceding financial year:
- Net worth: ₹500 crore or more
- Turnover: ₹1,000 crore or more
- Net profit: ₹5 crore or more
Spending Requirement
Eligible companies are required to spend at least 2% of their average net profits of the three immediately preceding financial years on CSR activities.
CSR Committee
Companies must constitute a Board-level CSR Committee comprising at least three directors, including at least one independent director. The committee formulates the CSR policy, recommends expenditure, and monitors implementation.
Schedule VII Activities
CSR spending is restricted to activities listed under Schedule VII, which include:
- Eradication of hunger, poverty, and malnutrition
- Promotion of education and gender equality
- Environmental sustainability, ecological balance, and biodiversity conservation
- Protection of national heritage, art, culture, and promotion of rural sports
Following the 2025 judgment, environmental sustainability has gained heightened constitutional significance within this framework.
Disclosure Norms
Companies are required to disclose detailed information on CSR policies, projects, and expenditure in their Board’s Report and on their official websites, enhancing transparency and public accountability.
Treatment of Unspent CSR Funds
- Unspent amounts for ongoing projects: Must be transferred to a dedicated “Unspent CSR Account” within 30 days of the end of the financial year and utilized within the prescribed timeframe.
- Other unspent amounts: Must be transferred within six months of the financial year-end to funds specified under Schedule VII, such as the PM CARES Fund.
This mechanism ensures that CSR resources are not indefinitely withheld or diverted from their intended social purpose.
Significance of the Supreme Court Ruling
Constitutionalization of CSR
By explicitly linking CSR, particularly environmental CSR to Article 51A(g), the Court elevated corporate environmental responsibility from a voluntary or welfare-oriented activity to a constitutional obligation.
Ecological Justice
The ruling reinforces the principle that corporations, which extract and utilize natural resources for profit, carry a non-negotiable responsibility to restore ecological balance, protect biodiversity, and prevent environmental degradation.
Enhanced Accountability
The judgment discourages selective CSR spending that prioritizes visibility over impact. Companies are now constitutionally encouraged to adopt a balanced CSR portfolio that meaningfully addresses environmental concerns alongside social development.
Impact Assessment
Since 2021, companies with CSR obligations of ₹10 crore or more are required to undertake independent impact assessments. Expanding this requirement to smaller CSR projects could significantly improve the quality and effectiveness of CSR expenditure.
Geographic Concentration
CSR spending remains concentrated in industrialized states such as Maharashtra, Gujarat, and Karnataka. A forward-looking approach involves incentivizing CSR investment in Aspirational Districts and ecologically sensitive regions, particularly in the North-East.
Preventing Greenwashing
Regulatory oversight must ensure that environmental CSR initiatives result in tangible ecological outcomes rather than superficial compliance or branding exercises.
The Supreme Court’s 2025 ruling fundamentally reshapes the relationship between Indian industry and the environment. By grounding CSR in constitutional duty, it ensures that corporate growth is aligned with environmental sustainability and social equity. This jurisprudential shift strengthens India’s commitment to sustainable development and supports the broader national vision of achieving inclusive prosperity on the path towards Viksit Bharat 2047, without compromising ecological integrity.