Maarg Manthan · Topic 19.21

Corporate Social Responsibility and Environment Protection

Environment & Ecology › Environmental Institutions and Schemes in India · Topic 19.21

Corporate Social Responsibility (CSR) in India is a legal duty under Section 135 of the Companies Act, 2013, which came into force on 1 April 2014, making India one of the first countries to place CSR spending in company law. A company must comply if, in the immediately preceding financial year, it had a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more. Such a company must set up a CSR Committee of the Board, frame a CSR policy and spend at least 2 percent of its average net profit of the preceding three financial years on activities listed in Schedule VII of the Act. Environment and sanitation are named in Schedule VII: item (i) includes promoting sanitation including contribution to the Swachh Bharat Kosh and making available safe drinking water, and item (iv) covers ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water, including contribution to the Clean Ganga Fund. The Companies (CSR Policy) Amendment Rules, 2021 require unspent money for ongoing projects to be moved to an Unspent CSR Account and spent within three years, and other unspent money to be transferred to a Schedule VII fund, and require impact assessment for larger projects. Hedge details: thresholds and rules are amended, so check the latest MCA notifications.

5 min read · UPSC Prelims · Environment & Ecology · Environmental Institutions and Schemes in India

At a Glance

Law Companies Act 2013, Section 135
In force 1 April 2014
Spend At least 2 percent of average net profit
List Schedule VII
Funds Swachh Bharat Kosh, Clean Ganga Fund
Exam link UPSC Prelims, Environment & Ecology: Environmental Institutions and Schemes in India

Where Does It Fit?

This topic closes the macro on institutions and schemes by showing how private money can fund environmental goals, and it links with the Swachh Bharat Kosh and the Ganga bodies covered earlier. Previous topic: UJALA Scheme. Next topic: Project Tiger 1 April 1973 Project Elephant 1992 Tiger reserve law…">National Parks, Tiger Reserves and Elephant Reserves of India.

How Does CSR Law Work?

Aspect	Details
Law	Section 135 of the Companies Act, 2013, effective from 1 April 2014
Who must comply	Companies with net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more in the preceding year
Spending	At least 2 percent of average net profit of the last three financial years
Governance	Board CSR Committee, CSR policy and annual action plan
Activities	Listed in Schedule VII of the Act
Unspent amount	Ongoing projects: Unspent CSR Account, to be spent within three years; others go to a Schedule VII fund
Reporting	Annual report on CSR; impact assessment required for larger projects

Which Environmental Activities Are Covered?

Item (i): sanitation including contribution to the Swachh Bharat Kosh, and safe drinking water
Item (iv): environmental sustainability, ecological balance, flora and fauna, animal welfare, agroforestry
Natural resources: conservation of natural resources and quality of soil, air and water
Clean Ganga Fund: contribution is allowed as a CSR activity
Renewable energy: solar and energy efficiency projects are often supported
Afforestation: plantations and watershed development
Waste: waste management and recycling projects
Concerns: box-ticking, urban bias and weak impact measurement

What Else Should You Remember?

CSR meaning: a company’s responsibility to society beyond profit
Earlier practice: CSR was voluntary before 2013 under national voluntary guidelines
Companies Act 2013: replaced the Companies Act, 1956
Section 135: the CSR provision
Schedule VII: list of permissible activities
CSR Committee: at least three directors, including one independent director
Smaller companies: a company with CSR obligation up to Rs 50 lakh need not form a committee, and the board can discharge its functions
CSR policy: describes activities, budget and monitoring
Annual action plan: approved by the Board
Implementing agencies: registered trusts, societies and Section 8 companies with 12A and 80G registration
Local area: preference should be given to the local area around company operations
Administrative overheads: capped at 5 percent of CSR spending
Impact assessment: needed for companies with average CSR obligation of Rs 10 crore or more for projects of Rs 1 crore or more
Unspent CSR Account: holds unspent money for ongoing projects
Penalty: comply or explain, with penalties for non-transfer of unspent money
Tax: CSR spending is not deductible as a business expense
Swachh Bharat Kosh: a fund for sanitation, which can receive CSR money
Clean Ganga Fund: supports river cleaning, which can receive CSR money
Prime Minister’s National Relief Fund: another Schedule VII fund
Oversight: Ministry of Corporate Affairs
Environment link: CSR is separate from compensatory duties under environment laws, such as CAMPA or EIA conditions
Polluter Pays: CSR is voluntary-like spending and does not replace liability for pollution
Link to previous: see UJALA Scheme
Link to Kosh: see Swachh Bharat Mission and Swachh Bharat Kosh
Link to Ganga: see Namami Gange Programme and Ganga Rejuvenation Plan
Link to next: see National Parks, Tiger Reserves and Elephant Reserves of India
Caution: thresholds and rules were amended in 2021, so check MCA notifications
Exam hint: remember Section 135, 2 percent and Schedule VII
Typical projects: Companies fund tree planting, village ponds, solar street lights, school toilets and waste segregation units in areas near their plants
Monitoring: Boards are expected to review progress and publish CSR details on the company website
Public sector: Central public sector enterprises are also covered and have their own guidelines through the Department of Public Enterprises
Limits: Activities that benefit only company employees or are part of normal business do not count as CSR

Why Does It Matter for the Exam?

Section: 135
Spend: 2 percent
List: Schedule VII
Current affairs link: Unspent CSR rules
Common errors: saying CSR spending is tax deductible

As an analytical point, CSR brings private money to environment work, but it should add to, not replace, legal duties of firms to prevent pollution. Impact measurement and local relevance decide whether the money helps.

Why Is This Topic Important?

Law Section 135
Funds Kosh, Ganga
Gap Impact

What Came Next?

The next macro lists protected areas, sites and special topics, beginning with national parks, tiger reserves and elephant reserves. Next topic: National Parks, Tiger Reserves and Elephant Reserves of India.

Key People and Terms

CSR Corporate Social Responsibility
Schedule VII List of CSR activities
CSR Committee Board committee
MCA Ministry of Corporate Affairs
Unspent CSR Account Account for unspent funds
CGF Clean Ganga Fund

Exam Corner

Points to Remember

Law: Section 135.
Spend: 2 percent.
List: Schedule VII.
In force: 2014.
Funds: Swachh Bharat Kosh, Clean Ganga Fund.

Do Not Confuse With

CSR and Polluter Pays Social spending versus liability for damage
Schedule VII and Section 135 List versus the rule
Swachh Bharat Kosh and Clean Ganga Fund Sanitation fund versus river fund

Memory Hook

One-three-five, two per cent: Schedule VII names the cause.

Mains Angle

Questions ask for the section, rate and funds. These points help.

Law Section 135
Role Private funds
Gaps Impact

A Question You May Face

An original practice question, not a past paper question.

“Examine the role of Corporate Social Responsibility in environmental protection in India.”

How to Answer

Law Section 135.
Items Schedule VII.
Funds Kosh.
Gaps Impact.

GS Relevance

Prelims: section, 2 percent, Schedule VII, funds. GS Paper 3: private sector and environment.

Frequently Asked Questions

What is CSR under the Companies Act, 2013?

Section 135 of the Companies Act, 2013 requires certain large companies to spend at least 2 percent of their average net profit of the preceding three years on social and environmental activities listed in Schedule VII, through a Board CSR Committee and a CSR policy. The law came into force on 1 April 2014.

Which companies must spend on CSR?

A company must comply if in the immediately preceding financial year it had a net worth of Rs 500 crore or more, or turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more. Thresholds can be amended, so the latest Ministry of Corporate Affairs notification should be checked.

How does Schedule VII cover the environment?

Schedule VII includes ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry and conservation of natural resources, with a mention of contributions to the Clean Ganga Fund. It also lists sanitation, including contribution to the Swachh Bharat Kosh, and safe drinking water.

What happens to unspent CSR money?

Under the 2021 rules, money unspent for ongoing projects must be transferred to an Unspent CSR Account and spent within three years, and money unspent on other projects must be transferred to a fund specified in Schedule VII. Companies must also report the reasons for not spending.

Is CSR a replacement for environmental liability?

No. CSR spending does not replace a company's legal duties to control pollution, obtain clearances, pay compensation or follow conditions under environmental laws. Under the polluter pays principle, a firm that causes damage remains liable, while CSR is meant for additional work for communities and the environment.

PYQ Practice — Statement Analysis

1 CSR is covered under Section 135 of the Companies Act, 2013.

True

Effective April 2014.

2 The CSR rate is 5 percent of net profit.

False

At least 2 percent.

3 Contributions to the Clean Ganga Fund count as CSR.