India was one of the first countries in the world to mandate Corporate Social Responsibility (CSR) expenditure for qualifying companies under a national statute. Since Section 135 of the Companies Act, 2013 came into effect, hundreds of thousands of crores of rupees have been directed by Indian companies towards social, environmental, and developmental activities across the country.
Today, CSR has evolved into something far larger than a compliance obligation. Environmental, Social, and Governance (ESG) considerations have become a core lens through which institutional investors, global supply chain partners, credit rating agencies, and increasingly regulators evaluate Indian companies. The integration of CSR strategy, ESG performance, and sustainability reporting is now a boardroom priority — not just a CSR department function.
The CSR Mandate: Who Qualifies and What Is Required
Section 135 of the Companies Act, 2013 mandates CSR for every company — private limited, public limited, or foreign — that meets any one of the following thresholds in the immediately preceding financial year: net worth of Rs. 500 crore or more; turnover of Rs. 1,000 crore or more; or net profit of Rs. 5 crore or more.
Qualifying companies must spend at least 2% of the average net profits of the immediately preceding three financial years on CSR activities. Net profit for this purpose is calculated under Section 198 of the Act — a computation that differs from accounting profit in several respects, including exclusions for capital gains and dividends. The computation must be done carefully to arrive at the correct CSR obligation.
CSR activities must be carried out in accordance with Schedule VII of the Act, which specifies permitted activities across areas including eradicating extreme hunger and poverty; promoting education, gender equality, and women empowerment; ensuring environmental sustainability; healthcare including sanitation and safe drinking water; rural development; slum area development; and support to national funds and development initiatives.
CSR Governance: The CSR Committee and Policy
Companies meeting the CSR threshold must constitute a CSR Committee of the Board comprising at least three directors, including at least one independent director (for companies required to have independent directors). The CSR Committee is responsible for formulating and recommending the CSR Policy to the Board; recommending the amount of expenditure; and monitoring CSR policy implementation.
The CSR Policy must be approved by the Board and published on the company’s website. It must specify the areas of CSR activity, the implementing mechanism (through own foundation, registered societies, Section 8 companies, or approved implementing agencies), the monitoring and reporting framework, and the surplus utilisation policy.
The Board’s Report must include an annual report on CSR activities — disclosing the CSR obligation, the amount spent, project-wise details, and, where the company has not spent the full obligated amount, the reasons and the amount transferred to Unspent CSR Account or specified funds.
Unspent CSR: The 2021 Amendment and Its Implications
The Companies (CSR Policy) Amendment Rules, 2021 introduced a fundamental change in the treatment of unspent CSR funds. Companies now have a mandatory obligation to transfer any unspent ongoing project funds to a special Unspent CSR Account within 30 days of the financial year end, and utilise these funds within three years. Unspent amounts not pertaining to ongoing projects must be transferred to specified Government funds within six months of the financial year end.
The amendment also introduced an impact assessment obligation for companies with annual CSR expenditure of Rs. 10 crore or more — requiring independent third-party evaluation of at least 5 projects. The impact assessment report must be included in the Annual Report and filed with the Board.
These provisions have significantly tightened CSR compliance. Companies can no longer carry forward unspent amounts indefinitely — non-compliance results in penalties of twice the amount required to be transferred or Rs. 1 crore, whichever is less, for the company, and penalties for defaulting officers.
ESG: Beyond Compliance into Strategy
While CSR is about what a company does for society, ESG is about how a company operates — its environmental footprint, social practices, and governance quality. The two are related but distinct. A company can be CSR compliant while having poor environmental practices in its own operations; a company can have excellent ESG scores while spending minimally on external CSR.
SEBI’s Business Responsibility and Sustainability Reporting (BRSR) framework, which replaced the Business Responsibility Report (BRR) from 2022-23 for the top 1,000 listed companies and is being progressively extended, represents India’s most comprehensive ESG disclosure framework. BRSR requires companies to disclose against nine principles covering ethics, product sustainability, employee wellbeing, stakeholder engagement, human rights, environmental stewardship, public policy, customer protection, and inclusive growth.
Global investors, particularly foreign institutional investors and development finance institutions, now conduct ESG due diligence as part of investment decisions. Indian companies in global supply chains face ESG requirements from their multinational customers. Credit rating agencies are integrating ESG risk factors into credit analysis. The business case for robust ESG performance has never been stronger.
How Sudhir Hulyalkar & Co. Can Help
Navigating CSR compliance, ESG strategy, and sustainability reporting requires both technical expertise and strategic clarity. Sudhir Hulyalkar & Co. offers a full spectrum of CSR and ESG advisory services — from computing the annual CSR obligation and constituting the CSR Committee to drafting the CSR Policy, advising on implementing agency selection and project structuring, managing the Unspent CSR Account, and preparing BRSR disclosures for listed companies.
Our CSR professionals are qualified Company Secretaries with deep expertise in both the statutory framework and practical implementation challenges. We work with companies of all sizes — from large listed corporations to mid-sized manufacturers entering the CSR obligation threshold for the first time. Our approach combines rigorous statutory compliance with strategic counsel on building CSR and ESG narratives that resonate with investors, regulators, and communities.
As India’s regulatory and investor expectations around sustainability continue to evolve, companies that invest in building genuine CSR and ESG capability — rather than treating it as a form-filing exercise — will find themselves at a significant competitive advantage. We would be delighted to help you build that advantage.