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Fundamentals of Business Economics and Management · Economic and Business Environment

Business Ethics, CSR and Sustainability Explained

Updated 10 October 2026 · Fact-checked

Business ethics is the set of moral standards a business follows in its dealings. Corporate social responsibility (CSR) is a firm's duty to society beyond profit. Sustainability means meeting present needs without harming future generations. In MCQs, match the situation to the right term and pick the answer that balances profit, people and planet.

Understand Ethics, Social Responsibility and Sustainability in Business

Business ethics means doing business by moral principles such as honesty, fairness, transparency and respect for law. It decides what a firm should do, not only what it legally can do. Ethical conduct builds trust with customers, employees, investors and the public.

Corporate social responsibility (CSR) is the idea that a business owes something to society, not only to its owners. The firm's stakeholders include shareholders, employees, customers, suppliers, government and the community. CSR means looking after their interests, for example through education, health, skill development, environment protection and rural development projects.

Sustainability (sustainable development) means growing in a way that meets today's needs without reducing the ability of future generations to meet theirs. For business, this means using resources carefully, cutting waste and pollution, and thinking long term. It is often described through three pillars: economic, social and environmental. This is also called the triple bottom line: profit, people and planet.

Section 135 of the Companies Act, 2013 makes CSR a legal requirement for companies that meet any one of these thresholds in the immediately preceding financial year:

  • Net worth of ₹500 crore or more
  • Turnover of ₹1000 crore or more
  • Net profit of ₹5 crore or more

Such companies must have a CSR policy and spend at least 2% of their average net profit of the preceding three financial years on CSR activities. A covered company must also constitute a CSR Committee of the board. The exception is a company whose CSR obligation is ₹50 lakh or less. It need not constitute a committee, and its board discharges the committee's functions. The net profit for this purpose is computed as per Section 198 of the Act, not simply taken from the profit figure in the question.

These ideas sit inside the business environment. Society expects ethical behaviour, law pushes CSR, and the planet limits resource use. A firm that ignores them risks penalties, bad reputation and loss of customers.

Key formulas to remember

CSR spending requirement (Section 135)
Minimum CSR spend = 2% × average net profit of the preceding three financial years
Applies only to companies meeting any one threshold in the immediately preceding financial year: net worth ₹500 crore or more, turnover ₹1000 crore or more, or net profit ₹5 crore or more. Net profit is computed as per Section 198. Questions use simple numbers and usually give the net profit to use.
Triple bottom line
Profit + People + Planet
Economic, social and environmental performance together. Use it to recognise sustainability questions.
Sustainable development idea
Meet present needs without compromising future generations' needs
The core definition. Options that ignore the future are wrong.
CSR Committee requirement
Covered company → CSR Committee + CSR policy + board-approved spending
Remember the three working parts of Section 135 compliance. If the company's CSR obligation is ₹50 lakh or less, it need not constitute a CSR Committee and its board performs the committee's functions.

How to solve Ethics, Social Responsibility and Sustainability in Business questions

Most questions on this topic test definitions, features and who-does-what. Use this method.

  1. 1Read the stem and spot the key word: ethics, CSR, sustainability, stakeholder, Section 135 or triple bottom line.
  2. 2Decide whether the question asks for a definition, an example, a benefit, a legal rule or a calculation.
  3. 3For a definition, choose the option that mentions moral standards (ethics), duty to society beyond profit (CSR) or future generations (sustainability).
  4. 4For an example, check who benefits. Spending on community education or pollution control is CSR. A routine ad campaign for sales is not.
  5. 5For a legal question, link it to Section 135: covered companies (net worth ₹500 crore or more, turnover ₹1000 crore or more, or net profit ₹5 crore or more), CSR Committee (not needed if the CSR obligation is ₹50 lakh or less, when the board performs its functions), policy, 2% of average net profit.
  6. 6For a calculation, find the average net profit of the preceding three years first, then take 2%.
  7. 7Eliminate options with words like only, never or solely profit, since these usually contradict the broad idea of responsibility.
  8. 8Check the unit and the final figure before marking.

Quickest way: Keyword matching for CSR and ethics MCQs

When to use it: Use it for definition and concept questions when you have under a minute per question.

  1. Underline the key word in the stem.
  2. Link it to one anchor phrase: ethics = right and wrong, CSR = duty to society, sustainability = future generations, Section 135 = 2% of average net profit.
  3. Pick the option containing the anchor phrase.
  4. Drop any option that says the business exists only for profit.
  5. For calculations, add the profits, divide by the number of years, then multiply by 2 ÷ 100.

Common mistakes in Ethics, Social Responsibility and Sustainability in Business

  • Treating ethics and law as the same thing.

    Both guide behaviour, so they seem identical.

    Fix: Law is what you must do. Ethics is what you should do. An act can be legal yet unethical.

  • Calling CSR just charity or donation.

    Donations are the most visible CSR activity.

    Fix: CSR is a wider duty to all stakeholders and includes fair practices, environment care and community projects.

  • Using only the latest year's profit to compute the CSR spend.

    Students rush and skip the average.

    Fix: Use the average net profit of the preceding three financial years, then take 2%.

  • Thinking sustainability only means environment protection.

    The word is linked with green issues in the news.

    Fix: Remember the three pillars: economic, social and environmental.

  • Believing CSR is voluntary for every company.

    Older textbooks describe CSR as voluntary.

    Fix: Under Section 135, covered companies must follow the CSR provisions. Companies that meet none of the thresholds remain outside the legal duty.

  • Confusing stakeholders with shareholders.

    The two words look and sound alike.

    Fix: Shareholders are owners. Stakeholders are all groups affected by the business, including shareholders.

Worked examples

Example 1

A company has net profit above ₹5 crore in the preceding financial year, so Section 135 applies to it. Its net profits, computed as per Section 198, were ₹3,00,00,000, ₹4,00,00,000 and ₹5,00,00,000 in the last three financial years. What is the minimum CSR spend for the current year? (a) ₹6,00,000 (b) ₹8,00,000 (c) ₹12,00,000 (d) ₹24,00,000

Show the solution
  1. Check coverage: the company meets the net profit threshold of ₹5 crore, so Section 135 applies.
  2. Use the Section 198 net profits given for the three preceding years and add them: 3,00,00,000 + 4,00,00,000 + 5,00,00,000 = ₹12,00,00,000.
  3. Find the average: 12,00,00,000 ÷ 3 = ₹4,00,00,000.
  4. Take 2%: 4,00,00,000 × 2 ÷ 100 = ₹8,00,000.
  5. Match with the options: option (b).

Answer: (b) ₹8,00,000

Example 2

A textile company builds a school for children in villages near its factory and installs a water treatment plant to stop river pollution. This is best described as: (a) Window dressing (b) Corporate social responsibility with sustainable practice (c) Price discrimination (d) Tax avoidance

Show the solution
  1. Identify the actions: school for the community and pollution control.
  2. The school serves society, which fits CSR.
  3. The treatment plant protects the environment for the future, which fits sustainability.
  4. Options (a), (c) and (d) have no link to social or environmental benefit.
  5. So option (b) is correct.

Answer: (b) Corporate social responsibility with sustainable practice

Exam tips

  • Learn the one-line definitions of ethics, CSR and sustainability. Most MCQs test them directly.
  • Memorise the Section 135 basics: the three thresholds, CSR Committee, CSR policy and 2% of average net profit of the preceding three years. Do not spend time on fine details beyond your study material.
  • In calculation questions, always average first, then take 2%.
  • Be careful with options using absolute words such as only, never or always. They are often traps.
  • Since there is no negative marking, attempt every question. Eliminate and guess when unsure.

Practice questions from Economic and Business Environment

Ethics, Social Responsibility and Sustainability in Business in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Ethics, Social Responsibility and Sustainability in Business: frequently asked questions

What is the difference between business ethics and CSR?

Business ethics is about moral conduct in everyday dealings, such as honesty and fairness. CSR is about a firm's wider duty to society and the environment. Ethics guides how you act. CSR guides what you give back.

What is Section 135 of the Companies Act in simple words?

It is the section that makes CSR mandatory for companies that meet any one threshold in the preceding financial year: net worth of ₹500 crore or more, turnover of ₹1000 crore or more, or net profit of ₹5 crore or more. Such companies adopt a CSR policy and spend at least 2% of the average net profit of the preceding three financial years on CSR activities. They must constitute a CSR Committee, except a company whose CSR obligation is ₹50 lakh or less, where the board discharges the committee's functions. Net profit is computed as per Section 198.

What is sustainable development in business?

It means running a business so that present needs are met without harming future generations. It balances economic growth, social well-being and environmental care. It is often called the triple bottom line.

Who are stakeholders in CSR?

Stakeholders are all groups affected by or interested in a business. They include shareholders, employees, customers, suppliers, government and the local community. CSR looks after the interests of all of them.