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Environmental, Social and Governance (ESG) - Principles and Practice · Corporate Social Responsibility (CSR)

Concept and Evolution of Corporate Social Responsibility (CSR)

Updated 11 October 2026 · Fact-checked

Corporate social responsibility (CSR) is a company's duty to run its business in a way that benefits society and the environment, beyond profit and legal minimums. In India it moved from voluntary charity to a legal duty under Section 135 of the Companies Act, 2013. Answer by defining, tracing the stages, then linking to Section 135.

Understand Concept and Evolution of CSR

Corporate social responsibility (CSR) means a company takes responsibility for the effect of its business on society, the environment and its stakeholders. It goes beyond making profit for shareholders. The company asks how its products, workplaces, supply chains and spending affect people.

Start with the difference from philanthropy. Philanthropy is voluntary giving, often one-time and driven by the owner's personal wish, such as a donation to a temple or hospital. CSR is a planned, policy-based approach linked to the company's business and its stakeholders. In India it is now also a legal duty for companies that meet the thresholds in Section 135. So CSR is organised and accountable. Philanthropy is discretionary.

The idea grew in stages. First came charity and philanthropy, led by business families who gave to education, health and community causes. Next came the Gandhian trusteeship idea, where business wealth is held in trust for society. Then came the stakeholder view in the post-independence period, when the state expected business to serve national development, and later sustainability and triple bottom line thinking (people, planet, profit). Globally, frameworks such as the UN Global Compact, the OECD Guidelines and the UN Sustainable Development Goals shaped expectations. Treat these as background points and name them briefly.

Theories help you explain why companies do CSR. The shareholder (classical) view says a company's main duty is to maximise profit within the law. The stakeholder view says a company owes duties to employees, customers, suppliers, communities and others. The social contract view says society permits business to operate and expects something in return. The triple bottom line measures performance on economic, social and environmental results.

In India, the Companies Act, 2013 made CSR a statutory obligation through Section 135. A company with net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year must form a CSR Committee. The Board must ensure the company spends at least 2% of the average net profits of the three immediately preceding financial years. Unspent amounts must be handled as the section requires, or the company faces penalties. This is the shift from voluntary to mandatory.

Key rules to remember

Applicability thresholds (Section 135(1))
Net worth ≥ ₹500 crore OR turnover ≥ ₹1,000 crore OR net profit ≥ ₹5 crore, in the immediately preceding financial year
Meeting any one threshold is enough. The test looks at the immediately preceding financial year.
Minimum CSR spend (Section 135(5))
CSR spend ≥ 2% × average net profit of the three immediately preceding financial years
Net profit is calculated as per Section 198 and excludes sums prescribed. If the company is under three years old, use the immediately preceding financial years available.
CSR Committee composition (Section 135(1))
At least 3 directors, including at least 1 independent director
If the company need not appoint an independent director under Section 149(4), it needs 2 or more directors.
Small spend exemption (Section 135(9))
If CSR amount ≤ ₹50 lakh, no Committee is required
The Board of Directors then performs the Committee's functions.
Ongoing project unspent amount (Section 135(6))
Transfer to Unspent CSR Account within 30 days from end of financial year; spend within 3 financial years from transfer
If not spent, transfer to a Schedule VII Fund within 30 days from completion of the third financial year.
Other unspent amount (Section 135(5))
Transfer to a Schedule VII Fund within 6 months of the expiry of the financial year
This applies when the unspent amount does not relate to an ongoing project. The Board must also give reasons in its report.
Penalty (Section 135(7))
Company: lesser of 2 × amount to be transferred or ₹1 crore. Officer in default: lesser of 1/10 of that amount or ₹2 lakh
Applies on default under sub-section (5) or (6).

How to solve Concept and Evolution of CSR questions

Use this method for theory questions on meaning, evolution, theories and the statutory shift to Section 135.

  1. 1Read the question and mark the command word: define, explain, trace, distinguish, discuss or comment.
  2. 2Open with a short definition of CSR in your own words: responsibility for the impact of business on society and environment, beyond profit.
  3. 3Bring in the evolution in order: philanthropy, trusteeship, stakeholder approach, sustainability and global frameworks, then the statutory stage.
  4. 4Add the relevant theory or framework only if the question needs it, and state it in one line each.
  5. 5Link to the law: cite Section 135, the thresholds, the 2% rule and the Committee, quoting figures exactly.
  6. 6For a case-based question, apply the facts: check each threshold, compute the spend, and state your conclusion.
  7. 7Close with a one-line conclusion that answers the question asked.

Quickest way: Define, trace, link to Section 135

When to use it: Use when you have about 8 to 10 minutes for a descriptive question on CSR meaning or evolution.

  1. Write a two-line definition.
  2. List the stages in a short numbered line: philanthropy, trusteeship, stakeholder view, sustainability, statute.
  3. Write the Section 135 facts: thresholds, Committee of 3 directors with 1 independent, 2% of average net profit of three years.
  4. For a distinction question, make two columns of points in sentences: motive, nature, planning, legal force, accountability.
  5. End with the conclusion.

Common mistakes in Concept and Evolution of CSR

  • Treating CSR and philanthropy as the same thing.

    Both involve giving money to society, so they look alike.

    Fix: State that philanthropy is voluntary and often one-off, while CSR is planned, policy-based, tied to stakeholders and, for covered companies, mandatory.

  • Saying a company must spend 2% of the current year's profit.

    Students remember '2%' but forget the base.

    Fix: Write: at least 2% of the average net profits made during the three immediately preceding financial years.

  • Requiring all three thresholds to be met for Section 135 to apply.

    The thresholds are listed together and read as 'and'.

    Fix: The text says 'or'. Any one of net worth ₹500 crore, turnover ₹1,000 crore or net profit ₹5 crore is enough.

  • Writing that every covered company must have a three-member CSR Committee.

    Section 135(9) is missed.

    Fix: If the CSR amount does not exceed ₹50 lakh, the Committee is not needed and the Board performs its functions.

  • Presenting CSR as only a post-2013 idea.

    Focus on Section 135 hides the earlier history.

    Fix: Show that voluntary CSR, trusteeship and stakeholder thinking came first, and 2013 made it statutory.

  • Mixing up the 30-day and 6-month rules for unspent amounts.

    Both deal with transfers after the year-end.

    Fix: Ongoing project: Unspent CSR Account within 30 days. Other unspent amount: Schedule VII Fund within 6 months.

Worked examples

Example 1

Distinguish between corporate social responsibility and philanthropy. (Answer in a structured way.)

Show the solution
  1. Define each term. Philanthropy is voluntary giving by a person or company for a social cause, often driven by personal choice. CSR is a company's planned responsibility for the impact of its business on society and environment.
  2. Compare motive. Philanthropy comes from charity or personal values. CSR comes from stakeholder expectations, business sustainability and, for covered companies, legal duty.
  3. Compare nature. Philanthropy is often occasional and reactive. CSR is policy-based, with a Board-approved policy and a continuing plan.
  4. Compare legal force. Philanthropy has no statutory duty. For covered companies, CSR spending is required under Section 135.
  5. Compare accountability. CSR has Board oversight, a Committee, disclosure in the Board's report and consequences for non-compliance. Philanthropy has no such framework.

Answer: Philanthropy is voluntary, discretionary giving. CSR is a planned, accountable approach linked to stakeholders and, for companies meeting Section 135 thresholds, a statutory obligation.

Example 2

Sundaram Textiles Ltd has net worth of ₹320 crore, turnover of ₹1,150 crore and net profit of ₹4 crore in the immediately preceding financial year. Its net profits (as per Section 198) in the three immediately preceding years were ₹3 crore, ₹6 crore and ₹9 crore. Does Section 135 apply, and what is the minimum CSR spend?

Show the solution
  1. Check the thresholds. Net worth ₹320 crore is below ₹500 crore. Net profit ₹4 crore is below ₹5 crore. Turnover ₹1,150 crore is at least ₹1,000 crore.
  2. Since any one threshold is enough, Section 135 applies.
  3. Compute average net profit of three years: (3 + 6 + 9) ÷ 3 = 18 ÷ 3 = ₹6 crore.
  4. Compute minimum spend: 2% of ₹6 crore = ₹12 lakh.
  5. Check the Committee. ₹12 lakh does not exceed ₹50 lakh, so under Section 135(9) the Committee is not required and the Board performs its functions.

Answer: Section 135 applies because turnover meets the ₹1,000 crore threshold. The minimum CSR spend is ₹12 lakh, and the Board can discharge the Committee's functions.

Exam tips

  • Begin every theory answer with a crisp definition, then the evolution in order. Examiners reward structure.
  • Quote thresholds and time limits exactly: ₹500 crore, ₹1,000 crore, ₹5 crore, 2%, three years, 30 days, 6 months.
  • In case-based questions, test each threshold separately, show the average-profit calculation and state the conclusion in one line.
  • For distinction questions, use four or five clear points such as motive, nature, legal force and accountability.
  • Refer to the Act's wording where you can, but keep it in your own words and avoid long quotations.

Practice questions from Corporate Social Responsibility (CSR)

Concept and Evolution of CSR in other exams

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

Concept and Evolution of CSR: frequently asked questions

What is corporate social responsibility in simple words?

CSR is a company's responsibility to manage its impact on society and the environment, beyond earning profit. It covers how it treats employees, communities and the environment. In India, companies meeting Section 135 thresholds must also spend on CSR.

How did CSR become mandatory in India?

CSR began as voluntary charity and stakeholder-focused practice. The Companies Act, 2013 made it a statutory obligation through Section 135 for companies meeting the net worth, turnover or net profit thresholds. Later amendments tightened rules on unspent amounts and penalties.

What is the difference between CSR and philanthropy?

Philanthropy is voluntary and often one-off giving. CSR is planned, linked to stakeholders and governed by a policy. For covered companies it is also legally required.

Does a company need to meet all three thresholds under Section 135?

No. Meeting any one of net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more in the immediately preceding financial year is enough.