Evolution of CSR From Voluntary Efforts to Mandatory Compliance

The world we live in is not getting better, let's face reality. Climate change exists, the glaciers are melting, the number of forests is decreasing, natural resources are depleting, this list goes on. For us to want a better world and continue our survival, we need to contribute to it – this is an individual social responsibility. Similarly, businesses also need to continue their survival by completing their contribution to the world – this term is officially known as Corporate Social Responsibility (abbreviated as CSR). CSR is a company’s commitment to ethical business practices, social well-being activities and sustainability initiatives. It plays a huge role in brand building, employer branding and trust of customers.

CSR in India has evolved from philanthropy driven initiatives by big players such as TATA, Birla, and Bajaj, contributing towards social causes such as education & healthcare. Over time, CSR efforts expanded to nation-building, infrastructure growth, and overall economic development. CSR began as a voluntary effort, particularly among companies with large capital reserves. Companies with significant capital, such as Tata and Birla, gained strong reputations due to their philanthropic contributions—making them aspirational workplaces even today.

But these voluntary efforts did not cover up the impact of big industries on the environment, and following that, India became the first company to legally mandate CSR in India through the Companies Act, 2013.

• This act outlines the eligibility, the amount to be spent in CSR activities, the penalties and the impact areas. 

• Three criteria are under the ambit of CSR eligibility for the companies operating in India which impose a mandate to ensure social commitments:  

• Net worth of the company to be Rs 500 crore or more; or 

• The company turnover is Rs 1000 crore or more; or 

• Net profit of the company to be Rs 5 crore or more 

• Companies that fit the criteria must spend at least 2% of their average net profit over the past three years on CSR activities. Companies can fulfill CSR obligations by: 

• Contributing to social impact areas (education, healthcare, gender equality, rural development, etc.) 

• Explaining unspent CSR funds in board reports 

• Redirecting unspent CSR funds to government-approved funds 

Now that the information-filled aspect of this article is done, let’s actually talk about how companies are getting around the CSR mandate. In true Indian fashion, companies have found a loophole in the law that allows them to meet compliance without engaging in meaningful CSR work. If a company fails to spend its CSR funds on the listed impact areas, the law gives them an easy way out—either transfer the money to a separate CSR fund or donate it to a government-approved fund. And here’s where it gets interesting: government-approved funds include disaster relief, medical treatment, terror attack relief, railway accident assistance, Swachh Bharat funds, and R&D funds. And to top it all off? Many of these funds qualify for 100% tax exemption.

The best example of this was during the COVID-19 pandemic, when the PM CARES fund was suddenly recognized as an eligible CSR fund. The result? A massive influx of corporate donations, starting with big conglomerates, followed by government-run enterprises, and then smaller private companies. Overnight, billions of rupees that traditionally went to grassroots CSR projects—education, healthcare, sustainability, and rural development—were rerouted into a fund that operates behind closed doors. The issue? PM CARES is exempt from the Right to Information (RTI) Act, meaning there’s zero transparency on how these funds are being used.

This loophole completely changed the game. Earlier, companies were funding real, visible initiatives, where the public could actually see and measure the impact. But suddenly, NGOs and social programs started struggling with budget cuts, project delays, and even shutdowns due to "lack of funds." Meanwhile, companies could now check off their CSR obligations with a single transfer to a government-backed fund, skipping the entire process of implementing long-term, sustainable projects.

So, what was meant to hold companies accountable for their social impact has instead turned into a compliance formality—where money moves, but impact doesn’t.

CSR became mandatory due to the undeniable social and environmental impact—both positive and negative—of corporate activities. Making CSR mandatory increased awareness and the growth in number of NGOs (especially those that are under the parenthood of large corporations.

Companies can definitely donate their CSR funds to the government approved funds to be in compliance of the act, but for those who actually want to make a change themselves, certain business strategies can help them stay compliant (by not just donating), because Corporate Social Responsibility is most effective when it is the core strategy of a company, not just a standalone initiative:

1. Integrate CSR into Corporate Strategy:  Align CSR initiatives with business goals ensures long-term impact and gives a competitive advantage to companies. This would enhance the impact of the company and also create a boost in the reputation of the company. Making CSR the priority of the top management trickles down to the rest of the company.  

2. Stakeholder Engagement:  CSR is most effective when it meets the needs of the community. This is not limited to government collaboration, but companies can work with local NGOs, build their own NGO, collaborate with industry peers and see the effort reflected in society.   

3. Transparency and Reporting:  Preparing and publishing CSR reports for the public to consume ensures accountability and measures the impact of CSR efforts by the company by converting them into actionable insights and numbers.  

4. Employee Participation:  Inculcating CSR-friendly behaviour in company culture is extremely important. This makes employees empathetic and fosters the culture of responsibility. And this could also help in coming up with new and better initiatives. 

The best way to end this article would be to actually reflect upon the impact that companies have on society. At its core, CSR is not just about compliance; it’s about responsibility—a responsibility that corporations have towards the people and the planet. While laws and regulations can mandate spending, true impact comes from intent. Companies that see CSR as more than just an obligation—those that integrate it into their core business strategies—are the ones that create real, lasting change.

So, the real question is: Are businesses using CSR as a force for good, or simply as a loophole to stay compliant? The answer to this will define whether CSR remains just another regulatory checkbox or truly becomes a driver of meaningful, sustainable impact.