CSR, Stakeholder Engagement and ESG Investing
Part B of Paper 1 moves from governance structure into a company's obligations toward stakeholders beyond its shareholders — Corporate Social Responsibility under Section 135, and the broader landscape of stakeholder engagement and ESG-linked investing. As with the previous chapter, precision on current figures matters here specifically because one of this topic's most consequential numbers is currently the subject of a pending, not-yet-enacted amendment — and confusing "proposed" with "current" is this chapter's single biggest risk.
1. CSR applicability under Section 135
Section 135(1) of the Companies Act makes CSR obligations mandatory for any company meeting any ONE of three thresholds in the immediately preceding financial year: net worth of ₹500 crore or more, turnover of ₹1,000 crore or more, or net profit of ₹5 crore or more. Meeting even one of these three thresholds is sufficient — a company does not need to cross all three.
A qualifying company must spend at least 2% of its average net profit of the preceding three financial years on CSR activities.
A Corporate Laws (Amendment) Bill, 2026 has proposed raising the net-profit threshold from ₹5 crore to ₹10 crore (leaving the net-worth and turnover thresholds unchanged) — the Bill was reported by a Joint Parliamentary Committee in August 2026 broadly endorsing it, but had not been enacted as of this content's most recent review, so the current, legally applicable net-profit threshold remains ₹5 crore.
A candidate should state the current ₹5 crore figure as the operative law, mentioning the ₹10 crore proposal only as a clearly-labelled pending change.
2. The CSR Committee and the small-obligation exception
A qualifying company must constitute a CSR Committee of at least three directors, including at least one independent director (subject to relaxations for companies not otherwise required to have an independent director).
Section 135(9) provides a specific exception: where a company's CSR spending obligation does not exceed ₹50 lakh, the company is not required to constitute a separate CSR Committee at all — the board itself directly discharges the committee's functions.
This ₹50 lakh exception does not apply, however, to a company that has unspent CSR money sitting in its Unspent CSR Account for an ongoing project — such a company must still constitute the committee regardless of whether its total obligation is below ₹50 lakh.
Schedule VII lists the permitted categories of CSR activity — spanning hunger, poverty, health and sanitation; education; gender equality and women's empowerment; environmental sustainability; protection of national heritage, art and culture; benefits to armed forces veterans and war widows; sports promotion; contributions to the PM's National Relief Fund, PM CARES Fund and other specified central funds; contributions to Central-Government-approved incubators and to R&D in science, technology, engineering and medicine; rural development; slum development; and disaster management (relief, rehabilitation and reconstruction).
3. Unspent CSR amounts — two different timelines for two different situations
A company that has not spent its full CSR obligation in a given year faces two different treatment tracks, depending on whether the unspent amount relates to an "ongoing project."
| Situation | Timeline |
|---|---|
| Unspent amount relating to an ongoing project | Transferred within 30 days of financial-year-end to a separate "Unspent CSR Account"; must be spent within 3 financial years of transfer; if still unspent after 3 years, transferred to a Schedule VII fund within a further 30 days |
| Unspent amount NOT relating to an ongoing project | Transferred directly to a specified Schedule VII fund (such as PM CARES) within 6 months of financial-year-end |
Failure to transfer within the applicable timeline attracts a penalty of the lower of twice the shortfall amount or 10% of the amount required to be transferred — a specific, precise formula worth stating exactly rather than describing loosely as "a penalty."
4. Business Responsibility and Sustainability Reporting (BRSR)
BRSR is mandatory for the top 1,000 listed companies by market capitalisation, applicable from FY 2022-23 onward, and voluntary for other listed companies. It is structured around the 9 principles of the National Guidelines on Responsible Business Conduct (NGRBC), covering roughly 140 data points across essential and leadership indicators spanning environmental, social and governance performance.
A separate, phased assurance requirement — BRSR Core — applies specifically to a defined set of BRSR's key performance indicators, phased in by market-capitalisation rank: the top 150 entities from FY 2023-24, the top 250 from FY 2024-25, the top 500 from FY 2025-26, and the top 1,000 from FY 2026-27 — meaning the widest tier of this phase-in is now live for the current financial year, not merely an announced future requirement.
A subsequent SEBI circular softened the original mandate somewhat, allowing companies to choose between reasonable assurance and a third-party assessment against Industry Standards Forum-developed benchmarks for this same core data.
Worked Examples
Example 1. A company has a net worth of ₹300 crore, a turnover of ₹1,200 crore, and a net profit of ₹3 crore in the immediately preceding financial year. Is it subject to Section 135's CSR obligations?
Yes — meeting any ONE of the three thresholds is sufficient, and this company's turnover of ₹1,200 crore exceeds the ₹1,000 crore threshold, even though its net worth and net profit fall below their respective thresholds.
Example 2. A candidate states in an answer that the current CSR net-profit threshold is ₹10 crore. Evaluate this statement.
This is incorrect as a statement of current law. The ₹10 crore figure is only a proposal under the Corporate Laws (Amendment) Bill, 2026, which had not been enacted as of this content's most recent review — the current, legally applicable net-profit threshold remains ₹5 crore.
Example 3. A company's total CSR obligation for the year is ₹40 lakh, and it has no unspent amount from any ongoing project carried forward from a prior year. Is it required to constitute a separate CSR Committee?
No — since its CSR obligation does not exceed ₹50 lakh and it has no unspent ongoing-project amount, Section 135(9)'s exception applies, and the board itself can directly discharge the CSR Committee's functions without constituting a separate committee.
Example 4. The same company from Example 3, in a later year, has an unspent amount of ₹8 lakh sitting in its Unspent CSR Account relating to an ongoing project, even though its total current-year obligation is still only ₹35 lakh. Does the ₹50 lakh exception still apply?
No — the ₹50 lakh exception does not apply to a company with unspent CSR money in its Unspent CSR Account for an ongoing project, regardless of how small its total obligation is; this company must constitute a CSR Committee despite its low overall obligation.
Example 5. A company has ₹12 lakh of unspent CSR money relating to an ongoing project at the end of its financial year (31 March). By what date must this amount be transferred to the Unspent CSR Account, and within what further period must it actually be spent?
It must be transferred to the Unspent CSR Account within 30 days of financial-year-end (by around 30 April), and must be spent within 3 financial years of that transfer.
Example 6. A company has ₹5 lakh of unspent CSR money that does NOT relate to any ongoing project. What is the applicable transfer timeline, and how does it differ from the ongoing-project timeline?
It must be transferred directly to a specified Schedule VII fund (such as PM CARES) within 6 months of financial-year-end — a single, direct transfer, unlike the ongoing-project route's two-stage process (30-day transfer to an Unspent CSR Account, then up to 3 years to actually spend it).
Example 7. A listed company ranks 800th by market capitalisation for the financial year 2026-27. Is it within the current BRSR Core assurance requirement's coverage for that year?
Yes — the BRSR Core assurance requirement's phase-in reached the top 1,000 listed entities by market capitalisation from FY 2026-27, so a company ranked 800th falls within that current coverage.
Summary
Section 135's CSR obligation applies to any company meeting any one of three thresholds (₹500 crore net worth, ₹1,000 crore turnover, or ₹5 crore net profit — currently, pending an as-yet-unenacted proposal to raise the profit figure to ₹10 crore), requiring 2% of average net profit of the preceding three years to be spent, with a CSR Committee mandatory except for the Section 135(9) small-obligation exception (₹50 lakh or below, unless unspent ongoing-project money is involved).
Unspent CSR amounts follow two distinct timelines — 30 days to an Unspent CSR Account then up to 3 years to spend for ongoing projects, versus a direct 6-month transfer to a Schedule VII fund for non-ongoing-project amounts — with a lower-of-2x-shortfall-or-10% penalty for missing the applicable timeline.
BRSR is mandatory for the top 1,000 listed companies from FY 2022-23, structured around the 9 NGRBC principles, with a separately phased BRSR Core assurance requirement that reached the full top-1,000 tier from FY 2026-27 — a currently live requirement, not a future one.
