What is CSR Fund?

In today’s socially conscious world, businesses are expected to do more than just seek profit—they are called to be stewards of positive change. This is where Corporate Social Responsibility (CSR) comes into play, and understanding what is CSR fund becomes crucial. A CSR fund represents a company’s commitment to allocating resources toward social, environmental, and ethical initiatives that benefit society as a whole. Originating from the rising global awareness in the 1990s and solidified by regulatory frameworks like India's Companies Act, 2013, CSR has transformed from a voluntary gesture to a statutory obligation.

Through CSR funds, companies engage in activities such as community development, environmental sustainability, and ethical business practices, demonstrating their dedication to creating a more equitable and sustainable world. Whether it's investing in renewable energy, supporting healthcare initiatives, or fostering rural development, CSR funds empower businesses to make meaningful contributions beyond their corporate walls.

In this blog, we’ll dive deeper into the evolution of CSR, how it operates, the legal frameworks guiding it, and the diverse ways companies can utilize CSR funds for maximum impact. Let's explore how understanding what is CSR fund not only enhances a company’s reputation but also fuels its long-term success.

What Is CSR And How Does It Work?

A management concept, CSR talks about the ways in which a company can contribute to the well-being of humanity and the public as a whole. The initiative allows businesses to understand the environmental and social impact of their operations by mitigating the side effects of such operations. CSR covers initiatives like community development, employee welfare, and environmental sustainability.

CSR: Historical Evolution

It was in the 1990s when the term ‘CSR’ started being used frequently when sweatshops supplying garments to Nike gained attention globally via media coverage. Around the same time, there were incidents such as BP’s Deepwater Horizon oil spill in 2010 furthering questioning the need for initiatives such as CSR. The experts then introduced CSR as a self-regulatory mechanism so that companies conduct their operations in a socially and ethically responsible way by taking care of the environment as a whole. At the same time, the authorities also observed how organisations were performing CSR activities when they faced pressure from the public and social movements.

The absence of regulations related to CSR was another reason why such activities were not taking place regularly. However, in since last two decades, it has been compulsory to carry out CSR activities. Entities need to comply with the relevant social disclosure legislation as per their local jurisdiction.

How Does CSR Work?

The CSR regulation has brought a major shift in corporation law. Now, it is mandatory for companies to make certain disclosures (even if they are irrelevant to shareholders). This procedure is carried out to maintain transparency with wider groups such as consumers, the local community, media, NGOs, and so on to address issues like human rights and social duty.

Entities now work towards eliminating human trafficking, modern slavery, or violation of human rights in their respective home countries through their actions. Not only that, they also try to prevent such cruel practices in those developing countries where they have a business presence.

Legal Framework Governing CSR Funds

The regulatory framework for Corporate Social Responsibility (CSR) funds in India is mainly codified in Section 135 of the Companies Act, 2013, and the Companies (CSR Policy) Rules, 2014. The rules require companies with certain financial criteria (net worth, turnover, or net profit) to spend at least 2% of their average net profits of the last three financial years on CSR activities. This regime brought CSR from being a voluntary activity to a statutory requirement, making India a pioneer country to do so.

The Companies Act, 2013, lists the CSR activities eligible in Schedule VII, ranging from hunger and poverty elimination to education promotion, gender equality, environmental sustainability, and contributions to various government funds. The rules also state the CSR committee requirements, CSR policy, and reporting mechanisms, thereby making CSR expenditures transparent and accountable. CSR activities can be carried out directly by companies or through registered trusts, societies, or Section 8 companies with a good track record.

The CSR structure in India has developed considerably since its introduction, with the Ministry of Corporate Affairs releasing amendments and clarifications to solve implementation issues and increase the effect of CSR programs. The government has also laid stress on the need for impact assessment and third-party audits so that CSR money is spent wisely and helps attain sustainable development goals. Although the legal structure is strong enough for CSR in India, its achievement relies on effective implementation, stakeholder participation, and a real commitment from organizations to help bring about social good.

Types of CSR Funds

The various types of CSR Funding are as follows:

Ethical Funding

Entities must perform ethical tasks to comply with fair processes whether it is regarding the supply chain or boardroom. They need to treat customers, employees, and stakeholders by utilising funds ethically to deliver fair and respectful results. Organisations can put money into many ethical tasks to carry out ethical duties. They can divert such funds towards providing competitive pay, raising minimum wages, sourcing environment-friendly products, full employee benefits and equal treatment of their employees.

Environmental Funds

Companies complying with CSR need to be eco-friendly. Their strategies should work towards reducing harm and promoting sustainability. Further, they must work towards reducing greenhouse gas emissions, pollution, waste, and resource depletion. Businesses can reduce their environmental impact by being environmentally responsible. Environmental responsibility varies by firm size and industry. Some companies use renewable energy and sustainable materials.

Economic Funds

A business should utilise economic funds to make financial decisions benefitting society at large. They should perform socially responsible corporate work and give priority to suppliers who provide sustainable materials. Entities can further invest funds in having a transparent salary system in place to ensure equal compensation for all employees.

Application For CSR Funds

Securing CSR funding in India requires eligible organizations (registered trusts, societies, or Section 8 companies with necessary certifications like 12A, 80G, and FCRA if applicable) to strategically research potential donors, craft compelling proposals aligned with their CSR goals, and build strong relationships. Crucially, organizations must be registered with the MCA (CSR-1) to receive CSR funds, and while not mandatory for receiving funds, registration on NGO Darpan enhances visibility and connection with potential donors.

How To Get CSR Funding

Securing CSR funding in India requires a strategic approach focused on eligibility, research, and compelling proposals. Your organization must be a registered trust, society, or Section 8 company, possessing necessary certifications like 12A, 80G, and FCRA (if applicable), and crucially, be registered on the MCA portal with a CSR-1 number. Registering on the NGO Darpan portal further enhances visibility. The next step is thorough research to identify companies whose CSR focus aligns with your organization's mission. Review their CSR policies and past initiatives. Networking at CSR events and directly contacting CSR teams are vital for establishing connections.

A well-drafted proposal is essential. It should clearly define the project, its objectives, and how it aligns with the potential donor's CSR goals. Emphasize the project's social impact and how it will be measured. Provide a detailed budget and showcase your organization's credibility, experience, and past achievements. Maintaining transparency in financials and project implementation is crucial. Leverage online platforms like CSRBOX and NGO Darpan, along with a professional website and social media presence, to broaden your reach. Building strong relationships and consistent communication with potential donors are key to securing CSR funding.

Eligibility For Receiving CSR Funds

To be eligible to receive CSR funds in India, an organization must be legally registered as a trust, society, or Section 8 company. Think of it as getting your official stamp of approval to operate in the social impact space. Beyond just registration, certain certifications boost your credibility and make you more attractive to potential funders. Having certifications like 12A and 80G demonstrates your commitment to tax compliance and allows donors to claim tax benefits for their contributions.

If you plan to receive funds from foreign sources, obtaining FCRA registration is also essential. Essentially, these registrations and certifications act as a mark of trust, assuring companies that their CSR funds will be utilized responsibly and effectively. In addition to these foundational legal requirements, there's a crucial step specifically for receiving CSR funds: registration with the Ministry of Corporate Affairs (MCA). This is done by filing form CSR-1, which generates a unique CSR registration number for your organization. This number is like your CSR ID card, making you officially recognized within the CSR ecosystem.

While not strictly an eligibility criterion for existing NGOs, it's mandatory for receiving CSR contributions from companies. It signifies that your organization is actively seeking and eligible to receive CSR funding, streamlining the process for both you and the companies looking to fulfill their CSR obligations. Finally, while not strictly mandatory for receiving funds, registering on the NGO Darpan portal further enhances visibility and facilitates connections with companies seeking suitable CSR projects.

List Of Top Organizations And Their CSR Contributions

The organisations that have made CSR contributions are as follows

ITC

ITC secured the third position for its strategic CSR efforts in 2023. The company’s programs addressed key development challenges, empowering women, benefiting marginalized communities, and enhancing human development. Interventions focused on livelihoods, water stewardship, biodiversity, climate-smart agriculture, livestock, education, skilling, sanitation, and health, demonstrating ITC’s commitment to holistic community development.

JSW Steel

JSW Steel secured the fifth position for its strategic CSR efforts in 2023. The company, through the JSW Foundation, undertook comprehensive programs across education, health, water, sanitation, skills, agriculture, and heritage preservation. JSW’s interventions focused on community well-being, leveraging stakeholder engagement to create a self-sustaining ecosystem. The company consistently increased its CSR expenditure, demonstrating a long-term commitment to sustainable development.

Also Read : Features Of Sustainable Development

Benefits Of CSR Funds

A few benefits of CSR Funds are:

• Competitive Advantage

As consumers and investors value ethical and socially responsible business practices, investing in CSR can give a company a market advantage.

• Risk Mitigation

Proactive CSR can help organizations detect and reduce risks, including environmental difficulties, labour disputes, and regulatory changes, which can affect operations and profitability.

• New Markets and Opportunities

CSR programs can help companies establish their social and environmental commitment in disadvantaged or developing regions, opening them to new markets.

• Better Financial Performance

While the direct financial benefit of CSR is not always quantifiable, studies have shown that organizations with excellent CSR practices generally outperform their rivals in financial metrics like return on equity and return on assets.

Example Related CSR Funds

Such examples where CSR funds can be utilised are as follows:

Healthcare Initiatives

A pharmaceutical company like Cipla could use its CSR funds to organize free health check-up camps in rural areas. They might also fund the development of new, affordable medicines for prevalent diseases. This demonstrates a commitment to public health and well-being, going beyond just selling medications.

Environmental Sustainability

Think of a large manufacturing company like Tata Steel. They could allocate CSR funds to plant trees in areas affected by deforestation. They might also invest in renewable energy projects to reduce their carbon footprint. This shows a commitment to protecting the environment and mitigating the effects of climate change.

Rural Development

A company like Mahindra & Mahindra, with its focus on rural communities, could use CSR funds to support farmers by providing access to modern farming techniques and equipment. They might also invest in developing infrastructure in villages, like building roads and providing access to clean water. This helps to improve livelihoods and create more sustainable rural communities.

Conclusion

As businesses evolve, the role of Corporate Social Responsibility (CSR) has become more significant than ever. Understanding what is CSR fund helps organizations align their corporate objectives with social, environmental, and ethical responsibilities. CSR funding enables companies to contribute to sustainable development by investing in initiatives that benefit communities, promote environmental sustainability, and uphold ethical business practices.

With regulatory frameworks like India’s Companies Act, 2013, CSR has transitioned from a voluntary practice to a legal obligation, ensuring transparency and accountability in corporate contributions. Companies that strategically allocate CSR funds not only fulfill their legal duties but also build a positive brand image, gain consumer trust, and create long-term business value.

By leveraging CSR funds effectively, businesses can drive meaningful change, mitigate risks, and tap into new growth opportunities. Whether through healthcare programs, environmental projects, or rural development, CSR remains a powerful tool for fostering social progress. In essence, what is CSR fund is more than just a compliance requirement—it is a pathway to responsible and sustainable business growth.

FAQs

Q1. What is the legal framework of CSR in India?

Section 135 of the Companies Act and Companies (CSR) Policy Rules, 2014 governs CSR in India. Under these provisions, it is mandatory for eligible companies to spend a part of their funds on CSR activities.

Q2. What is the procedure for NGOs to get funding in India?

NGOs that wish to get CSR funding are required to be registered as a trust, society, or Section 8 companies with relevant certifications (12A, 80G, FCRA if applicable), and register on the MCA portal (CSR-1). Further, they should research potential donors, ready relevant proposals, and network accordingly.

Q3. How can I find information about a company’s CSR activities?

Most companies disclose their CSR activities in their annual/sustainability reports and on their websites. One can also seek information on CSR portals and government websites.