CSR Committee
A CSR committee is a crucial governance body within an organization responsible for overseeing the company’s Corporate Social Responsibility initiatives. This committee ensures that the organization aligns its business strategies with its social and environmental responsibilities. It plays a vital role in formulating, implementing, and monitoring CSR policies, helping businesses to contribute positively to society while enhancing their reputation.
In modern corporate governance, Corporate Social Responsibility (CSR) has evolved from a voluntary philanthropic effort into a mandatory strategic obligation — especially for eligible companies under Indian law. A key mechanism driving CSR activities is the CSR Committee, a statutory body that ensures social initiatives are planned, executed, monitored, and reported effectively. This article provides a complete, SEO-optimized guide on CSR Committee formation, composition, roles, responsibilities, legal framework, compliance practices, reporting requirements, penalties, best practices, and frequently asked questions — all structured for clear understanding and practical use.
What Is a CSR Committee?
A CSR Committee is a board-level sub-committee responsible for conceptualizing, recommending, and overseeing the implementation of Corporate Social Responsibility initiatives of a company. It plays a foundational role in ensuring that CSR efforts are aligned with statutory provisions under the Companies Act, 2013 and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as well as the broader strategic vision of the company.
Unlike traditional charity committees, a CSR Committee is a governance body mandated by law for certain companies — with clearly defined legal responsibilities and compliance obligations.
Legal and Statutory Framework Governing CSR Committees
Section 135 — Companies Act, 2013
Section 135 of the Companies Act, 2013, mandates the constitution of a CSR Committee for companies meeting specified financial thresholds. The key criteria include:
- Net worth of ₹500 crore or more
- Turnover of ₹1,000 crore or more
- Net profit of ₹5 crore or more
If a company meets any one of these thresholds in the immediately preceding financial year, it must constitute a CSR Committee.
Companies (CSR Policy) Rules, 2014
The CSR Rules provide detailed guidance on:
- CSR Committee composition
- CSR Policy requirements
- List of permissible activities (Schedule VII)
- Monitoring and implementation modalities
- Reporting standards
These rules are periodically updated by the Ministry of Corporate Affairs (MCA) to enhance transparency and effectiveness.
Composition and Structure of the CSR Committee
Mandatory Composition
The CSR Committee must consist of at least three directors. If the company has independent directors (as required under Section 149 of the Act), at least one must be an independent director on the CSR Committee.
Chairperson and Members
- The Board appoints a Chairperson, often an independent director or a senior board member with governance experience.
- Other members typically include executive directors, non-executive directors, and, in larger organizations, functional heads (e.g., HR, sustainability, finance) as appropriate.
Foreign Companies
In the case of foreign companies subject to CSR provisions, the CSR Committee must include at least two directors, of whom at least one must be a director resident in India.
Tenure and Rotation
While the law does not specify a fixed tenure for CSR Committee members, many companies align terms with Board or committee rotation policies to ensure continuity and fresh perspectives.
Core Responsibilities of the CSR Committee
The CSR Committee has a broad set of responsibilities defined under Section 135 and the CSR Rules. These duties cover policy formulation, project selection, budgeting, implementation oversight, and reporting.
- Formulating the CSR Policy
The Committee is responsible for developing a formal CSR Policy that outlines:
- The company’s CSR vision and strategic objectives
- Selected focus areas aligned with Schedule VII (e.g., education, health, environment, rural development)
- Implementation mechanisms
- Monitoring and evaluation frameworks
This policy must reflect the company’s values and social mission and be approved by the Board.
- Recommending CSR Expenditure
The CSR Committee evaluates the amount to be spent on CSR activities. Under Section 135, companies are required to spend at least 2% of their average net profits of the three preceding financial years on CSR activities, unless otherwise prescribed. The Committee recommends how these funds should be allocated across projects in the upcoming year.
- Identifying CSR Projects and Programs
The Committee identifies specific CSR initiatives aligned with Schedule VII and company priorities. These may include:
- Education and skill development
- Healthcare and nutrition
- Environmental sustainability
- Women’s empowerment
- Disaster relief and rehabilitation
- Rural development
The Committee evaluates project feasibility, potential impact, and alignment with stakeholder expectations before recommending them to the Board.
- Selecting Implementation Partners
CSR activities can be executed:
- Directly by the company
- Through implementing agencies such as Section 8 companies, registered trusts, foundations, or NGOs with proven track records
The Committee ensures that implementing partners have valid registrations (e.g., CSR-1 for NGOs after MCA’s 2021 amendments) and the capacity to deliver results.
- Approving Annual Action Plans
The CSR Committee prepares and recommends an Annual Action Plan with:
- Project descriptions
- Implementation timelines
- Budget allocations
- Monitoring mechanisms
The Board approves this plan before execution.
- Monitoring Implementation
A critical function of the CSR Committee is monitoring project execution, tracking milestones, financial spend, compliance with policy, and outcome measurement. This may involve progress reports, field visits, and third-party evaluations.
- Reporting and Disclosure
The Committee ensures that CSR activities and spend are accurately disclosed in the Board’s Report and in the company’s annual filings, including the prescribed CSR report format.
CSR Policy — Foundation Document of CSR Committee
The CSR Policy is the cornerstone of CSR Committee operations. A compliant CSR Policy must cover the following:
- Purpose and Scope
Explains why the company is committed to CSR and what the policy seeks to achieve.
- List of CSR Focus Areas
Identifies strategic areas of intervention in line with Schedule VII (e.g., health, disaster relief, environment, rural development).
- Spending Modalities and Budgeting
Defines how CSR funds will be allocated, certified, and spent, including administrative caps.
- Implementation and Execution Mechanisms
Specifies whether the company will implement projects directly or through implementing partners and the criteria for selection of partners.
- Monitoring and Evaluation
Establishes performance indicators, monitoring frequency, and reporting processes.
- Governance and Oversight Structure
Details the roles of the CSR Committee, Board, management, and other stakeholders in executing the CSR policy.
Once approved, the CSR Policy must be disclosed on the company’s website and included in the Board’s Report.
Step-by-Step Process for CSR Committee Formation
- Convene a Board Meeting
A Board meeting is called to:
- Determine if CSR obligations apply
- Constitute the CSR Committee
- Appoint members
- Allocate Roles
Assign a Chairperson and committee members, documenting roles and responsibilities.
- Draft CSR Policy
The CSR Committee drafts or updates the CSR Policy based on company goals and Schedule VII activities.
- Board Approval of CSR Policy
The CSR policy recommended by the Committee is presented to the Board for approval.
- Website Publication
The approved policy is published on the company’s website, as mandated by CSR Rules.
- Plan and Budget CSR Activities
The Committee develops an annual action plan with financial projections and recommended projects.
- Monitor and Review Implementation
The Committee periodically reviews project progress, fund utilization, and compliance.
- Submit Reports and Disclosures
At the end of each financial year, the Committee facilitates disclosures in the Board’s Report and applicable filings.
Monitoring and Evaluation by the CSR Committee
- Minimum CSR Spend Requirement
Companies meeting thresholds must spend at least 2% of the average net profits of the last three financial years on CSR.
- Treatment of Unspent Amounts
Under certain conditions, unspent amounts may be transferred to specified funds or carried forward. These provisions were clarified in CSR amendments to ensure proper utilisation.
- Multi-Year Projects
Companies can undertake CSR programs spanning multiple years. The Committee must include implementation schedules and allocated budgets for each year in the annual plan.
Monitoring and Evaluation by the CSR Committee
Internal Monitoring Systems
Companies are required to establish internal controls and monitoring systems that track:
- Project milestones and timelines
- Budget utilisation
- Field level implementation and adjustments
This may include monthly/quarterly progress reports, financial reconciliations, and compliance checklists.
Third-Party Evaluations
To strengthen credibility, some companies engage independent evaluators or auditors to assess project impact and compliance.
Reporting to the Board
The CSR Committee presents monitoring reports to the full Board at periodic intervals, enabling strategic oversight and corrective actions.
Continuous Improvement
Feedback loops and impact assessments help refine project design, resource allocation, and implementation strategy in subsequent years.
CSR Reporting and Disclosures
- Board’s Report
The annual Board’s Report must include:
- Composition of the CSR Committee
- CSR policy details
- CSR spend during the year
- Summary of projects undertaken
- Reasons for unspent amounts
- Impact assessment highlights
- Website Disclosures
Companies must prominently display the CSR policy, projects, and other relevant information on their official website.
- MCA Filings
Annual disclosures are often filed with MCA through prescribed e-forms in line with reporting requirements.
Effective reporting fosters transparency, meets regulatory expectations, and strengthens stakeholder trust.
Challenges Faced by CSR Committees and How to Overcome Them
- Ambiguity in Project Selection
Solution: Use data, needs assessments, and stakeholder consultations to identify focused CSR themes.
- Limited Implementation Capacity
Solution: Partner with credible NGOs, or establish internal CSR teams with domain expertise.
- Monitoring and Measurement Difficulties
Solution: Adopt digital tools, performance indicators, dashboards, and third-party evaluators.
- Spending Constraints
Solution: Prioritize multi-year projects and prepare realistic annual plans aligned with budgets.
- Compliance and Reporting Burdens
Solution: Maintain compliance calendars, designate CSR officers, and standardize reporting templates.
