Solving Social Issues in India through CSR Activities and Impact Investment: Legally Mandated CSR Activities and Key Points for Corporate Revenue Expansion: NRI Management Consultant's Perspective on Management

Overview

## 1. Uniqueness and Legal Framework of India's CSR System India is the only country in the world that legislated Corporate Social Responsibility (CSR) activities in 2013, making it fundamentally different from voluntary approaches in Japan and Europe. Under Section 135 of the Companies Act, companies meeting certain criteria are required to spend at least 2% of their net profits on CSR activities. This system design was constructed as a mechanism to utilize corporate resources for solving national social issues, with Hindu wealth redistribution philosophy and Mahatma Gandhi's trusteeship theory as background. ## 2. Usage Restrictions and Sectoral Trends of CSR Funds CSR fund usage is strictly limited by law and is not voluntary. Expenditures are restricted to nine areas specified in Schedule VII of the Companies Act (education, healthcare, rural development, environment, gender equality, etc.), with even expenditure details clearly specified by law - a unique institutional feature of India. Education has long been the largest expenditure destination, accounting for 33.6% of total spending in fiscal 2023. While medical spending temporarily expanded during the COVID-19 pandemic, there has been a recent trend of returning to traditional sectors. ## 3. Enhanced CSR System Effectiveness and Changes in Corporate Behavior Since CSR mandating, corporate CSR spending has steadily expanded with an average annual growth rate of approximately 15% from 2015-2023. Non-compliant companies, which comprised 55.5% in fiscal 2019, decreased to 7.8% in fiscal 2023 following system strengthening. Particularly since 2021, with the introduction of unused fund transfer obligations and penalty systems, CSR transformed from "formal obligation" to "effective obligation," promoting active corporate participation. ## 4. Japanese Companies' CSR Strategy Development Patterns Japanese companies with bases in India tend to start with "passive CSR" focusing on legal compliance given the institutional background of CSR as legal obligation, then develop toward "strategic CSR" and "value-driven CSR." These companies characteristically utilize CSR not merely as compliance response but actively as part of growth strategy, achieving both social impact and corporate value creation. ## 5. Maruti Suzuki's Strategic CSR Case Maruti Suzuki exemplifies strategic CSR by implementing traffic safety education, vocational training, and local employment creation. By viewing CSR as "investment in the future" and constructing an ecosystem integrating product users, partners, and local communities, they simultaneously achieved brand trust and market expansion. This case demonstrates how CSR activities linked with core business directly contribute to corporate value enhancement. ## 6. Suntory's Value-Driven CSR Case Suntory develops value-driven CSR centered on the corporate philosophy "Living with Water," contributing to sustainable water circulation system construction across India. They successfully achieved both coexistence with local residents and environmental conservation, gaining local trust, demonstrating the effectiveness of approaches integrating corporate philosophy with social issue resolution. Such value-driven CSR contributes to long-term corporate brand value enhancement. ## 7. Impact Investment Concept and Differences from ESG Investment Impact investment is "investment behavior pursuing financial profits while addressing social and environmental issues," differing from ESG investment methods. While Japan's impact investment balance reached approximately 17 trillion yen in the 2024 survey, there's a significant gap compared to the global 235 trillion yen. In India, while development finance by the World Bank and JICA shows presence, impact investment is expanding through social issue-solving startups. ## 8. Impact Investment Case in India's Dairy Sector Stellaps company, invested in by NPO ARUN Seed, represents a typical case addressing productivity and distribution efficiency issues in India's dairy sector. They provide comprehensive services from milk collection to wholesale to OEM dairy manufacturers, offering supply chain efficiency solutions including IoT-based remote cow health monitoring services and milk cooling systems. This case notably achieves both social issue resolution and profitability. ## 9. Japanese Companies' CSR Challenges and Solution Directions Japanese companies' CSR activities face persistent challenges including "motivation but lack of know-how" and "inability to find reliable NGO partners." Particularly small and medium enterprises entering India for the first time or those with limited personnel often remain at "passive CSR (minimum obligation response)." Resolving these challenges requires strategic partnerships with local partners and gradual CSR activity development. ## 10. Future Strategic Implications and Development Potential India's unique CSR system provides strategic opportunities for Japanese companies beyond mere legal compliance. Through development toward "strategic CSR" and "value-driven CSR," and further simultaneous achievement of social issue resolution and investment returns through impact investment, relationship building as collaborative problem-solvers contributing to India's further development becomes possible. These initiatives will serve as important reference cases for Japanese companies expanding business in India, showing pathways to achieve both sustainable corporate growth and social value creation.