CSR Cannot Be Separated From Environmental Responsibility: Supreme Court

In a landmark ruling, the Supreme Court has held that corporate social responsibility (CSR) is inseparable from corporate environmental responsibility, making it clear that companies cannot claim to be socially responsible while disregarding the environment and other living beings within the ecosystem.

A bench comprising Justices P S Narasimha and A S Chandurkar issued a series of directions aimed at protecting the Great Indian Bustard, a critically endangered species facing severe threats from non-renewable power generation activities in Rajasthan and Gujarat. The court observed that corporate actions must recognise the ecological impact of industrial operations, particularly in fragile habitats.

The bench stated that the definition of "social responsibility" must inherently include environmental responsibility. It emphasised that companies cannot assert social responsibility while ignoring the legitimate claims of the environment and other components of the ecosystem. Referring to Article 51A(g) of the Constitution, the court noted that every citizen has a fundamental duty to protect and improve the natural environment, including forests, rivers, lakes and wildlife, and to show compassion towards living creatures.

According to the court, corporations, as legal persons and vital organs of society, share this fundamental duty. It held that CSR funds represent a tangible expression of this constitutional obligation, adding that allocating CSR funds for environmental protection is not a voluntary charitable act but a fulfilment of a constitutional mandate.

The bench explained that Parliament institutionalised this responsibility through Section 135 of the Companies Act, 2013, which mandates CSR spending for companies meeting specified financial thresholds. This provision, the court said, codifies the principle that corporate profits are not solely the private property of shareholders but are partly owed to the society that enables their generation. Describing private property as a form of trust, the court noted that this statutory framework has redefined traditional corporate governance.

Historically, the primary duty of company directors was to maximise shareholder value. However, the court pointed out that Section 166(2) of the Companies Act, 2013, expanded this narrow approach by imposing a broader fiduciary duty. Directors are now legally required to act in good faith not only for shareholders but also in the best interests of employees, the community and the environment. This shift, the bench said, recognises that corporations are organs of society whose responsibilities extend to all those affected by their operations.

The court further observed that when corporate activities such as mining, power generation or infrastructure development threaten the habitat of endangered species, the "polluter pays" principle applies. In such cases, companies must bear the cost of species recovery, and CSR funds should be channelled towards in-situ and ex-situ conservation efforts to prevent extinction.

Underscoring the paramount importance of protecting endangered species, the bench said corporate duty must evolve from safeguarding only shareholder interests to preserving the ecosystem as a whole. It directed non-renewable power generators operating in priority and non-priority areas of Rajasthan and Gujarat to conduct their activities with the awareness that they share the environment with the Great Indian Bustard, also known as the Godawan, and must behave as guests in its habitat.

The order was passed on a plea filed in 2019 by environmentalist M K Ranjitsinh seeking measures to protect the Great Indian Bustard. The Supreme Court has been issuing directions in the matter over the years. In April 2021, it imposed restrictions on overhead transmission lines across nearly 99,000 square kilometres in Rajasthan and Gujarat. This order was modified in March 2024 after the Centre raised concerns about its impact on India's renewable energy transition, following which a high-level expert committee was constituted.

Accepting the committee's recommendations, the court approved revised priority conservation areas of 14,013 square kilometres in Rajasthan and 740 square kilometres in Gujarat. It declined a request to further expand the Rajasthan priority area by 657 square kilometres in the Rasla-Degrai Oran region. Within the revised priority areas, the court imposed strict restrictions, including a ban on new wind turbines, new solar parks and solar plants exceeding 2 MW capacity, expansion of existing solar parks, and new overhead power lines above 11 kV, except through designated power corridors.