Next evolution of CSR: From grant to catalytic capital

This article is authored by Leena Nandan, former secretary, MoEF&CC and Distinguished Fellow, TERI and Sidharth Sinha, Consultant, TERI.

As India pursues its ambition of becoming a developed economy by 2047, one challenge is becoming increasingly evident: Public expenditure, private investment and philanthropy, even if moving in tandem, would not be able to finance the scale of investment needed to secure livelihoods, protect the environment and sustain inclusive growth. From climate-resilient agriculture to community-managed clean energy, the missing ingredient is the availability of patient, risk-tolerant capital, deployed through the principles of blended finance, that could attract larger pools of commercial debt finance.

CSR (Shutterstock)

This is where Corporate Social Responsibility (CSR), now over a decade old, has an opportunity to evolve. During FY2024-25, India's mandatory CSR spending reached ₹40,794 crore, supporting more than 72,000 projects. The current nature of CSR is dominated as grants which remains indispensable for public good investments such as health care, nutrition, education and disaster relief. Yet as the ecosystem matures, an important question deserves attention: Should CSR remain confined to funding social projects, or can a small portion of it be deployed strategically to unlock many times more capital for sustainable development?

Government focused initiatives targeting inclusive economic growth have spurred a wide spectrum of development investments requiring a different kind of catalytic capital spanning farmer-producer organisations, decentralised renewable energy and forest-based livelihoods. While several of these activities hold large developmental potential and can generate livelihoods and economic value, they remain insufficiently mature to attract conventional commercial financing. Banks are hesitant in extending commercial credit due to high perceived risks arising from small scale of operations, weak collateral and slowly evolving markets for their products. Consequently, several socially valuable opportunities remain trapped in a developmental limbo: Too big for grants alone, yet too risky to attract commercial finance.

One way forward is a Social Capital Catalytic Window within the existing CSR framework. The idea is neither to replace traditional CSR, nor to convert CSR into an investment activity. Instead, it proposes to carve out a small proportion of CSR funds, perhaps 5-10% that may be permitted to function as catalytic capital. Its primary purpose would be to reduce risk and crowd in much larger pools of institutional finance. Structurally, such allocations could flow into professionally managed and independently governed Social Capital Catalytic Funds, structured as SEBI-registered Alternative Investment Funds or a similarly regulated vehicle. Without diluting the essence of CSR, these funds would not exist to generate profits for contributing corporates. Nor would they directly lend to beneficiaries. Their role would be to support financing from regulated commercial financing institutions through risk-sharing mechanisms such as first-loss facilities and guarantee structures. By absorbing a portion of the early-stage risk, these vehicles could encourage banks and NBFCs to finance activities that are currently considered unbankable.

In a departure from the grant mechanism, the power of such an approach lies in leverage. Take a simple illustration. At current CSR spending levels, a 5% allocation to a SCCW would create a corpus of more than ₹2,000 crore annually. If deployed at an illustrative 5x leverage, a ratio that will vary by sector and risk profile, such capital could potentially unlock over ₹10,000 crore of additional development financing. This shifts the model from funding programmes to building enterprises that involves moving communities from recipients of aid to participants in economic activity.

The financing gap is not theoretical. It is visible across numerous rural value chains that already possess economic potential but lack the capital and ecosystem support required to scale sustainably. Consider pine needle, or pirul, management in Uttarakhand, aimed at mitigating forest fires in the state. Pirul collection already supports rural livelihoods through state-sponsored schemes. However, the greater economic opportunity lies in aggregation and biomass processing for use as a clean fuel, at both small and industrial scale. Local communities often lack the capital to build decentralised processing facilities, and sustainable growth requires finance beyond grants, such as term debt and working capital.

Capital alone is not sufficient. Finance without markets creates stranded assets and markets without finance create unrealised opportunities. Emerging sectors such as biomass and circular-economy enterprises rarely scale organically, since producers hesitate without demand certainty and buyers hesitate without reliable supply. Here, government's role is that of a catalytic enabler rather than an operator, much as it was for renewable energy and ethanol blending. Procurement preferences, co-firing mandates and certification standards can help bridge the gap between production and consumption.

Naturally, concerns about misuse, regulatory arbitrage and indirect profiteering will arise. These are legitimate concerns and should shape the design of any framework. CSR contributors should receive no financial return from catalytic capital vehicles. Their return must remain solely for social impact. Governance must be operationally independent and transparent, with government setting eligible sectors, reporting standards and accreditation criteria, but not exercising day-to-day executive control over the funds.

Moreover, guarantee capital is contingent by nature, and it may remain deployed but unconsumed for years unless called upon. Current CSR rules, built around annual spending, will need longer, amortised timelines to accommodate this. Lenders drawing on the facility should also face minimum leverage requirements and annual performance monitoring, so that risk-sharing does not dull underwriting discipline. Success should be measured not by money spent but by capital mobilised, jobs created and value chains established, with leverage achieved and private capital crowded in becoming as important as CSR expenditure itself.

The question is not whether CSR should fund finance, but whether a small portion of it can unlock many times more resources for social impact and sustainable livelihoods. The goal is to help create enterprises, institutions and markets that eventually no longer depend on grants to survive. Realising this vision, however, will require amendments to CSR rules and above all, the political will to match India's growth prerogatives with a genuine ambition for inclusive finance. India's CSR framework transformed how corporate India contributes to development in its first decade; its second decade should be remembered for transforming how development itself is financed.

(The views expressed are personal)

This article is authored by Leena Nandan, former secretary, MoEF&CC and Distinguished Fellow, TERI and Sidharth Sinha, Consultant, TERI.