Introduction
India is perhaps one of the first countries in the world to make a robust and mandatory Corporate Social Responsibility (“CSR”) initiative which requires the corporations to contribute a portion of their earnings for social welfare and development. CSR funds have emerged to be a prominent source of funding for development initiatives like education, healthcare and environment sustainability. However, the same has been subjected to concerns regarding transparency, accountability and utilization of these funds.
On 27 May 2026, the Ministry of Corporate Affairs (“MCA”) issued a notification for Companies (Corporate Social Responsibility Policy) Amendment Rules 2026 which is a step toward updating CSR execution methods and making them compatible with changing financial instruments and regulatory structures. This change has opened a new avenue for companies to fulfill part of their CSR requirements through the subscription of Zero Coupon Zero Principal (“ZCZP”) instruments, on the condition that these instruments should be issued by the eligible Non-Profit Organizations (“NOPs”) which are listed on the Social Stock Exchange (“SSE”). Schedule VII has also been amended to include “subscription to zero coupon zero principal instruments on Social Stock Exchange” as a permissible CSR activity, thus giving statutory recognition to this mode of CSR spending.
The amendment links India’s CSR framework with the rapidly changing social finance ecosystem of the world and further employs a market-based approach to social impact funding.
Understanding the Amendment
Under Section 135 of the Companies Act, 2013, companies are required to spend at least 2% of their average net profits on CSR activities mentioned in Schedule VII. Previously, companies either fulfilled this obligation through direct implementation or through their agencies such as trusts or societies.
The 2026 amendment introduces a new dimension of CSR spending by inserting Rule 4A into the CSR rules. This allows the companies to subscribe to ZCZP instruments issued by eligible NOPs. A ZCZP instrument is a unique social finance instrument that carries neither any form of interest nor repayment obligations. Unlike the traditional securities, these are not meant to generate financial returns. On the other hand, it enables NOPs to raise funds through a regulated platform.
However, the amendment is not without its limitations. Companies can utilize only up to 10% of their annual CSR obligations through subscriptions to ZCZP instruments.
Why the Amendment Matters
The amendment is not just a mere expansion of permissible CSR activities. It shows a comprehensive policy shift towards merging social welfare goals with regulated financial mechanisms.
One of the key challenges in the CSR ecosystem has been the absence of any uniform standards for evaluating implementing agencies. Companies often tend to rely on private due diligence while selecting organizations for CSR partnerships. This as a result makes it difficult to assess governance standards and outcomes of such projects. The Social Stock Exchange tries to counter these concerns by creating a regulated environment where NPOs are subjected to disclosure and reporting requirements. By ensuring the CSR funds flow through SSE-listed organizations, the amendment introduces an immediate layer of transparency.
Such a reform also benefits credible NPOs for whom access to stable funding remains one of the prominent challenges despite their impactful work. Listing on a Social Stock Exchange can improve visibility and credibility for an organization, enabling them to attract greater corporate participation.
Also, this amendment is in line with increasing the worldwide influence of social finance. It doesn’t treat CSR as just a bare legal requirement, but it also encourages the building of institutional setups that can channel funds to measurable social impacts.
Concerns and Difficulties
Although being a bold initiative, the amendment raises several key concerns.
First, the goal behind the 10% cap is still not defined. Restricting corporate participation may limit the key objective of promoting the use of regulated social finance mechanisms, thus impacting the effectiveness of the reform.
Secondly, the amendment exempts subscriptions to ZCZP instruments from impact assessment requirements. While SSE listed entities are bound by disclosure obligations, disclosure and impact assessment serve different sets of purposes. Transparency regarding expenditure does not always ensure that a project has achieved its intended social outcomes. Thus, this tends to weaken the accountability mechanism within the framework.
Thirdly, a further key concern relates to accessibility. Smaller organizations may not be able to satisfy the regulatory and reporting requirements required by the SSE ecosystem, thus limiting their participation. Larger and better resourced NOPs are more likely to benefit from this new framework, thereby leading to a potential concentration of CSR funding to a limited set of organizations.
Finally, the overall success of this initiative largely depends on the growth metrics of the Social Stock Exchange itself. As a relatively new institution in this ecosystem, the SSE is still in its developing phase and its long-term effectiveness as a medium of social financing is still uncertain.
Conclusion
The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026 are a novel initiative by the government to combine corporate philanthropy with a regulated market infrastructure. The amendment has the potential to enhance transparency as well as funding opportunities for credible non-profit entities. At the same time concerns do remain regarding the 10% cap, impact assessment exemptions and the lack of accessibility to smaller organizations. This suggests that the framework requires close monitoring as it evolves.
Ultimately, the amendment represents a significant experiment in Indian regulatory innovation. Its success would largely depend upon whether the SSE can emerge as a credible and effective platform to measure social impact while keeping the soul of accountability alive that lies in the heart of India’s CSR regime.
Author: Sheetal Patoditya, Senior Associate
Co- Author: Sarthak singh, Intern
