A MAJOR CSR REFORMS FOR COMPANIES EXEMPTING FROM CSR IMPACT ASSESSMENT COMPANIES CAN NOW DEPLOY THEIR CSR (CORPORATE SOCIAL RESPONSIBILITY) FUNDS BY SUBSCRIBING TO ZERO COUPON ZERO PRINCIPAL (ZCZP) INSTRUMENTS.

 A MAJOR CSR REFORMS FOR COMPANIES EXEMPTING FROM CSR IMPACT ASSESSMENT

COMPANIES CAN NOW DEPLOY THEIR CSR (CORPORATE SOCIAL RESPONSIBILITY) FUNDS BY SUBSCRIBING TO ZERO COUPON ZERO PRINCIPAL (ZCZP) INSTRUMENTS.

The Ministry of Corporate Affairs has notified the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2026 vide G.S.R. 415(E) dated 27th May, 2026.

                            BACKGROUND & CONTEXT:

India's Social Stock Exchange was conceptualised by SEBI's Ishaat Hussain Committee (2019) and became operational from 2023. The ZCZP instrument is a unique, debt-like vehicle where the issuing NFO neither pays interest nor repays principal — the "return" is social impact. This amendment formally integrates SSE-listed NFOs into the mainstream CSR ecosystem under the Companies Act, 2013, creating a regulated channel for impact-linked CSR deployment.

WHAT'S NEW?

Two new definitions have been inserted in Rule 2(1) of the CSR Policy Rules, 2014:

▸ "NOT FOR PROFIT ORGANIZATION (NFO)" — aligned with SEBI (ICDR) Regulations, 2018 (Regulation 292A(e)), meaning entities listed on the Social Stock Exchange (SSE) segment.

▸ "ZERO COUPON ZERO PRINCIPAL (ZCZP) INSTRUMENT" — a security issued by an SSE-listed NFO, declared as such by SEBI.

·       Companies may now deploy CSR funds by subscribing to ZCZP instruments — subject to a cap of 10% of their total CSR spend for that financial year.

·        Companies subscribing via ZCZP route are exempt from CSR impact assessment for those projects — a significant compliance relief.

THE NFO ISSUING THE ZCZP INSTRUMENT MUST:

• Complete the funded project within 3 succeeding financial years from date of issue.

• Transfer any unspent amounts to a Schedule VII fund and file compliance report with SEBI upon de-listing.

·                   All other provisions of Rule 4 (except sub-rules 5 & 6) apply to ZCZP-funded CSR activities.

WHY THIS MATTERS ?

FLEXIBILITY FOR COMPANIES:

Firms now have an additional structured avenue to fulfill CSR obligations.

TRANSPARENCY & ACCOUNTABILITY:

 ZCZP instruments create a formal mechanism for tracking CSR spending.

BOOST FOR NGOS & SOCIAL ENTERPRISES:

Access to CSR funds becomes easier and more predictable.

FOR CSS AND CFOS:

To review your board-approved CSR policy and annual CSR plan to evaluate eligibility for this route.

FOR CAS:

 The 10% cap and impact assessment exemption require disclosure treatment in CSR annual reports.

For CS:

To ensure client CSR committee minutes and contracts with implementing agencies are updated to reflect this route, if adopted.

SUMMING UP

Previously, CSR spending was limited to direct project funding, contributions to specified funds, or partnerships with implementing agencies. With this amendment, the government is encouraging financial innovation in CSR deployment, aligning corporate contributions with measurable social outcomes.

#YOUR COMPLIANCE PARTNER R V SECKAR, FCS, LLB 79047 19295,