Topic: With the amendment in the corporate law in India, certain companies are now mandated to spend a percentage of their profits on Corporate Social Responsibility. This project will seek to identify successes and learnings with respect to the same and the identify how ‘enablers’ or ‘intermediaries’ in the social impact space can play an important role in making the same most efficient and effective.
CSR in India and the role of Enablers/ Intermediaries
Most NGOs do not have a revenue generating model, which means that they rely heavily on external sources of funding to carry out and sustain their operations.
These sources of funding may include individual donors, corporates, foundations or the government. The form of funding could be for a specific project or for a specific duration, that may vary from one year to 3 years or longer.
While there may be a variation in the source or duration of these grants, a common thread among this is the reliance of these NGOs on external funders for sustaining their operations. Hence, how an NGOs sources its funds and its relations with the donors is one of its most critical activities. Irrespective of the scale, size or age of an NGO, they have to spend significant time and effort in fundraising at some point or the other, mostly on a perpetual basis.
One of the sources mentioned above, i.e., the corporate sector has gained much traction in the recent past in India and is the topic of discussion for this particular paper.
This is due to the Companies Act in India that has mandated CSR (Corporate Social Responsibility) for certain companies that cross a defined threshold in terms of their net worth, turnover or net profit. Hence, Section 135 of the Companies Act mandates that companies that cross a defined threshold, as mentioned above, spend 2% of their net profits on CSR. (Refer appendix 1 for details).
What is CSR?
The EU defines CSR as ‘A concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis.’ The World Business Council for Sustainable Development (WBCSD) which defines it as, ‘the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large.’
Hence, there is much ambiguity in the definition of CSR itself. Accordingly, while the endeavor of the Act to increase the responsibility of the corporate sector is well–intentioned, it is in a very nascent stage and there is immense scope for its evolution and development to ensure that it is in the best interests the stakeholders in the same, namely, the NGOs and corporates.
A few features in the Act that require attention are as follows:
- Under Schedule VII, the Act defines, the activities that constitute CSR. This narrows the scope of work for many organizations and is hence, restrictive.
- It does not include events such as marathons, awards etc.
- There is a further list of activities not considered CSR which many social organizations are working for, example, capacity building of elected representatives, certain initiatives in urban development to name a few.
- There is no emphasis on corporates leveraging their core competencies, hence, no emphasis on CSR being strategic.
- Some companies, that were already conducting CSR activities before the Act, found that funds committed as CSR spend were not eligible under the Companies Act rules due to technicalities.
- Some companies had the budgets to spend but had limited internal capacity to identify appropriate programs for CSR.
Why is CSR critical?
Corporates have transcended boundaries, national and international, at a scale that is unprecedented. Corporates possess resources, including financial, human and technological, to name a few, that are unparalleled to most of their counterparts.
Examples to illustrate this include Apple and GE, who are corporations ‘bigger’ than countries in terms of their revenue. This example illustrates the sheer power, resources and opportunities that corporates generate or can generate. Along similar lines, we can compare the revenue of certain companies matching the GDP of certain states in India.
Today companies are becoming increasingly particular about their social responsibility and in maintaining an image to be ethical, responsible and sustainable. Principals that apply to the head offices flow to their subsidiaries or sister concerns in other countries and this has necessitated the requirement for companies in overseas subsidiaries or offices to follow the regulations and compliances as per the head country.
The scale of funds that can be channeled into the development sector hence, can be illustrated by the statistic that India’s top 50 companies that make up the Nifty index at the National Stock Exchange claimed to have spent over INR 4,600 crore in the financial year ended 2015 on initiatives that included healthcare, education, environment and sanitation.
And, this number is expected to grow significantly as more corporates spend on CSR as part of the mandate or evolve their existing CSR activities.
Evolution of CSR in India
It is important to understand the evolution of CSR in India to get the context of the situation today. CSR in India can be broadly divided into 4 phases
- The first phase (late 19th century): This period was characterized by ‘charity’ where industrial houses contributed a portion of their wealth towards society by acts such as setting up temples, showing altruism by providing food to famine victims etc. Drivers of this included religion, caste and at times political factors. Some of the biggest industrial houses Tatas, Birla, Godrej to name a few were inclined towards various social and economic considerations. These business houses are still pioneers in terms of their social impact.
- The second phase was characterized by ‘trusteeship’ advocated by the father of the nation, Mahatma Gandhi, during the independence struggle. He advocated that large industrial houses take responsibility for development of the society and help the common man by addressing socio-economic conditions in the country and accelerating its development, in an attempt to end capitalism. Gandhi diligently worked on issues such as women’s empowerment, untouchability and rural development.
- The third phase (post independence era):the private sector took a backseat to pave the way for PSUs and various government regulations. These regulations concentrated on environmental and labor laws. However, the consequences of such regulation and licensing had an adverse impact and corporates resorted to breaching these rules and indulging in other malpractices. These led to the public turning to the private sector again and attempts were made accordingly by these corporate houses, however, they failed to make impact.
- The fourth phase was marked by the era of ‘LPG’- Liberalization, Privatization and Globalization, in the 1990s, when the role and impact of private companies increased manifold and so did their responsibility.
It is important to understand this legacy to ensure that the CSR initiatives move in the right direction and mistakes of the past are not repeated and serve as learnings for the future.
Trends in India in CSR since it came under the law
Over the two years since CSR became mandatory for certain companies, there has been an evolution with respect to priorities of corporates. While the first year was spent on understanding and putting structures and plans in place for CSR activities, the second year has been to better understand changes that should be made to the CSR strategy of the company and enable scaling in some cases. It is at this time that the role of intermediaries becomes more significant as corporates are ready to better strategize and implement CSR based on the learnings of the first year.
The Economic Times, Futurescape and IIM Udaipur conducted a survey to identify 'The Best Companies for CSR' two years in a row and the trend they noted was that while more companies participated in the survey from year 1 to year 2, only 18% companies surveyed spend the mandated 2%. Over the two years, another trend noted was that more companies have scaled their CSR work and are considering it as a priority.
Other trends noted included the fact that the list of the top ten companies did not feature any foreign company. In terms of sectors, FMCG companies spent the most on CSR and financial services companies, the least. It was also noted that in terms of companies that spent more than the mandated 2%, there are more companies in the private sector than the public sector.
There were certain companies that traditionally undertook CSR before the law required them to and hence, had only needed to streamline their spend. These corporates spent the past 2 years reviewing and re-strategizing their plans and ensuring the same was as per the law. Other companies, who didn’t undertake previously CSR had to allocate funds for the same.
This process has led to the introduction of a group of people in the corporate landscape who are learning about CSR as part of being in the CSR committee that is mandated by the law and trying to educate themselves to make their CSR more strategic and aligned with their corporate objectives.
What is the need of the hour?
While some of the shortcomings of the CSR law have been elaborated above, amendment or adjustment of the same would take time to evolve over a period of time. The need of the hour is to ensure that the current activities in CSR are being managed in the most efficient, effective and strategic way possible.
In this light this, it is important to understand that there are two critical stakeholders; the NGOs/ social organizations (the implementing organizations) and corporates (the funding organizations).
While each stakeholder brings its expertise to the table, there are gaps in each that need to be addressed.
Many NGOs lack an overall strategic vision for the organization and are unable to comprehend the ‘outcomes’ or ‘impact’ of their work, making their efforts ‘output’ or ‘activity’ oriented, which means their focus is on short term goals and more at a program/ project level.
Corporates lack a nuanced understanding of the sector and many still indulge in chequebook philanthropy, ignoring the strategic support that they can provide a social organization.
Here comes the role of a ‘facilitating’ organization, an enabler/ intermediary, who can understand and articulate the challenges of both stakeholders, help leverage the strengths of each and then combine these for collective impact.
Enablers can position the needs of an NGO and articulate the same to a corporate donor, something that the NGO may hesitate to do due to the nature of relationship between the NGO and the corporate. It is also the role of this enabler to educate and empower the corporate to best serve the interest of the NGO in a manner that is aligned with the corporate’s strategy/ core competency.
Enablers are positioned such that they can educate corporates about what aspects of a program to fund. In many cases, corporates do not have dedicated staff for CSR or the CSR staff work on CSR only part time, along with their regular activities. In such cases the support from an intermediary in CSR ensures that the activities are thought out and strategic and leverage off the core competencies of the corporates.
Also, the government introducing certain mandates in the country has led to the inclination of corporates to invest in such activities. A case in point here is the Swach Bharat Mission (Clean India Mission) which aspires to eliminate open defecation in India and is working towards building individual toilets in every home. Hence, many corporates’ CSR mandate is to help build toilets. However, critical components such as behavioral change communication and waste management are ignored as corporates are not aware of such aspects. Here too, intermediaries can play a role in educating the corporates.
Forbes India identified the following trends in CSR that CSR leaders are increasingly prioritizing:
- Impact
- Establish Partnerships
- Long-term projects
- Employee engagement
In each of the above, intermediaries can play a significant role.
Intermediaries such as Samhita Social Ventures are positioning themselves as consultants for corporates and enabling them to think strategically about their CSR.
Other intermediaries such as Dasraare educating donors about the need for‘institutional funding’ and for collaborative giving. This will enable the building out of an ecosystem rather than merely helping a particular program of a corporate. They are exposing donors to the possibility of supporting sectors apart from the popular sectors such as education and health so as to evolve their thinking further.
Dasrais also providing NGOs with strategic support, enabling them to think of the bigger picture rather than only the project.They also support the organization’s leadership, help build out institutional capacity of the organizations and educate them on the need to measure the impact of their work.
While the concept of social sector consulting is rather nascent, it is a no brainer that if organizations in the traditional corporate sector, with enormous resources and years of experience, rely on external consultants for support, why shouldn’t the same facilities be afforded to the social organizations.
Apart from the stake holders mentioned above, there are many other stakeholders impacting the work done by an NGO. A very critical one being the government. Engaging with the government is a very important component of the work that NGOs do and in some cases, there is limited scope for scaling if the government is not an integral part of the program. No organization can make sustain and scalable impact in isolation.Accordingly, the work that an NGO does becomes increasingly complex with multiple stakeholders. In this as well, having the support of a facilitators, who can beget collaboration is immensely helpful.
The TATA trusts, who have been stalwarts in the social impact space have also recently engaged the services of Bridgespanfor strategic support to understand better how to work more directly in the sector than through NGOs they fund.
Apart from consulting for corporates, there are many intermediaries that offer specialized expert support. These include areas as follows legal and financial expertise, monitoring and evaluation, human resources and technological support. As the work supported by corporates evolves and they move beyond assessing the financial utilization of their grants to NGOs and work on the measurement of impact or institutional strengthening, they will need the support of organizations that provide such expert support.
Why not CSR?
Another important matter for discussion is whether ‘CSR’ is even the solution.
It would be good to evaluate where CSR is headed in the rest of the world and compare it with where India is headed.
To illustrate this an example is that of Unilever, who have stated that they are following ‘No More CSR’ and concentrating efforts towards 'integrating sustainability and sustainable living' in all their activities, because it is imperative to do the same for their survival in the long run. They explain it by saying that the world population would reach 9 billion by 2050 and at this level, being sustainable is the only way because if Unilever does not advocate sustainability to all stakeholders, its own products will lose value (how will its customers use Unilever’s soaps if there is no water for everyone?)
Some corporates, while they do not have a have a structured CSR department, they play their part in being socially responsible by ensuring that organic material is used in x% of their products.
In light of this the amendment in the Companies Act is rather archaic as incorporating principals of being sustainable and ethical in all levels of the value chain is closer to a sustainable global trend.
Looking ahead
An important matter to be noted is that many social organizations work in isolation. Hence, it is often noted that many social organizations would work in the same region, addressing similar issues and yet not achieving their goals in the manner or time planned.
The role of an intermediary is important here to bring these organizations together to create awareness about their work as well as enable collaboration and enabling them to leverage each others experiences and learnings. Intermediaries that work across sectors are also aware of the work that is being done in different sectors addressing different issues in the same region and they can help bring these organizations together, providing a macro view and help in the holistic development of that particular community.
Impact that is scalable and sustainable cannot take place in isolation. It requires the collaboration of the various stakeholders, namely, social organizations/ NGOs, government and private funders to work towards a common outcome. For this to happen, each stakeholder needs to understand the significance of the role played by each stakeholder and work to collectively address the challenges faced by them.