The Indian Government took a historic decision when it announced the rule under Section 135 of the Companies Act in 2013, which stipulated that companies would have to mandatorily spend 2% of average net profits on Corporate Social Responsibility activities by 2016. This Act is applicable to companies only under the conditions of having a net worth greater than or equal to 500 INR Cr, a turnover of 1000 INR Cr, or a net profit of 5 INR Cr.
According to one of the reports published by Crisil Foundation in Jan 2017, since implementation of the Act, companies have spent a whopping 8300 INR Cr in areas of Education, Skill Development, Healthcare and Sanitation, and more.
While this is extremely encouraging for the development sector, questions arise regarding the effectiveness of this measure in fostering positive change. It remains a challenge to identify whether companies are giving funds to the not-for-profits only to fulfil the mandate of disbursal, or, whether they are looking at funds as community investments, & making sure that their business contributes to sustainability and creating social impact.
The CSR rule is relatively new (3 yrs into effect), and the struggle for corporates is most often a lack of clarity in aligning CSR initiatives to the company’s business objectives, thus falling short of stimulating change and becoming more of a validation check mark in adherence to the law.
In relation to this problem, some of the key aspects that can be taken to implement a sustainable CSR programme could be:
Company- Cause Connectedness: While recruiting, talent seekers often keep in mind the applicant’s cognitive abilities, interests and personality fit. Similarly, while conceptualising CSR projects, businesses need to take into account the social cause and its cohesion with the business sector. Companies need to identify and prioritize which social cause (under Schedule VII) will be the best fit for its sector and its mission. For example, an IT company could provide CSR funds for digital literacy (education, healthcare, other fields), simultaneously addressing a thrust area and finding a right fit.
The Right Anchor Partner: Due to a gap in realizing the focus areas under CSR, corporates opt for social causes or agencies which are either close to the heart of the promoter, or which have an affinity towards the CSR leadership of the organisation, or which come through referrals from prestigious clients etc. This enfeebles programmes and partnerships by making them ad-hoc in nature, resulting in projects that create negligible social impact. Corporates must seek partners using professional means, such as: Calling RFPs (request for proposals), making a pitch to the leadership, applying appropriate selection criteria for agencies, etc., and then finalising the agency.
Robust due diligence: Corporates must invest in developing a robust framework for conducting due diligence of its partners. The framework should not only include aspects of governance and financials of the organisation, but should also engage the NGo with critical questions about its future, such as whether the NGO leadership has worked on second line development, can the organisation provide the scale of projects, etc. This becomes important if a corporate wants to invest with a long term perspective.
Co- Creation: To advance positive social impact, projects need to be co-created. This would involve creating synergy between corporate requirements and the needs of the community at hand. It is here that goal-oriented project planning, with clearly defined timelines and measurable indicators (qualitative & quantitative) can be used to define the scope of work.
Streamlining Reporting: In order to enable a company and NGO to align to each other’s expectations, proactive steps to promote better communication can be essential to strengthening cooperation. These steps could include Developing formats for reporting on quarterly/ annual basis, defining turnaround time for a response, escalating issues if it needs priority, and more. Regular reporting can ensure smooth exchanges over a period of time.
While the above measures may be helpful, the core to this process lies in the investments a corporate makes in capacity building of partner organisations.
Capacity building of partner organisations: The efficacy of a programme can be seen when the partner organisation is equipped with the right skills and knowledge required for setting up processes. For this, corporates need to patiently handhold their corresponding NGOs/ social enterprises and consulting agencies. While the law encourages spending 5% of 2% for building capacities, companies can also build capacity by using their business expertise for laying out ways to measure results e.g.: building financial, human resources, IT capability etc for partner organisations.
The business case is simple: if companies really are looking at creating a sustainable social impact, and they are keen to accrue a business value, then contributing to building their partners’ capacities becomes a must. The logic is analogous to building a talent pipeline – if companies are investing in employees so that they can be productive, they need to look at investing in the capacities of nonprofits in order to draw returns on their spent funds.
The views expressed here are personal in nature and not representative of the organisation for which author works
