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CSR Policy Review - Guidelines to bridge the gap between Intent and Impact

Updated: Nov 13, 2022

“Businesses need to go beyond the interests of their companies to the communities they serve.” Ratan Tata




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Charity is deeply embedded in Indian culture, the same has transcended into businesses. The conglomerates like TATA, Reliance, WIPRO, etc. aside from business continue to contribute to the betterment of society. Though the concept of companies giving back is voluntary across the world, the Government of India has legislated the Corporate Social Responsibility (CSR) laws to encourage all companies to give back to society.


1. CSR in Indian legislation


1.1. What does the policy say?


India spearheaded the legislation of CSR activities in the year 2013. Companies Act, 2013 - Section 135 of the Act and the CSR Rules framed thereunder form the legal framework of CSR in India. The CSR provisions will apply to companies that fulfill any of the following criteria during the immediately preceding financial year

  • The net worth of Rs 500 crore or more; or

  • Turnover of Rs 1,000 crore or more; or

  • Net profit of Rs 5 crore or more

are required to spend 2% of their average profits of the previous three years on CSR activities every year. The companies can take up projects or programs relating to activities specified in Schedule VII of The Company act, 2013.


The companies are required to create a CSR committee of the board, create a CSR policy that outlines its strategy, and also include a report on CSR in the company's annual report. In case the CSR amount remains unspent (in case of CSR spending does not meet 2% as per CSR Policy), the reasons for the unspent amount and details of the transfer of unspent amount relating to an ongoing project to a specified fund shall be disclosed.


1.2 What do companies do?


Companies formulate a CSR Policy and Strategy, which includes:

  • Establishing an internal execution structure to assess and engage internal stakeholders, communities, and beneficiaries

  • Defining the problem statement and selecting the social cause(s)

  • Implementation partners are identified to implement programs

  • The CSR programs should be monitored and an evaluation of impact is to be done

  • Finally, the reporting of CSR is done

Currently, the CSR landscape in India is in a compliant stage. Companies are complying with all the rules set by the CSR policy, but at the same time, ground tracking of impact is missing.


2. Intent of the Paper


This White Paper examines the CSR laws in India and analyses the gaps in realizing the intent of the CSR. Further, the paper also outlines the guidelines to maximize impact through CSR Laws, impactful project design, and technology integration.


3. A Closer look at the gaps


3.1 Cap on administrative overheads


The policy states that “Administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year.” It is intended to ensure maximum utilization of the money toward social good. However, with the ceiling of 5% on the expenses toward administrative overheads, hiring personnel with CSR-specific skills could become a challenge, at a time when lower salary in the development sector is driving the competent workforce away from the field. As a result, we see that in more than 30% of the organizations - CSR projects are overseen by the Human Resource department, depriving the project of required attention and competency.


3.2 Focusing on meeting the 2 % spending compliance within the same year


Many companies are putting forward a CSR fund to meet the requirement of CSR regulations by the government. Instead of focusing on a long-term outlook, companies are focusing on spending the CSR fund within the given year. This has resulted in companies continuing to choose conventional projects, depriving of innovation in the development sector.


3.3 Funds limited to only a few thematic areas


As per the CSR policy, the company which hasn’t spent CSR money has an option to carry forward the fund for the next 3 years if a project is designated as a multi-year project, or shall transfer to any fund mentioned in Schedule VII to the act. Limited choices of funds, restrict the companies to invest in their choice of thematic areas.




3.4 Transparency and disclosure


The companies are required to report (Form CSR 2) their CSR spending, and impact assessment report (if applicable) as part of their annual reports. Whereas, the state continued to shy away from disclosing how the CSR amount transferred to funds established by the State is spent.


3.5 Disproportionate CSR Fund Spending across thematic areas and geographies


The spending is inequitable across geography and thematic areas. From the graph below it can be seen that there is an inequitable distribution of funds across sectors, the maximum share of CSR spending goes to education followed by health and rural development. More than 30% of the spending is on education alone.




States doing well continue to receive CSR share. The states with good economic activity tend to reap the benefit of CSR, whereas the states behind continue to be deprived. In the year 2020-21, Maharashtra alone received 14% of the total CSR spent in India. The top 5 states received 33% of the CSR amount. The infographic below presents the state-wise CSR share over the years.



3.6 Localized CSR spending


It is observed that in the initial days, the industries focused on spending CSR funds within their local areas to gain the trust of the community, build relationships with the local authorities, create a positive image, etc.

The CSR policy of the State, except for the mandate on spending, does not place any restrictions on the companies on where the money shall be spent.


4. Guidelines and Forward suggestions


The CSR laws continue to focus on regulating the funds, and ensuring the fund is somehow utilized. Unfortunately, as a result, companies are ignoring impact and just focusing on timely spending. The State needs to make room for Impactful projects, and the following can be some of the ways to nudge this:


4.1 Increase cap on administrative overheads


The state in consultation with Companies must relook at this clause of keeping the administrative cost at 5% and thus make way for the young and competent workforce to consider CSR, this would pave way for impactful work.


4.2 Create Sustainable Development Goals (SDGs) specific funds


The State should create funds that are specific to SDGs or even activities mentioned under schedule VII of the Companies Act, 2013, this ensures equitable spending of money across thematic areas and flexibility for the companies to contribute to the thematic area of their choice.


4.3 Transparency and disclosure


The State should consider disclosing how the money is spent so that companies find value in contributing, and also know the impact created. In last one year i.e. from FY 20 to FY 21, the contribution to the funds established by the government has doubled, in order to keep this momentum, it is high time that the government lays down mechanism to disclose spending details.


4.4 Increase the number of years that an ongoing project can extend


In the recent amendment, the State has made provisions for multi-year projects. Ongoing Project means a multi-year project undertaken by a Company in fulfillment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced, and shall include such projects that were initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification.


This is a very good move to encourage companies to take up long-term impactful projects. However, social change takes time and 3 to 4 years would not suffice, the state sold reconsider/increase the duration of long-term projects in future amendments.


4.5 Guidelines on implementation via thematic example


To create a sustained impact, the companies should be open to experimenting with new development models and fund projects that address systemic challenges alongside working with the government.

Here’s a quick guide to how education interventions could be approached. A similar approach can be followed in other thematic areas (Health, Environment, Livelihood, etc.)


4.5.1 Stakeholder Engagement: Beneficiaries must be seen as key stakeholders and must be involved in the program design stage itself. Key stakeholders:

  • Government Authority

  • Parent Community

  • School leaders and teachers

  • Children

  • Alumni


4.5.2 Identifying focus areas of intervention: Taking a cue from the materiality assessment (materiality matrix) done by companies to identify material issues, a similar framework is proposed to identify focus areas/interventions. The prioritization in this context shouldn’t be misunderstood to focus on one intervention at a time but is to identify what is that a school needs yet design a program that is holistic and does not compromise on the set of children currently studying.


In the above diagram, on the Y-axis, stakeholders consist of government authorities, school leaders, teachers, parents, and children. The X-axis refers to the implementation partner/company's expertise to address the challenge.


4.5.3 Program design and implementation: Conventionally the programs are designed to address the needs of a particular stakeholder, like focusing only on FLN, teacher training, or introducing STEM in silos. This approach, though, has shown significant short-term outcomes for a small group, but the majority of students continue to receive meager education.


There is a need to shift lenses from stakeholder focused to system-focused programs to create long-lasting and holistic impact. The infographic is a sample of the various programs in a school.



4.6 Leveraging Technology to solve for gaps in the CSR Ecosystem


Technology can be leveraged at various stages of the CSR journey to improve implementation & generate better impact.


4.6.1 Execution: Good execution would directly factor into the impact created by the capital. There are various ways in which technology can help in this scenario.


a. Bringing all donors and receivers to the same plane & enabling donors to pool money instead of working in silos

  • Multiple NGOs are already enabling this, but still adding a layer into the funnel.

  • Technology can help connect the donors directly to the receivers, this would help to save on the operational costs that NGOs incur.

b. Spanning global instead of local

  • At times it has been noticed that a company’s CSR activities are localized.

  • Technology can help companies identify geographies of greater need hence removing the local barriers.

c. Stakeholder Management

  • By bringing all the stakeholders on the same plane, an extreme level of transparency can be maintained.

  • Keeping everyone in the loop and steering towards better execution.


4.6.2 Monitoring: Active monitoring is a crucial step in the lifecycle of any project, and technology-based monitoring can prove to be a great asset.


a. Technology-based monitoring provides eyes on the ground

  • It enables direct access to the leaf node of the beneficiary pool which paper-based monitoring cannot.

  • A simple application can be created to enable the monitoring of resources and staff.

b. A standardized monitoring framework can facilitate the engagement process for corporates with multiple stakeholders across multiple geographies

  • Standardization also removes the subjectivity and enables stakeholders to draw out data-driven insights


4.6.3 Reporting: Reporting is a pivotal activity to assess and steer any CSR activity.


a. Donors should have complete transparency on how the CSR funds are being utilized, for which activities, towards which beneficiary within what intervals

  • The CSR sector can leverage the use of mobile phones and the internet to create a strong reporting network and data gathering process.

  • The data hence gathered can be rolled up to multiple levels in the funnel to create steer heading reports for CSR activity.


b. Tech-based program management platforms can enable stakeholders to draw clear value statements for the board-level executives.


4.6.4 Learning: If the above-stated points are executed then an extensive data pool will be gathered. This data can be leveraged to great extent across various areas of CSR:

  1. Technology can be used to skim through the piles of data collected leading to key insights from the lifecycle of the CSR activity

  2. Business intelligence platforms can be leveraged to generate key reporting insights across various CSR activities.

  3. These can spearhead learning and planning for the future activities

  4. The data can be also utilized for a mid-tenure course correction of the project

  5. CSR impact for a long time being subjective can now be quantified at the unit level.


4.6.5 Strategy: A great strategy will be a direct by-product of learning-based planning.

  1. A long-term vision can be developed with factual backup and planning.

  2. Experience can be leveraged with points of evidence that will lead to a robust CSR strategy for the future phases.


5. Conclusion


India is the first country in the world to make CSR mandatory, the Companies (CSR Policy) Rules, 2014, provide a robust framework for companies to partner in contributing to the country’s development challenges through its skills, technology, and innovation. Though the debate on if CSR to be voluntary or legally enforced? Should companies be mandated to report on their CSR? continues, there has been an upward trend of companies binding with the law, and the amount spent on CSR is witnessing an increasing trend over the years.

The big companies and early adopters continue to innovate and create an impact through their programs. However, the distribution of CSR amounts is inequitable across geography and thematic areas. This could be the result of companies focusing on spending CSR money within the same year, which in turn limits companies to go beyond the local region or experiment with new models. This has deprived the company of reaching the needy and creating impact.


The recent amendments to the CSR laws allow companies to fund multi-year projects, thus creating room for impactful programs. Now, the companies have to move away from looking at CSR as mere compliance and come forward to fund impactful programs that are considering innovative social models to address grassroots problems.


As companies ride on this advantage in the CSR laws, to create impact, it is necessary that the following are considered:

  • Holistic programs that enable and empower the system and stakeholders in parallel. Working in isolation with stakeholders may create a short-lived and limited impact.

  • Companies should consider working/spending CSR amount in ‘Aspirational Districts’ to maximize the impact of their work.

  • Companies with less CSR amount may collaborate with other organizations to fund a multi-year project.

  • Create/use a platform to bring grassroots NGOs and CSR companies into one place

  • Fund NGOs that address systemic issues, this will help to create a balanced ecosystem thus avoiding pressure on specific infrastructure/stakeholder

  • Align CSR strategy with national priorities and SDGs

  • Capacity building of grassroots NGOs to exploit technology and innovate

  • Include beneficiaries in each stage of the project (from need assessment to designing to implementation to impact assessment)

  • Companies should have dedicated CSR teams to build robust monitoring and evaluation systems.


 

Meet the Thought Leaders



Aashi Agarwal is a mentor at GGI and is currently working as a consultant at Kearney. She exhibits a keen interest in the social sector and has gained vivid experiences being a part of Teach for India, Katalyst and BloodConnect Foundation. Aashi pursued her B.Tech from IIT Delhi and was conferred with the prestigious Director’s Gold Medal for her excellent all-rounder performance and leadership skills. Outside of work, you can find her writing poetry Slam, learning French or exploring new places, food, lifestyle and culture.



 

Meet The Authors (GGI Fellows)


Ankur Bhattad is an Associate Consultant at Aspect Ratio with a strong focus in healthcare analytics and data strategy. Skilled at Problem Solving, Storyboarding & Team Management, Ankur takes interest in developing processes and working at challenging positions to solve business and social problems. He is passionate about development sector and impacting lives of the underserved, this has led him to visit schools across Pune and teach students.


Neerubavi Thipperudra Swamy is a graduate in Mechanical Engineering, and worked at L&T construction’s Solar business for 4 years. He is passionate about school education, student leadership, and Environment sustainability. This drove him to join Teach For India Fellowship and gain grassroots experience. Currently, Neerubavi works with a Corporate Foundation overseeing Education programs and Sustainability initiatives. He is an avid reader, a cyclist, and an animal lover.


Surabhi Pandey is a Stock Market Trader and Investor. She is a graduate in Computer Engineering from Mumbai University and is currently building algorithmic trading systems and her interest lies in amalgamation of business and technology. She is committed to create an inclusive world with empowerment through ‘technology’, ‘data’, ‘finance’ and ‘inner well-being’. She is vocal about the environmental crisis and volunteers to create awareness among people.


Tripti Mohapatra is a marketing intern at GroupM. She has earlier worked in the industry of import/export of precious metals. She is certified in Digital Marketing and is interested in advancing her career in the field of marketing. Having worked at various volunteering organizations, she has created impact while developing her skills.






If you are interested in applying to GGI's Impact Fellowship program, you can access our application link here.

 

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