Komal Sinha, Head of Partnerships at ClimateCare’s India Office, has been working with CSR teams to plan and implement corporate social responsibility programmes in large corporates in India for over 10 years. In that time, she has witnessed a drastic shift in how organisation’s CSR priorities have changed.
Two years on from India’s implementation of the CSR spend mandate, Komal gives us her thoughts on what has changed, where the priorities lie, and what the future of CSR in India looks like.
1. Can you give us a short overview of the CSR mandate?
In 2013 a new section of the Companies Act dictated that companies with a net worth over INR 500 crores, turnover more than INR 1000 crore, or a net profit in excess of INR 5 crores are required to set up a CSR committee at board level and spend at least 2% of their average net profits on CSR activities. If the company fails to do so, the board must specifically report the reasons why.
The Act requires each company to formulate a CSR policy and set out the activities it will undertake. These must also comply with the act and details of what is classified a CSR activity is specified in Schedule VII. In essence, all engagement and development activities that benefit communities and conserve the environment, are rupee measurable, time-bound and delivered in Project or Programme mode rather than as one-off events are considered as CSR activities. Companies are also required to carry out an evaluation and impact assessment study to gauge social returns on CSR investment.
The board of the company can undertake its CSR activities through a registered trust, society or company under Section 8 of the Act or otherwise, given it has an established track record of three years in undertaking similar programmes or projects.
A company may collaborate with other companies, providing the respective companies are in a position to report separately on their impacts.
2. How has the mandate changed the way organisations think about CSR? Are there any challenges you have seen?
India is the first country in the world requiring companies to spend on CSR activities. This will impact over 16,000 businesses and should generate a fund of around 4000 million USD every year, to address key development challenges such as poverty, energy access, sanitation, hygiene and education.
While every company might not spend the mandated 2% right from the beginning, it’s a healthy start, and in my view is long overdue in our country, where more than a third of the population is illiterate and around two thirds have no access to energy or clean drinking water and sanitation facilities.
Making CSR mandatory is also changing the way leading corporates think and talk about it. It’s no longer seen as a separate philanthropic activity. Instead, corporates are taking a more strategic approach, and connecting their CSR strategy to their overall business ethos.
As the decision has already been made that they will spend on CSR, efforts are focussed on ensuring CSR projects deliver the maximum ROI. This means making sure they are handled professionally, deliver time-bound and measureable impacts, are scalable and are reported and communicated to reach out to stakeholders and create brand and business value.
However, many businesses are finding this more professional and strategic approach to CSR both challenging and time consuming. As a result, many are coming to ClimateCare as a trusted and experienced partner who can help them implement successful projects quickly and cost effectively – ensuring they create maximum social and environmental impact for their budget. In addition, they are looking for support to develop effective strategy, engage stakeholders, deliver robust MRV and for communication expertise.
3. Given there are no penalties for noncompliance – are companies following the rules?
You are right that the present rule is “comply or explain”, and there are no penalties for non-compliance, so long as reasons are “explained” in the board’s report.
However, increasingly companies’ stakeholders – their customers, investors, employees and the media are looking at this publically available information and making decisions based upon it. So a profitable, million-dollar company touting empty reasons for not spending 2% on CSR risks negative media coverage and significant loss of brand reputation and goodwill amongst clients, employees and stakeholders. The cost of this could be much higher than the cost of spending the required amount and delivering positive impacts.
4. In your experience, what are the top 3 essential things for an organisation to consider when formulating a CSR strategy?
Number one – the organisation has to assess the sustainability of a project before planning an investment. Otherwise, the project is likely to end, as soon as the corporate investment is withdrawn.
Taking a market based approach to sustainability makes sense as a CSR approach for businesses. It means that the benefits continue to flow, long after the initial investment has ended. For example, creating new markets for solar energy, water filters, or clean cookstoves, not only protects our environment and provides families with clean energy and safe water. Done well, it will create new jobs manufacturing, selling and maintaining these products. At ClimateCare we work with companies using their funds to kick start new markets, bringing very real community benefits at scale and for the long term.
Another very important issue to consider is a thorough needs assessment to understand the core challenge the communities are facing, rather than just investing in infrastructure. For example, you don’t want to invest funds in providing computers for digital education in schools, if those schools only have access to a few hours of electricity.
Finally, I think there is a great opportunity for corporates to benefit by teaming up and working together to deliver impacts at scale. You might choose to join forces with companies working in a similar region to you, or with your competitors – to create an industry wide programme. Working with the right project partner can make this easier – and they can even connect you to other government and corporate partners you were unaware of.
5. What are the current CSR trends?
IT, Banking and Finance, and Energy companies regularly come out on top in the CSR rankings, which isn’t surprising given these are our biggest industries. These, along with Consumer Products, Energy, Pharma and Mining and Minerals account for over 68% of the total CSR spend[1].
Reports suggest that CSR spend in 2014-15 followed a similar trend to the last few years. The biggest investment was in education, vocational skills and livelihood enhancement. This was followed by spend to eradicate of hunger and poverty and to improve healthcare. Environmental sustainability also features strongly.
However, what has changed is the amount of spend. Before the Companies Act, the average CSR spend for a company was less than 10,000 crores, but it is expected that the companies will spend over Rs 25,000 crores this year.
Another recent change has been the driver to engage employees in CSR programmes, as the law allows for quantification of employee volunteering time.
6. What does the future look like?
I believe mandatory or not, CSR is here to stay. It will not be done as a standalone philanthropic activity anymore, instead we’ll see companies integrating CSR into their core business strategies as they start to see CSR as a means to strengthen their business while contributing to the communities simultaneously through long term, scalable projects.
Good CSR will help corporates to address key business issues and drive growth. For example, a strategy to employ rural women to distribute a company’s products delivers CSR and business benefits. It empowers women and helps tackle poverty. At the same time it is an effective means to drive new sales and enhance corporate reputation.
Leading corporates have already adopted this approach and successfully so, and we will see organizations following suit.
As more and more Indian companies compete in a global marketplace, there will be added emphasis on reporting impacts against global reporting frameworks and aligning the CSR programmes to global best practices.
Lastly, as companies realize the value of employee engagement, we’ll continue to see companies structuring CSR to integrate employee involvement to enhance brand loyalty and corporate reputation.
Companies looking for help to develop CSR programmes in India can email Komal direct at Ko*********@cl*********.org or call +44(0)1865 591000
