A recent newsletter by the ministry of corporate affairs (MCA) stated that while CSR spends had nearly doubled from 2016 to 2021, it was “imperative that the companies take a long-term comprehensive approach to yield productive results,” as reported by ET earlier.
With the CSR budget dependent on the net profit of companies, it is difficult for companies to predict their CSR spending from a long-term perspective. The focus then is on meeting year-on-year spending targets, which usually result in companies undertaking programmes that do not have a longer-term sustainability, Vaishali Nigam Sinha, co-founder and chairperson-sustainability, ReNew, told ET.
The 2013 law states that CSR spending should be a minimum of 2% of average net profit of the three preceding years. When the budget is based on profitability, companies tend to be risk-averse, said Neera Nundy, co-founder of Dasra, a strategic philanthropy foundation. “As a result, agreements with non-profits working on the ground will be year-to-year at times. Sometimes, there are only verbal commitments.”
The requirement to do a 12-monthly reporting of CSR spending is another restriction. “If you want to measure progress in a 12-month cycle, you will make the kind of investment that shows outcomes in 12 months. Thus, much of what you see reported as outcome is headcount rather than actual impact, such as x number of people getting trained,” said Ingrid Srinath, former director of the Centre for Social Impact and Philanthropy at Ashoka University.
Compliance over Impact
The MCA newsletter said CSR spending in FY 2021 was Rs 26,210 crore, a significant jump from Rs 14,542 crore in FY 2016.
Amendments in the CSR law recognises the need for multiple year investments by bringing in the concept of “ongoing projects”, said Mabel Abraham, head-CSR at Larsen & Toubro. “Some projects, however, may require a longer incubation period beyond the defined period and may also change in scope and strategy as implementation progresses. If this flexibility is built in, it will enable more meaningful outcomes,” she said. L&T’s CSR outgo is in the top quartile of India Inc spenders, with the company spending Rs 136 crore in 2021-22.
The tendency to approach CSR from a point of view of compliance rather than a desire to make an actual impact also hampers investment in the sector. “Planning and spending is not multi-year because the compliance mindset is very high among corporates, as we saw in a funder survey we had undertaken,” said Pritha Venkatachalam, partner and India head at The Bridgespan Group, a global non-profit which advises philanthropy, CSR and non-profits on social impact. Traditional CSR spending also tends to be fragmented, with spending spread across multiple small programmes and geographies, which in turn dilutes impact.
ReNew’s Sinha said sustainable impact also needs scale, which can only be possible if corporates come together, and partner to implement projects. “It is seen that companies prefer to run programmes in silos, which impacts long-term value creation at scale.” Dasra’s Nundy, too, suggests that companies could look at pooling funds, collaborating and leveraging networks, which could also offset the risk of committing to a budget while being unsure about profit. “This way, it diversifies risks, like with mutual funds.” Venkatachalam said companies and their CEOs and boards should approach CSR spending as they would make a business plan—keeping long-term results in mind with course-corrections along the way. “I hope the 2021 amendment to the law mandating impact assessment brings about a change in approach,” she added.
The MCA newsletter also pointed out that “some states in India have received significantly more portion of CSR funds,” with over 44% of CSR funds going to 10 states in 2020-21. This disparity, it said was due to various factors, such as the presence of major corporations and industrial development in some regions. The CSR law too mentions that companies shall give preference to the areas around it where it operates. But the newsletter pointed out that “it is not mandatory to do so as the world has become too intricately close with the advent of digitalisation and it is difficult to define what the local areas of operations are.”
Apart from this, Srinath said a desire on companies’ part to monitor the projects and tie it to employee volunteering also restricts the regions in which CSR money is invested and the nature of the projects. “A lot of NGOs complain that companies want the projects to be within a day trip’s driving distance from the office.”
While a change in the regulation mandating annual spending and resultant yearly timeline would make a difference to the current short-term nature of CSR spends, the newsletter, Srinath said, could be a beginning to changing course.