A challenge to corporates from RBI

The RBI’s latest report on currency and finance recommends policy options to mitigate climate risks and achieve India’s goal of net zero by 2070. One suggestion is mandatory geographic diversification of corporate social responsibility (CSR) spending. While this is a sound recommendation, its implementation will require a shift in the ecosystem for a more equitable distribution of CSR funding.

Section 135 of the Companies Act states that companies give preference to areas near where they operate in deploying CSR funds. This has resulted in more funding for social issues but also concentrated spending in the most industrialised states. As of 2020-21, 10 states received 80 per cent of all CSR funding. In 2021, the Ministry of Corporate Affairs had clarified that preference for local areas is not mandatory, and the spirit of the legislation is to align CSR with national priorities. However, the concentration of funding in a few states suggests that companies still prefer to direct their CSR funding locally.

This preference arises from a desire to help communities that live and work near their business operations, and within regions where they are familiar with the challenges. Local projects allow funders to leverage their knowledge of the region, utilise existing relationships and networks, and exert greater influence over outcomes through staff visits and monitoring. This in return allows corporates to obtain a “social license to operate” through the greater goodwill and influence they derive from doing good with and for local communities. This license to operate is a strong impetus for preferring projects in local areas.

Overcoming such a strong local preference will likely require regulatory change. The question is how can companies diversify their projects and funding into unfamiliar sectors and terrain. Accessing remote locations, identifying the needs of local communities, and trusted implementation partners are challenges. Grassroots non-profit organisations often lack the means to showcase their impact on national platforms, resulting in an information gap with funders.

Achieving an equitable distribution of CSR funds will require both a regulatory shift and changes at an ecosystem level, where the level of trust between companies inter se, and between the private, public and social sectors is high. This will enable companies to find trusted for-profit, social enterprises and non-profit partners. Successful pan-India projects will benefit from collaborations between larger companies and smaller social enterprises that are beginning their social impact journeys. Collaborations can involve pooling funding, talent, resources, and innovations to address complex, intersectional challenges. A partnerships-based approach could be helpful in achieving scale.

The development sector can also facilitate equitable fund distribution. For instance, pan-India non-profits with big budgets heavily rely on grassroots organisations for project implementation. These larger players can promote and elevate the impact created by their lesser-known partners, handhold them with compliance, and act as trusted conduits to build a stronger social ecosystem. Additionally, intermediaries and ecosystem-building organisations that hold a repository of trusted information could be leveraged by companies to identify smaller grassroots partners.

Another strategy is for CSR programmes to align with local government through initiatives like the Aspirational District Programme and the Aspirational Block Programme. The ADP emphasises convergence with national and state schemes, fostering collaboration among local, state and national governance entities, and with external agencies for implementation. Participation in such programmes is a win-win — companies develop meaningful relationships with government departments, influence local governance practices, and streamline district administration work while undertaking impactful projects in vulnerable districts. Independent partnerships with local government and non-profits can also be a modus operandi for CSR programmes.

It is critical that these collaborations balance the autonomy of non-profit organisations while providing accountability to the funders. Companies contemplating remote projects where staff cannot often make field visits can rely on technology-enabled monitoring and evaluation models. The pandemic has already facilitated some of this shift, with tools to transfer and share real-time data, the creation of dashboards, sophisticated accounting software, virtual field visits, and video conferencing. More needs to be done to enable non-profits to adopt technology.

Corporations that wish to be true national partners in realising environmental and social goals will have to establish trusted partnerships with a more diverse set of non-profits and local governments.

The writer is centre head, Centre for Asian Philanthropy India (with inputs from Research Associate Khyati Dharamshi)

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