Corporate social responsibility- spend versus impact

Corporate Social Responsibility (CSR) has evolved into an imperative action point for India Inc. The rules, and its amendments, have paved a wide path for the corporates to strategically use their wagon of funds.

However, prior to the enforcement of the CSR Rules, social development meant philanthropy and corporate giving.

The Rules have presented a strategic direction to the corporates to invest in areas aligned to business philosophy or national interests and priorities. Since the CSR Rules came into force, India has witnessed a massive corporate spending of about INR 1 Lakh crore in the last seven years with almost 40% of it spent in fiscal years 2019-20 and 2020-21.

CSR as cost

CSR, unlike some of the other functions, is perceived as a cost centre and therefore, more often, focus is tilted towards adhering to the mandate. The thrust to just spend many a times shadows the deep-seated principle of CSR i.e., impact. With a major chunk of the CSR funds allocated in education, health, skill development and rural infrastructure, the impact picture remains opaque for various reasons.

Firstly, need for a dedicated development professional is often overlooked. Multiple companies appoint CXO level personnel to manage CSR functions, which is over and above their key tasks of primary functions. Next, CSR becomes a lending and tracking activity coupled with supporting periodic reports. Moreover, due to lack of expertise in planning and implementation, projects lose track resulting in the idea of impact going for a toss, and mere reliance on glossy reports.

CSR as compliance

There often also exists a vagueness in planning CSR activities. Corporates tend to engage in projects aligned to either their global focus areas or projects that require less efforts in planning and implementation such as periodic donations to schools, public institutions, and communities. An approach of this kind, although fitting into the compliance requirements, fails to create a lasting impact.

"Authorising CSR allocations and subsequently the activities by the corporate level to regional level raises debate. In numerous instances, the regional level CSR functionaries act upon the directions of the centre, thus planning similar activities for all regions without a careful dive into the specific needs of the regions. An action of such kind takes away the ethos of impact as activities do not match the needs of the populace."

This results in spending of CSR funds in projects not relevant and thus stagnating the development process. Moreover, the need hierarchy in planning CSR activities is often overlooked.

For instance, CSR interventions in rural schools include smart classes and overlook basics such as basic infrastructure and WASH amenities. Also, behaviour change and communication (BCC) activities are not prominent which leads to a low sustainability quotient of the projects. Household toilets built through CSR funds often becomes a check-mark activity with the annual reports substantiating utilisation of funds.

However, due to lack of BCC activities, household toilets are used to store cattle feed or as a storeroom. Also, on-field situations state that despite ODF declaration, there remains a large portion of the rural population not having or having but not using a household toilet.

Often, companies engaging in impact assessment lack baseline information. This springs from the fact that the initial planning failed to recognise baseline as a key factor for assessing impact. Moreover, the CSR Rules at its genesis, and at present, do not mention baseline assessment as a crucial activity.

Presently, many impact assessment studies are conducted without any comparator data to only depend on recall methods or comparison with government records. This method, in many instances fail to measure the actual impact and is largely imprecise.

CSR as impact

Pointing out impact assessment as a mandatory yardstick for compliance; the January 2021 amendments in the CSR Rules have resulted in many Companies investing in impact studies.

This mandate puts Companies with a certain spending under the bucket of undertaking mandatory impact assessment. Inclusion of impact assessment as a mandate also implies Government’s inclination towards monitoring more than just the mandated spending. This requirement has and will necessitate corporates to publish impact assessment reports and thus maybe considered as mere a check-box activity to remain compliant.

"There is a major skewness in terms of how CSR funds are being managed and projects are being planned. Many companies invest only in proximity of their operations and therefore, states and districts devoid of industries are overlooked. This also leads to industrialised areas flooded with development funds while states and districts in actual need of aid fall below. Companies spending in their periphery of operations fit right in the compliance barometer but have enough scope to empower a far-reaching development process."

A lot of corporates in the past and present have gone beyond just the mandate to impact multiple lives through programmes that are aligned to Schedule VII, national priorities, and UN SDGs. Corporates have also been responsive to ad-hoc needs and have acted in unprecedented times for social welfare.

Corporates’ donation towards COVID-19 relief is one such example wherein funds were diverted to suit the emergency. However, realisation of long-term impact proportionate to the funds flow is still a thick question.

With CSR gaining momentum in the Indian context, and its periodic amendment in guidelines, corporates must focus on the underlying ethos of CSR i.e., true impact. While adherence to compliance is a major parameter, planning, implementation and assessment of projects to realise an impact proportionate to spending should be the motivation.

This article was originally published in ETCFO.com.