A MID-CAP MINING company in east India had to tighten purse strings after suffering losses in FY22. The axe first fell on an NGO it was supporting on skilling women as part of corporate social responsibility (CSR). The NGO, which had no alternative funding, had to shut shop. The episode shows the pitfalls of government-mandated CSR spending despite its significant achievements. India’s CSR laws, in their 10th year, mandate companies with net worth of more than ₹500 crore or turnover of ₹1,000 crore or profit of more than ₹5 crore to spend at least 2% profits on philanthropy.

CSR spending has grown 13% over last five years, reaching $3.3 billion (₹27,000 crore) in FY22, according to Dasra and Bain & Company’s India Philanthropy Report. Due to Covid disruptions, domestic private giving (which includes CSR and family philanthropy) remained flat at ₹1.05 lakh crore in FY22. While family philanthropy dipped, CSR grew 5% because of the mandate, though several businesses shied away from CSR commitments as they slipped into the red. According to the report, India Inc. contributed 30% to domestic private giving in FY22. It was 25% in FY17. This is significantly higher than U.S. where corporate donations make up less than 5% of all charitable giving. In fact, BSE 200 companies contributed ₹1,200 crore over the mandated 2% in FY22. Historically, 50% CSR contribution used to come from BSE 200 companies. But this reduced to 47% in FY21 with more companies coming under CSR laws.

“After a decade of CSR laws, there has been maturing of the process of how companies approach strategy, use core strengths, select projects, make big bets, support long-term efforts, build capacity through partnerships and assess impact,” says Balaji Ganapathy, chief social responsibility officer, TCS. The IT behemoth was second-largest CSR spender in the country at ₹783 crore in FY23, after HDFC Bank, which spent ₹821 crore. Reliance Industries is the third-largest with ₹744 crore. “TCS’ India CSR spend was ₹727 crore in FY22 and ₹783 crore in FY23, exceeding the 2% requirement under Section 135 of Companies Act, 2013,” says Ganapathy. These are just the CSR spends of companies. As groups Tata and Reliance spend much more through Tata Trusts and Reliance Foundation, respectively.

However, a recent report by Ministry of Corporate affairs says that despite allocation of funds rising over 80% since FY16, the impact of CSR spending has been limited.

Compliance Mindset

Experts say the law is driving corporate giving, and since CSR spends depend on annual profits, most organisations are hesitant about long-term commitments. “Because it’s a percentage of profit, and profit isn’t predictable, companies seek flexibility. If they have a bad year, they either decrease spending or carry commitments to the following year. We are still learning how to make CSR more impactful,” says Neera Nundy, co-founder, Dasra. Since corporates can reduce spends if they are in the red, their commitments are just short-term and half-hearted. So, they invest in infrastructure of a school or a hospital, but don’t aim to reduce drop-out rate or make sure that the hospital has trained nurses. To add to this, they want measurability of returns. “Investing in a school or a hospital building is more measurable. More pressing issues such as gender equality or mental illness tend to get ignored as they are abstract,” says Naghma Mulla, CEO, Edelgive Foundation.

According to J.P. Jagdev, MD, PSPL, a Bhubaneswar-based environment and sustainable consultancy, most CSR investments in the state are ad hoc. “Companies don’t have a strategy and end up investing at behest of governments. If local authorities ask them to fund a skilling programme or a school, they do it, but don’t take sustained interest in ensuring that it is effective. It’s a tick-in-the-box activity.”

Systemic change takes time. “If you take any social issue, the scale is such that even if companies focus on one area, it could take up to a decade to make a sustainable impact. True collective impact requires aspirational moonshots that catalyse public-private-development sector partnerships where core strengths of partners can pair up with committed resources for 5–10 years to address changes in policies, practices, resources, funding, infrastructure, collaboration and mindset,” says TCS’ Ganapathy.

“One must be patient to witness improvement in soft substantial indicators. For instance, corporates can build toilets, but behaviour change and acceptance are gradual,” says Amit Bhasin, chief legal officer and group general counsel, Marico.

“For smaller companies it’s more of a compliance spend. The number of companies contributing to CSR has dipped sharply in 2022 as their profits came down or they made losses due to Covid disruptions. This shows most companies are spending only because they have to,” says Madhusudan Kankani, partner, Deloitte India.

Rishi Agarwal, MD, FSG, says that 2% profit of most mid-cap companies is not sizable enough for a long-term impact. The clause that the CSR investment shouldn’t directly benefit the core business is a dampener. “If I tell an app developer that it can’t invest CSR money in AI, its easiest bet would be to invest in AI in education, because it is easy to measure. However, if I tell the company that it needs to demonstrably prove that its spending on AI is improving the quality of education and that it’s fine if this benefits its core business, it may be incentivised to experiment with stuff which might be highly scalable and impactful,” says Agarwal.

The CSR law also allows an organisation to invest in philanthropy where it has operations or anywhere in the country. “Companies prefer to spend closer to area of operation and that means it won’t be as effective. Corporates don’t have operations in more marginalised areas. We need to see how the spending is matching the requirements of the country,” says Mulla of Edelgive.

According to the India Philanthropy Report, 50% state-specific CSR spending is directed towards Maharashtra, Gujarat, Karnataka and Tamil Nadu, indicating a geographical bias. On the contrary, public allocations are more evenly spread out and need-based, with government providing 32% social sector budget to six states with national domestic product (NDP) per capita of less than ₹1 lakh. This number is 17% for CSR. State-wise comparison indicates a greater need to fund Meghalaya, Bihar, Madhya Pradesh, Uttar Pradesh and Jharkhand where both CSR spending per capita and NDP per capita are at the lower end of the spectrum.

Aligning With Business Model

One of the key questions is: How important is it for a company’s CSR strategy to be aligned with its business model? Though CSR can’t benefit the core business directly, experts say everything boils down to the cause the organisation chooses to support. “CSR does not need to be part of the core business but should align with business values. They should invest in causes where they feel they can make a difference,” says Dasra’s Nundy.

Gaurav Gupta, global managing partner, Dalberg Advisors, says he asks companies to look at causes where they can add the most value rather than those that have traditionally created a high impact. “It’s an internal, not an external, question. Companies should ask what capabilities they have to solve a larger problem. If I am a bank, do I have the capabilities and skills to solve a financial inclusion problem?”

The problem the company solves could be related to its core activity but not benefit the business. “If I am a financial services company and funding an NGO working for financial literacy of women, without plugging my product, there is no benefit to my business. I am just enabling a community of women to be financially literate,” says Mulla of Edelgive Foundation.

Hindustan Unilever’s strategy of aligning purpose with business stems from a philosophy of ‘what is good for India is good for HUL’. “Our compass business strategy puts serving stakeholders at the heart of everything the business does. It integrates our environmental and social commitments at four levels: our operations, our value chain, our brands and our community. Our CSR programme is focused on community actions that address some of the biggest challenges that India faces, and where we can add value. Our priority areas include Hindustan Unilever Foundation, which is addressing India’s water challenges; Suvidha centres for urban water, hygiene and sanitation; Prabhat, sustainable community development initiative around our manufacturing sites; and Shakti, which financially empowers and provides livelihood opportunities to women in rural India,” says Deepak Subramanian, executive director, Home Care, Hindustan Unilever.

E-commerce giant Amazon India supports environment, skilling, education and feminine hygiene around fulfilment and AWS data centres, says Anita Kumar, head, Amazon In The Community (India & APAC). “We either work with communities directly or partner with non-profits which conduct skill-building activities or spread awareness around menstrual health. Here, there is no benefit to the business per se; and we spend well beyond the mandated 2% of turnover.” In addition, Amazon has initiatives such as ‘Amazon Future Engineer’, where it has partnered with government to impart computer education in 9,000 schools.

Whether to look at CSR as a tick-in-the-box activity or a long-term business strategy where a company’s purpose is built into its business model depends on leadership. “If you are a smaller company with a CEO or owner who cares about issues, and is thinking about orienting capabilities towards solving an issue, I have no doubt that you can make a deep impact relative to size,” says Gupta of Dalberg Advisors.

According to Dinesh Pai, CEO, Rainmatter Foundation (CSR arm of Zerodha), though the company’s CSR strategy has nothing to do with its business model, founders Nikhil Kamath and Nitin Kamath are clear that a portion of Zerodha’s revenue will be ploughed back into the community. “We were aware that CSR projects have long gestation periods. We can’t invest in a problem and expect results next year,” he says.

Collaborative Model

Shridhar Venkat, CEO, Akshaya Patra, is a proponent of the public-private partnership model (PPP) of philanthropy. “The reason we could scale up Akshaya Patra is because we partnered with the government,” he says. The world’s largest not-for-profit school meal programme feeds two million children in 24,000 schools every day. The government gives Akshaya Patra ₹7 subsidy for each meal, while the cost of each meal served is ₹14-18.

In addition to PPP, Venkat is also looking at making the model more cost efficient by collaborating with corporates. It has partnered with Delhivery and Amazon for logistics, warehouse management and last-mile delivery. “Logistics is 20% of our costs. If I save one paise on one meal, it will mean food for 4,000 children for one year,” he says.

The industry is also batting for collaboration. “A collaborative approach would ensure that all the capital going into CSR projects would give respectable results,” says Pai of Rainmatter Foundation.

The need of the hour is to look beyond legal obligations. “CSR entails approaching business through the lens of stakeholder capitalism. Companies that embrace this reap significant benefits, including a stronger and more engaged talent pool, more efficient supply chains, positive and authentic brand perception, enhanced global competitiveness and closer alignment with regulatory policies,” says Ganpathy of TCS. CSR is serious business.

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