Making CSR count

As spending rises, focus must shift to gauging its impact on the ground

With great power comes great responsibility”: That immortal line from the Spider-Man franchise seems to resonate well with companies in India. In just four years since spending on corporate social responsibility (CSR) was made mandatory, cumulative spending on this head has shot past the Rs 50,000 crore mark, proving itself an able ally in the government’s welfare push.

A CRISIL study shows spending by listed companies rose 12 per cent on-year in fiscal 2018 to Rs 10,000 crore — the first time it has reached this mark in any year. Assuming the same rate of growth, spending by unlisted companies is estimated to be Rs 5,100 crore, taking the total for the year to Rs 15,100 crore.

With this, cumulative spending on CSR over the four years stands at Rs 34,100 crore for listed companies and Rs 18,900 crore for unlisted ones, totalling Rs 53,000 crore.

The milestone leaves no one in doubt that CSR spending will only keep growing as the economy grows and India Inc complies with the law in letter and spirit.

But has all that spend really made a difference? Where? How? As CSR spending becomes a force to reckon with, the focus shifts logically to enhancing its thrust and rigour on the ground.

To this end, three clear imperatives emerge.

Due diligence and stringent monitoring of implementing agencies

Interestingly, almost three-quarters of the listed companies in the CRISIL study use implementing agencies such as non-governmental organisations (NGOs) or voluntary organisations (VOs) for their CSR projects. The reasons for the preference are not far to seek. First, NGOs/VOs are a natural fit for executing CSR projects given their presence in the target areas, local knowhow, and resources, besides experience in executing social projects, which a company typically lacks. Second, the stipulation to limit all expenditure to 5 per cent of the CSR amount is likely holding companies back from enhancing their in-house CSR capacities. 

However, it is not clear whether all robust due diligence has been conducted in every case before appointing an NGO/VO partner.

Two key areas to consider when assessing NGOs/VOs are governance and impact achieved. A due diligence exercise must be designed to measure both. Gauging governance would involve ascertaining the partner’s legal existence and commitment to transparency.

Legal existence can be validated by documents such as Articles or Memorandum of Association, PAN card, Form 12A (registration of a charitable trust or society) and audited statement of accounts. 

Commitment to good governance, on the other hand, can be gauged through studying the partner entity’s structure, management and implementation teams, ethics policies, robustness of MIS and other reporting mechanisms, processes of dealing with irregularities, internal mechanisms for approval, and risk management etc.

A formal declaration of donors and funds received from them, along with the synopsis of the projects in hand, and/or completed in the year, can also indicate an organisation’s commitment to transparency.

As for the impact the NGO/VO has achieved on the ground, the exercise should glean insights into the scale of work it is accustomed to, with details such as the tenure and ticket size of projects undertaken. Public disclosure documents such as annual reports afford this.

Reference checks with at least three existing donors can provide authentic feedback on the ability of the NGO/VO to accomplish desired project outcomes. Insights from such feedback — that validate or prove otherwise an organisation’s internal administration, and ability to drive resources for sustainable impact at the grassroots in keeping with a grant’s terms and conditions — go a long way in determining which implementation partner to invest in, and how much.

Regular measurement of impact for sustained results

Third-party evaluations such as NGO/VO grading should be considered for an independent review of a potential partner’s ability to drive the desired social impact. The evaluation framework used by CRISIL Ratings for grading VOs additionally takes into account diversity of resource mix; management profile; programmatic niche; and process framework.

CRISIL’s experience in this domain suggests these factors influence the ability of a VO to achieve its desired objectives. Interactions with key stakeholders, beneficiaries, project staff, and the community at large, are also legitimate sources that indicate the impact of a project.

Active collaboration to amplify impact

Above all, the companies should collaborate wherever possible to maximise the impact. Under the earlier CSR provision in the Companies Act, 2013, a company was earlier required to conduct activities only on its own, or through a holding, subsidiary or associate company. But this changed with a February 2014 notification of the Ministry of Corporate Affairs amending the provision. 

As per Rule 4(3), Companies (Corporate Social Responsibility Policy) Rules, 2014, “A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR Committees of respective companies are in a position to report separately on such projects or programmes in accordance with these rules.”

Over the years, quite a few companies have announced that they are joining hands for CSR activity. The Prime Minister himself has highlighted the virtues of such collaboration on many occasions. Yet, actual instances of collaboration remain limited.

Hopefully, we will see concerted action on all these imperatives in years to come.

The author is chief operating officer, CRISIL Foundation