By Ashish Srivastava
Associate Director – EY Foundation
Non-Resident Fellow, Dhirubhai Ambani University – School of Law
Over the past decade, Corporate Social Responsibility (CSR) in India has undergone a significant transformation. Initially marked by excuses for inaction, the narrative has shifted towards strategic CSR initiatives. Recent reports indicate that Indian companies contributed over INR 30,000 Crores during the last financial year, with a substantial portion of these funds directed towards the education sector. This investment reflects the potential of CSR to create lasting and meaningful impacts in society.
However, despite these contributions, CSR efforts are often ensnared in compliance-driven frameworks that stifle the true spirit of the law.
Sustainable Impact ‘Impacted’ by Legal Framework
In recent years, legislative changes have made CSR increasingly compliance-oriented rather than impact-focused. A CSR lead or manager typically has seven to eight months from approval to submit a utilization report each financial year. By September of the preceding fiscal year, companies finalize their books, leaving little room for proactive CSR planning. Although a tentative CSR budget is shared at the start of the fiscal year, actual implementation is delayed until approvals are secured. This means that NGOs often have only six to eight months to execute projects, making it nearly impossible to achieve sustainable impact within such a limited timeframe. While mere utilization of funds can be accomplished, meaningful outcomes remain elusive.
The current legal framework permits multiyear ongoing projects, yet internal stakeholders remain hesitant to engage due to cumbersome processes and delayed fund release mechanisms. According to a recent survey, over 60% of CSR leaders cite bureaucratic hurdles as a significant barrier to project implementation. Furthermore, the existing audit framework and the limited capacities of NGO partners complicate the investment landscape for CSR leaders, stifling innovation and long-term commitment.
A critical hurdle imposed by the law is the restriction on companies benefiting from CSR projects or funds. This provision has particularly hindered corporate involvement in two vital sectors: skill development and environmental sustainability. For instance, companies are less likely to invest in skill development initiatives when they cannot hire trained beneficiaries, leading to a skills mismatch in the job market.
It is imperative to rethink this clause. Companies possess the necessary funds, infrastructure, and trained professionals, along with job opportunities relevant to their industries. Allowing companies to invest CSR funds in training and subsequently hiring youth could create a successful model that not only benefits the community but also enhances the workforce. The government should consider implementing conditions to prevent misuse, such as prohibiting the training of existing staff.
Similarly, the prohibition on companies benefiting from carbon or green credits derived from environmental sustainability projects—such as afforestation and pond rejuvenation—discourages investment in these critical areas. herefore, the government must revisit this policy and allow companies to gain non-tradable benefits from such initiatives funded through CSR. This change could significantly bolster climate action efforts and promote sustainable development.
Moreover, the reporting framework mandated by the Ministry of Corporate Affairs (MCA) focuses primarily on quantitative metrics, neglecting qualitative and sustainable impacts. Key stakeholders, such as the CFO and Company Secretary, often lack training and awareness of ground realities, leading to a narrow focus on grant utilization rather than impact assessment.
Mindset of CSR Leaders
Understanding the complex environment in which CSR leaders operate is crucial. They must navigate the expectations of corporate stakeholders, communities, and government entities. A growing trend of appointing cross-functional leaders as CSR heads, while beneficial in terms of professionalism, often results in a lack of understanding of social issues and challenges. This gap can hinder effective program planning and impact assessment.
Internally, CSR leaders face immense pressure to meet the expectations of the Board of Directors, executive management, and various departments. Additionally, they are frequently tasked with overseeing employee volunteering and engagement in CSR projects, further complicating their roles.
As public representatives of their companies, CSR leaders often engage with government officials, facing unrealistic demands that create a dilemma between community needs, corporate expectations, and governmental pressures.
Bandwidth of CSR Leaders
Another significant challenge is the limited bandwidth of CSR leaders. Many operate in an ‘individual contributor’ role or lead small teams with shared resources, which adversely affects planning, execution, monitoring, and impact assessment.
The internal and statutory audits of CSR programs are often conducted by inexperienced team members from audit firms, who may lack knowledge of the social sector and the functioning of NGOs. This adds an additional burden on CSR leaders, detracting from their ability to engage in meaningful and impactful projects.
The Burden of Employee Volunteering and Engagement
The pressure to engage employees in volunteering initiatives often reduces these efforts to a mere ‘feel-good factor,’ rather than integrating them as a strategic component of Corporate Social Responsibility (CSR). Frequently, CSR leaders find themselves compelled to design and execute projects primarily in metro and tier-one cities to maximize employee participation. While this approach may enhance employee morale, it inadvertently fosters a regional imbalance in CSR investments, concentrating resources in a limited number of urban areas.
This imbalance not only undermines the broader objectives of CSR but also hinders the achievement of Sustainable Development Goals (SDGs) in India. To address this, we must distinguish between employee volunteering and CSR projects. By relieving CSR leaders of the obligation to manage volunteering initiatives, we can empower them to focus on planning, implementing, and managing meaningful and impactful CSR projects that benefit diverse communities across the country.
The Way Forward
In the ever-evolving landscape of Corporate Social Responsibility (CSR), it is imperative for leaders to prioritize long-term goals and objectives over short-term gains, irrespective of budget constraints. While budget allocations may be determined on an annual basis, the planning process must be anchored in the pursuit of sustainable impact and enduring change. This shift in focus is not merely a strategic choice; it is a necessity for fostering genuine progress in communities and aligning with global sustainability goals.
The Importance of Stakeholder Engagement: To enhance the effectiveness of CSR initiatives, engaging in intensive stakeholder consultations is essential throughout the planning, monitoring, and reporting phases of projects. Stakeholders—including local communities, NGOs, government bodies, and employees—bring invaluable insights that can shape programs to be more relevant and impactful. By actively involving these groups, CSR leaders can ensure that initiatives are not only well-received but also address the real needs and aspirations of the communities they aim to serve.
Building Capacity for Lasting Change: Moreover, CSR leaders should recognize the importance of investing in the capacity building of their NGO partners. This involves integrating project management, reporting, and audit training into program costs. By equipping NGOs with the necessary skills and knowledge, CSR initiatives can achieve greater efficiency and effectiveness. This investment not only strengthens the partnerships but also enhances the overall impact of the projects, ensuring that they are sustainable in the long run.
From Compliance to Catalyst for Change: The traditional view of CSR often revolves around compliance and meeting regulatory requirements. However, to unlock the true potential of CSR, leaders must shift their focus from mere compliance to creating meaningful impact. This transformation can position CSR as a catalyst for systemic change, driving India’s growth story forward. By aligning CSR initiatives with the Sustainable Development Goals (SDGs) and addressing pressing social issues, companies can contribute to a more equitable and sustainable future.
In conclusion, the path to effective CSR lies in a commitment to long-term vision, stakeholder engagement, and capacity building. By embracing these principles, CSR leaders can transcend the limitations of annual budget cycles and compliance-driven approaches. Instead, they can cultivate initiatives that not only uplift communities but also contribute to the broader narrative of sustainable development in India. It is time for CSR to evolve into a powerful force for change, fostering a legacy of impact that resonates for generations to come.