In consultation with 320 nonprofits across India it was found that, “The most reported challenge was a lack of long-term commitment from companies, causing uncertainty and instability among nonprofits. This was followed by a perceived lack of understanding on the part of companies about social issues and solutions, and an emphasis on achieving targets.”

Ragini Menon, Senior Associate and Anushree Parekh, Head of the research and knowledge team at Samhita along with Priyanka Dhingra, Head Programme and Executive Committee member at ATE Chandra Foundation, write about existing trends and challenges that nonprofits face, while highlighting critical aspects of the CSR ecosystem that need strengthening.

It’s been five years since India became the first country in the world to mandate Corporate Social Responsibility (CSR) spending for eligible companies, generating a lot of local discussions, national debates and global curiosity.

Did the companies comply? How did they perform? How were the CSR funds spent and on what? Did the NGO sector benefit? What next for CSR?

We answer some of these questions here, based on the most comprehensive CSR dataset compiled so far by the Ministry of Corporate Affairs¹ and our own experience with 100+ companies.

1. Compliance with CSR Act has been decent, with room for improvement

For a regulation that is only 5 years old, required companies to step outside their comfort zone and have a steep learning curve, the compliance has been good, with definite scope of improvement.

Compliance can be measured using two indicators – number of companies reporting on CSR and number of companies spending the stipulated amount.

• On average, the reporting rate among eligible companies in the last 4 years has been 64%.
• Companies spent 68% of the prescribed CSR amount in the last four years, totaling to ~INR 52,000 crore.
• Of the liable and reporting companies, the proportion spending zero amount has reduced over the years, consequentially, increasing the number of companies that actually do spend on CSR activities. In fact, the proportion spending exact or more than prescribed amount has increased from 26% in 14-15 to 44% in 17-18.

Data pertaining to CSR expenditure in FY 2017-18 is still being gathered by MCA through the filings made by companies and the numbers are likely to improve as more companies file their data.

2. The 80-20 rule

In 17-18, 289 companies spent INR 7,067 crore on CSR – even though these accounted for only 2% of liable and reporting companies, their cumulative spend amounted to 53% of the total spend on CSR in that year.

Many of these companies have adopted a strategic, systematic and structured approach to CSR, with the intent to maximize social impact. For instance, a majority of the BSE 100 companies, which are India’s largest companies by market cap, have created suitable internal governance structure to execute CSR, with 24% having their own foundation and 52% having dedicated CSR departments.

However, these companies also saw the highest gap between prescribed and spent CSR amounts, in absolute terms. If these companies can be further nudged and supported to spend their entire prescribed CSR amounts, and in more meaningful ways, we will not only be able to unlock a huge amount of capital for the development sector, but also significantly improve the quality of that capital.

3. Companies do not prefer writing cheques to government funds

CSR towards government funds such as Swachh Bharat Kosh, Clean Ganga Fund and Prime Minister’s Relief Fund collectively accounted for just 5% of the total CSR spend over 14-15 to 17-18. This signals to an underlying trend that companies are not merely looking to offload their CSR funds to simply comply with the Act, but are seeking opportunities to create deeper social impact by taking a more hands-on role.

4. CSR’s preference for education and health continues to leave out other causes

Education accounted for 30% of total CSR spending between 14-15 and 17-18. Healthcare was the second most popular cause, receiving 17% of funds, followed by rural development at 10%. On the other hand, women empowerment received 1%, training to promote sports received 1% and technology incubators received 0.13%.

5. Need vs. flow

CSR is benefitting states with relatively higher level of development. Maharashtra, Karnataka, Andhra Pradesh, Gujarat, Tamil Nadu and Delhi received 40% of the total CSR expenditure from 2014-15 to 2017-18, even though they account for 11% of total number of aspirational districts. On the other hand, Jharkhand, Bihar, Chhattisgarh, Odisha, Madhya Pradesh and Uttar Pradesh account for 58% of total number of aspirational districts, yet received only 9% of the total expenditure towards CSR.

This bias continues within a state as well. An analysis of data for FY 16-17 shows that even in Maharashtra, which received the largest volume of funding, certain districts such as Pune and Mumbai (suburban) received the highest amount in CSR funding (more than INR 200 crore each), while those which were farther away from industrialized areas such as Hingoli, Buldhana and Parbhani received less than INR 1 crore of funding.

6. Local area spending becomes a double-edged sword

Subsection 5 of Section 135 encourages companies to give preference to the areas around where they operate, for spending the amount earmarked for CSR activities. CSR spending in local areas has accounted for a little more than half of the total CSR spend in the last two years.

This has had positive and negative ramifications. On the bright side, companies with manufacturing operations in remote parts of the country are investing in communities around them and working with smaller, local NGOs in doing so. But, by the same logic, significant CSR funds are being concentrating into small areas, leaving out surrounding areas with high needs but outside the subjective definitions of ‘local area’.

7. CSR’s promise for the NGO sector yet to be fully unlocked

While a substantial proportion of companies spend their CSR funds directly, implying through vendors or service providers that are not not-for-profit in nature, NGOs are becoming the most popular route for companies to execute their CSR activities. 43% of all CSR funds in the last four years was spent through supporting NGOs with grants.

However, not all NGOs have been able to tap into this opportunity. An NGO survey² conducted by Samhita, in association with the ATE Foundation, in 2019 revealed that 1 out of 2 NGOs had not received CSR funds in the last one year. Lack of information on corporate opportunities, absence of an understanding to deal with CSR requirements and NGO’s location were the top three challenges reported by NGOs in accessing CSR.

What next for CSR?

A. From compliance to strategic to catalytic

Many companies have graduated from compliance-oriented CSR to strategic CSR, to now thinking of being catalytic.

Catalytic CSR is defined by its ability to:

• Unlock more resources and generate leverage by seeding the flow of risk capital (philanthropic or commercial)
• Address market failures or inefficiencies in an ecosystem
• Reduce transaction costs and information asymmetry between various actors
• Introduce new stakeholders to the ecosystem and leverage their competencies

B. Emphasis on flagship programs

The desire to be strategic has encouraged companies to play a proactive and hands-on role in their CSR programs. More and more companies want to co-create ‘flagship’ programs that leverage their business strengths in meaningfully addressing a social issue and differentiate them in the sector. Flagship CSR programs are great since they bring more corporate ownership, significant resources, innovative thinking, long-term commitment and a comprehensive approach. However, they may also lead to higher expectations around performance, systems and processes from the NGO partners executing such programs.

C. Data-driven decisions and evidence-backed interventions

CSR has emphasized strong M&E systems from the get-go. Many companies base their decisions to fund, scale or exit based on data and evidence generated through process and outcome evaluations. In a further impetus, the High Level Committee on CSR, constituted by the MCA, has suggested that companies with CSR budgets of INR 5 crore or more invest in impact evaluations at least once on three years. Further, with the recognition of Nobel Laureate Abhijit Banerjee, Esther Duflo and Micheal Kremer’s work regarding experimental approach to alleviating global poverty³ wherein rigorous evidence is used to inform policy, CSR may move towards not only funding and scaling evidence-backed interventions, but also improving the quality of their own impact assessments.

D. Rising interest in innovative financial instruments

India has witnessed a lot of traction in the use of innovative financial instruments in the social and development sector. A prominent example of this was the launch of the world’s first development impact bond in India which focused on the learning and enrollment outcomes for out-of-school girls.⁴ These trends coupled with the proposed institutionalization of a social stock exchange in India, as declared by Nirmala Sitharaman in her maiden budget speech⁵, has the potential to drive companies to invest in innovative financial instruments such as development impact bonds, social success notes, loan guarantee funds etc.

E. Brands with purpose – moving beyond CSR

Companies have started moving from CSR to a broader narrative of responsible corporate citizenship, of which CSR is just one part that talks about responsibility to external communities and environment. The other part of the narrative is sustainable and responsible internal business practices in supply chains, production, distribution etc. This trend is being driven by two factors –

• A growing interest and awareness of ESG (environmental, social and corporate governance) factors among investors in India
• A growing conscious consumer movement that is building pressure on companies to respond to ethical and environmental issues that matter to them

Samhita Social Ventures stands out far and away as the best organization we have worked with. The Samhita team were absolutely fabulous throughout – from initial planning, to site preparation, participant interaction, event execution, post-event interaction and reporting. The USIP would highly recommend them without reservation to anyone looking to initiate high impact projects.– PeaceTechLab
United States Institute of Peace

The team at Samhita has been instrumental in building an executable module for Support A Woman. Their expertise in working with NGOs and understanding corporate priorities at the same time has helped immensely in smooth execution of the program– Johnson & Johnson

Samhita has been our trusted partner in the EdelGive Social Innovation Honours for two years. Adept management of the end-to-end online application process and widespread outreach resulted in large increases in the number of quality applications from NGOs across India. Samhita’s strength lies in their extensive NGO network and a very professional and committed team– EdelGive Foundation

Authored by P.R. Ganapathy, President ( India), Villgro Innovations Foundation 

After, USA and China, India has the largest incubator and accelerator ecosystem in the world. But few companies have sufficient information on this ecosystem to be able to invest in it.

Samhita, and Villgro, supported by GIZ are addressing this information asymmetry and facilitating partnerships between companies and incubators and social enterprises(SEs).

The traditional model of CSR involves selecting an NGO working in an area of your interest (livelihoods, education, etc.) and funding them for a specific project, say, training 500 women artisans, or setting up a computer lab in a school.

But, the smart CSR managers of today are asking harder questions of this model.

What happened to those women artisans after the training was completed? Who buys their products and connects them to consumers? Is the model sustainable? What do children actually learn from the computer lab? Who teaches them? What content is available? Who maintains the computers and the lab to ensure it continues to deliver value?

One way to find these answers is to partner with social enterprises or for-profit entities who use market-based approaches to solve social problems.

The next logical question is : “Is it legal?” Does the Companies Act permit CSR funding to be used for support for-profit social enterprises?

The answer is a resounding Yes! Under Section (vii) of the Companies Act, CSR funds can be used to support Government-approved Technology Business Incubators (TBIs) located within academic institutions. A subsequent clarification also specifies that any TBI can be supported using CSR funds.

So, why should your company invest its CSR in social enterprises and incubators?

Innovation: Social enterprises, by definition, use innovative approaches to solving social problems. From the Biosense non-invasive anemia measurement device to the Adhyayan school transformation rubric, these enterprise use fundamental new ways of approaching social challenges, with significantly better outcomes.

 More resources:Because social enterprises attract financing from impact investors, they have significantly more resources than traditional non-profits or NGOs. This allows them to leverage your CSR money for much greater impact.

Focus on talent:More resources and a for-profit structure means the ability to pay better salaries, and attract the talent they want. They can also offer stock options. We’ve see our social entrepreneurs capitalize on the start-up craze to attract experienced and seasoned talent, leading to significantly better execution.

Sustainability:Because social enterprises have a revenue model, they have high potential for sustainability. Which means that even after your CSR funding project finishes, their solution and service continues to live on.

Scale: The combination of a sustainable revenue model, more resources and focus on talent means that these organizations have the potential for scale far greater than the traditional NGO/Non-profit model. Which means that the small amount of CSR funding you provided at the beginning is leveraged multi-fold, to achieve outsized, national-level scale and impact.

How should your company engage with social enterprises through a TBI ?

From my experience working with many corporates and social enterprises, I believe there are five dimensions to consider while designing your engagement.

Money: Social enterprises need money, especially at the early stages when they’re being incubated by a TBI, to hire the initial employees, develop their product, test-market their solution, etc.

You could fund a TBI to fund a social enterprise in four different ways:

• Select a specific company from their portfolio that aligns with your CSR priorities – for example, agriculture or education. Your MOU with the TBI then specifies which social enterprise the funding should go to, and perhaps also what that funding should be used for and the milestones that should be achieved. Most CSRs currently work in this model.
• Select together from a pipeline that the TBI surfaces around your CSR theme areas — you’re leveraging the TBI’s network and processes for selection and diligence, and also having a say in the process by participating in their “Investment Committee.” This way you can fund new ideas, and yet have a say in the process. Marico worked with Villgro to find and select a social enterprise working in the field of diabetes, their focus area.
• Provide an open grant and leave it to the TBI to select and incubate enterprises within your theme areas. This stage implies you have developed trust in the TBI’s selection processes, and can depend on them to find good enterprises that fit your mandate. A corporate recently engaged Villgro to find and support skill training social enterprises, which is their CSR theme area.
• Fund the TBI’s program costs like incubation staff, mentors, knowledge building sessions, etc., and not fund incubatees directly. This often allows the TBI the flexibility to provide the much-needed handholding that plays an equally important part in the incubation process. A large IT multi-national in Bangalore funded IIT Bombay’s incubator for the costs of running an accelerator program.

Mentoring: Your corporate has several experienced, seasoned, senior executives, and social enterprises are often founded by relatively inexperienced founders who are trying to do something radical to solve a social problem. In our experience, mentoring from senior executives is at least as valuable as the funding we provide our incubatees. By engaging your senior management in mentoring these entrepreneurs, you’re giving them a chance to “give back” while adding significant value to the incubatee. Mphasis senior management were closely involved with one of Villgro’s incubatees, providing mentoring and guidance.

Expertise: You may have technical experts in your organization who can add great value to social enterprises by giving them advice from time to time. For example, GE’s 5.38 accelerator for med-tech social entrepreneurs provides access to technical experts within GE Healthcare. That sort of expertise is hard to come by, or well-nigh impossible to access, and can significantly assist a med-tech social enterprise in product development. Your employees also benefit by using their expertise for social good, and it enhances their sense of goodwill for their employer, because they can witness first hand the social impact of their company’s CSR program.

Facilities: A social enterprise, especially one working on an innovative new physical product like a medical device, doesn’t have the capital required to invest in labs, fabrication facilities, etc. However, it does need access to these facilities for product development. Corporates have these assets, and they are generally under-utilitized. By creating a way by which social enterprises can leverage these facilities, you could provide they a valuable and timely resource that reduces the cost, improves the quality, and cuts the time of product development.

Go to market: Lastly, social enterprises need partnerships to take their products to market. Established distribution channels are often out of their reach, because of their innovative product, lack of market demand, and low marketing resources. A corporate that can distribute a social enterprise’s product through its own distribution channels will provide that social enterprise significantly value. A large agri conglomerate’s recent tie-up with one of Villgro’s agriculture social enterprises is an example of how this could work.

In conclusion, we’re seeing the shift from tactical, project-based CSR, to strategic, programmatic CSR. By adding social enterprise support to your CSR program, and engaging corporate resources such as senior management mentors, technical experts, leveraging facilities and using distribution channels to make the support strategic, you can maximize your impact and effectiveness.

Interested? GIZ, Villgro and Samhita are working to help Corporates find TBIs and engage with them. So, if you are a corporate or an incubator, looking to explore new horizons of partnerships, get in touch.