Corporate Social Responsibility (CSR) is the concept that a company’s purpose is not profit alone. Apart from its responsibility to shareholders, it also is responsible to the community within which it operates – like ensuring it doesn’t damage the environment, and that its helps the community progress by investing in education, healthcare, etc. For decades, many Indian companies and PSUs did have long term CSR programs that were run voluntarily.
In 2013, with the introduction of Section 135 in the Companies Act (2013), India became the first country in the world to mandate CSR for companies of a certain size. The Act requires companies with a net worth of ₹500 crore or more; OR a turnover of ₹1,000 crore or more; OR a net profit of ₹5 crore or more in the preceding financial year, to spend 2 per cent of the average net profits of the immediately preceding three years on CSR activities.
The Act goes on to specify the activities that can be undertaken. The Act became operational on April 1, 2014. Since then, there have been many changes and improvements to the Act – like increasing the scope of CSR activities, mandating a CSR report from the company’s Board of Directors, further mandating impact assessment studies by third parties on CSR programs, etc.
In a country like India, with many social problems and development issues, mandating CSR helps the government share the burden of improving the country’s HDI (human development indices) with the private sector, to a certain extent.
Beyond spending the mandated 2% of profits on CSR activities, it also is expected to bring about a sea change in how companies operate – moving from purely profit generation, to a role with greater civic, social and environmental consciousness.
A company’s CSR activities also help it enhance its reputation, thus attracting investors as well as talent.
As the Companies Act (with reference to CSR) has evolved since 2013, the government has now also mandated impact assessment of the CSR program (since 2021), by an independent third party.
This ensures a number of benefits for ALL stakeholders:
- Impact assessment done early in the life-cycle of the project can expose any failings, and enable quick course correction, ensuring no further funding goes towards a plan that’s not working optimally.
- End-of-program assessments, if shown to have good results, motivates companies to extend support to certain projects over the longer term, leading to deep change
- Prevents the misuse of funds
- Sets clear KPIs that all stakeholders are held to account for, preventing any ambiguity
Technically, there isn’t any government mandated fixed timeline to implement a project.
But as per the Companies Act, Section 135, there is a fixed timeframe (of one accounting year) within which a company must spend its CSR budget (2% of profits), failing which the unspent amount accrues to the Prime Minister’s National Relief Fund.
On the other hand, if a company spends in excess of its stipulated 2% of profits on CSR in one accounting year, the extra spent can be carried forward to the following accounting year, to be considered as part of the latter year’s CSR spending.
Budgets alone have an annual timeline. But companies can choose their own timelines to implement CSR projects. Some adopt projects that require years or even decades of support for true impact. They partner with NGOs or educational institutions over many years, incrementally improving rural infrastructure, increasing girl child school enrolment, or working towards other long term goals.
Other firms support certain causes on an ad hoc basis. They might use their 2% budget to make donations to NGOs supporting sexual minority rights one year, and fund possibly water conservation efforts the next year.
There are many ways companies can initiate their CSR efforts.
Some companies like Infosys, have set up the Infosys Foundation, staffed with professionals from the development sector and those well-versed with the rules and regulations linked to CSR. Such companies have the talent in-house to keep a tab on the regulatory framework the government has set up for CSR funding, hence ensuring the company always remains compliant with the law.
Many other firms avoid setting up their own philanthropic divisions, Instead, they liaison with experts from the CSR field, like TeamLease.
Companies like TeamLease have a pan-India presence, as well as a decade of experience working with NGOs across the country. Such companies pair the best NGOs with companies, even while taking on the bureaucratic burden of ensuring compliance.
Stakeholders play a key role in deciding which particular sector to lend support to; and even within that sector, which individual project or NGO to direct their CSR funds to.
Many factors go into making decisions that can impact millions of lives. For instance, a senior member of a management team hailing from a rural or under-developed part of the country, might be keen to focus on rural development – having experienced, first-hand, the lack of educational infrastructure across small-town India.
When senior decision-makers have exposure to the development sector, either through a course done at institutions like TISS, XLRI, or through personal volunteering, such people will lend more support to their CSR efforts – treating it not just like a box to be ticked (due to government mandates) but much more. Such decision makers view CSR as an opportunity to provide the entire company a chance to ‘give’. This could be by volunteering their time and skills, teaching, mentoring, etc. And overall, they ensure that CSR gets woven into the very DNA of the company.
The sector that the stakeholder operates in also plays a role in how CSR funds are spent. For instance, companies making women’s personal hygiene products, fashion garments, make up, etc, are more inclined to supporting activities that enhance women’s lives – their access to water, education and healthcare.
In 2021, it was estimated that Corporate India’s CSR budget stood at Rs 25,000 crores. That is a sizeable budget, and when directed towards the shortlisted sectors like environment protection, women’s empowerment, heathcare, rural development, etc, can make a big impact.
With the unprecedented upheavals caused by the COVID pandemic, when millions of people, particularly the poor, lost their jobs, CSR funds were redirected via the Prime Minister’s National Relief Fund to address this once-in-a-lifetime calamity.
So CSR leads who fund well-designed social upliftment programs or work with experts in the field, to ensure the funds do not get wasted, or mismanage, can make a bigger impact with their CSR budgets.
Aligning CSR (Corporate Social Responsibility) initiatives with business goals is crucial for creating a cohesive and impactful strategy. Here are some steps you can take to ensure that your CSR initiatives align with your business goals:
- Define your business goals: Start by clearly defining your organization's business goals and objectives. Identify the key areas where you want to drive growth, improve brand reputation, or enhance stakeholder relationships. This will serve as a foundation for aligning CSR initiatives.
- Conduct a materiality assessment: Assess the social, environmental, and economic impacts of your business activities. Identify the issues that are most material or relevant to your business and stakeholders. This assessment will help you understand which CSR initiatives can have the greatest impact on both society and your business.
- Engage stakeholders: Engage with key stakeholders, such as employees, customers, suppliers, and communities, to understand their expectations and concerns regarding your business's impact. This dialogue will provide valuable insights into which CSR initiatives will resonate with your stakeholders and support your business goals.
- Map CSR initiatives to business goals: Once you have a clear understanding of your business goals and stakeholder expectations, map out potential CSR initiatives that align with both. Identify the areas where your business can make a positive social or environmental impact while also driving progress towards your business objectives.
- Set measurable targets: Establish measurable targets for your CSR initiatives that align with your business goals. These targets can be related to specific social or environmental outcomes, such as reducing carbon emissions, increasing employee volunteer hours, or improving supply chain sustainability. Setting measurable targets will help track progress and demonstrate the impact of your initiatives.
- Integrate CSR into business operations: Embed CSR considerations into your day-to-day business operations and decision-making processes. This integration can involve incorporating CSR metrics into performance evaluations, incorporating sustainable practices into your supply chain, or creating policies that align with social and environmental values.
- Communicate and report progress: Transparently communicate your CSR initiatives and progress to internal and external stakeholders. Regularly report on the outcomes and impacts of your initiatives to showcase how they align with your business goals. This transparency will enhance trust and credibility with your stakeholders.
- Continuously evaluate and adapt: Regularly assess the effectiveness of your CSR initiatives in relation to your business goals. Monitor the impact, gather feedback, and make adjustments as needed. A continuous evaluation process will ensure that your CSR efforts stay aligned with your evolving business priorities and stakeholder expectations.
By following these steps, you can ensure that your CSR initiatives not only make a positive difference in society but also contribute to the long-term success of your business.