Impact Of The Companies Act On Csr Activities In India

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Karon Shaiva

The Companies Act was revised after almost half a century. And with it came, in some people’s opinion, the draconian Section 135. Much has been written on the mandated CSR component, who it applies to and how it is to be implemented. I would like to focus on one element of the ACT which has been mentioned more in passing – Monitoring & Evaluation and its raison d’être – Social Impact. M&E and Social Impact Assessment (SIA) are often used interchangeably and yet they are distinct tools and processes to achieve different objectives. While M&E is used to identify how a programme is/was implemented (in keeping with a pre-defined plan or not), SIA is to appreciate the consequences of the programme – intended or not.

To appreciate the spirit of the law in emphasising M&E, we need to understand industries
pre-ACT approach to CSR and how impact was assessed. Compare that with how SIA can now be undertaken for long term benefits.

The Genesis

Corporate Social Responsibility has been known by many names …. Corporate Citizenship, Corporate Responsibility, Inclusion & Sustainability, Conscious Capitalism and more. Essentially, it was meant to indicate the responsibility industry had to society. This originated from the various environmental concerns and perhaps, to a greater degree, due to the negative impact it had in other ways, such as displacement and marginalisation in the name of development. The typical Environment Impact Assessments (EIA) was more for risk mitigation than eagerness to measure social impact.

Social Returns on Investment (SROI) and Social Cash Flows (SCF)

Next came the economic value of philanthropy. More often than not, CSR was a side task of the PR team. One-off events were a great source of photo opportunities and easy publicity. As corporate citizenship and good governance grew as a concept, CSR activities began to evolve. Employee volunteering became popular, the HR manager doubled up as the CSR manager. Corporates started to budget for community development projects especially around their immediate vicinity of operations. The more innovative designed projects and products that aligned with their businesses and sustainability practices begun to gain ground. Impact was seen in terms of Social Returns on Investment and Social Cash Flows.

The voluntary sector on the other hand measured its impact in the form of lives saved or impacted. Yet the benchmark of saving lives or parameters of impact were highly elusive.  Little was known in theory, let alone practice what truly was Impact! Formal Social Impact Assessment (SIA) was practised by the World Bank, UN Agencies, INGOs and donor communities and was followed by CBOs as a pre-condition for continued grant support. Literature and education was limited to researchers, academicians and anthropologists. It was thanks to the efforts of the UN that laid the foundation of the knowledge and made Monitoring & Assessment (M&E) a growing practice. However, it still stayed in the hands of consultants for the non-profit sector and social auditors for industry.  Formal education in CSR or SIA was not easily available for either practitioners or evaluators. Capacity to undertake M&E and SIA on a wide scale was missing.

The Companies Act & SIA

The Companies Act has changed all this by making Monitoring & Assessment (M&E) a core program requirement and a key responsibility of the CSR committee. Education in the form of PGD programmes, short term training and even workshops have been designed to fill this gap. CSR Consultants have mushroomed. And corporates have been gearing up to meet the mandate, especially those with one person departments who traditionally use to outsource all CSR activities. Others have huge resources allocated to manpower alone and outlay for programmes runs into hundreds of crores. Both need to measure impact so that they can report the same as required by the ACT. Transparency and disclosure is critical to be in compliance with the law.

The Companies Act made Monitoring & Assessment (M&E) a core program requirement and a key responsibility of the CSR committee. Education in the form of PGD programmes,
short term training and even workshops have been designed to fill this gap. CSR Consultants have mushroomed. And corporates have been gearing up to meet the mandate, especially those with one person departments who traditionally use to outsource all CSR activities.

Technology and Advanced Analytical Tools

Most of Corporate India is still grappling with how best to make this work to their advantage especially considering the significant sums that would be demanded of them and a key restriction – CSR cannot be activities that either benefit their employees nor fall under the line of normal business. Sustainable projects that had a visible relevance to business were shelved, revamped or then taken out of the CSR fold. While the debate rages over whether this has and will continue to affect the appetite of Corporate to innovate for emerging markets and explore underserved communities as consumers and suppliers, we would argue that CSR activities can still reveal significant data for market intelligence even when not directly associated with business. After all, most CSR activities are carried out and encouraged by law to be in the physical area of operations.

We have undertaken M&E and SIA for significant corporate group companies and have seen a rise in request for tools to be designed that not only help corporates take up more effective CSR projects that benefit the communities, but also advance the knowledge and interest of the business. We have also seen a plethora of technology solutions for CSR project management, employee volunteering, data collection and more. The use of technology for monitoring remote locations has increased the efficiency of both the NGO implementation partner as well as the corporate field staff. Perception analysis of a brand and NGO ranking for a Performance Index are some ways that combine Social Impact Assessment with traditional market research and stakeholder relations.

The Quant v/s Qual Debate

Measuring impact will never be easy and monitoring a process that is fraught with subjective issues like culture, behaviour, attitudes etc, will always require deep thought and understanding.  One of the biggest reasons that qualitative research and ethnography were being used a whole lot more in the social space was to counteract the huge reliance on numbers by quantitative research. More and more qualitative tools like PRA were developed that could unearth layers to social needs and impact. It also helped differentiate between output and outcomes of a programme as per “The Theory of Change”. With the mandated reporting of CSR activities, the fear is that there is a return to the “number game”, something corporates are very familiar with and follow with gusto as a management practice. And will the “numbers game” dilute impact on the ground is a question that remains to be answered.

The Low-hanging Fruit

Designing and implementing CSR activities will always be a balancing act for corporates. Maximum impact and least spends. More importantly, the ACT requires them to be “seen” doing good. How then can programmes meet the real needs of their constituents and also align with national priorities while not being seen as a drain on corporate resources? Needs Assesments, Baseline Surveys and Research are key to designing for long term outcomes and impact. Compliance and visibility may be sacrificed for change on the ground, and true impact at the altar of quick wins, to show results while implementing projects. But this is a topic that demands far deeper introspection than possible here.

Time to RISE

The Ministry of Corporate Affairs has released a number of amendments, notes and FAQs since April 1st 2014 when the ACT came into force to clarify the various provisions and make it easier for Corporate India to do their “duty”. Strategic CSR and creative CSR are words being bandied about in our growing circles of RISE conversations based on the RISE framework for brainstorming and prioritising CSR spends.

Most corporates that come under the CSR demand criteria will be undertaking CSR projects for the first time and the collective opportunity to change India and the lives of billions is an exciting if daunting goal. We are confident that together with the development sector, government and not forgetting academia, Corporate India will rise to the challenge!

Karon Shaiva is the Founder & Chief Impact Officer of Idobro, a social enterprise that specialises in Monitoring & Evaluation, Advocacy and Engagement on Diversity, Inclusion and Sustainability. She can be reached at karon.shaiva@idobro.com. Follow her on twitter, linkedin and facebook.