“Can CSR enable Social Enterprises ?” This is the same question we raised in the second edition of the ‘Dreamer Doers 2015: Social Enterprise Conference’ on December 12, 2015. The study of CSR spending and CSR activities, done last year (in 2014) led us to hypothesize that there is a very big opportunity for social enterprises and corporates to work together to make CSR initiatives impactful and transformational. However from our brief study we noticed that not much collaboration was really happening on the ground. The purpose of raising this question is to try and understand how these key stakeholders in the CSR value chain can be connected better and what are the execution level challenges that such collaborations are not being realized naturally.
We have the 2015 edition of the CSR study of top 100 companies (by market capitalization) listed on the BSE where have tried to understand how the CSR behavior of companies has evolved, given that one year has elapsed since the law on mandated CSR spend came into force. We have also tried to dig a little deeper in to the CSR initiatives of one of the moderately large companies and found a good example of a transformational change being brought about by a collaboration between social enterprises and corporates. Few key points to note here are:
- Technically ‘net profits’, as mentioned in the Company’s act, actually means profit before tax and not ‘profit after tax’. Many companies still continue to report CSR Spend as a % of net profits.
- The annual report needs an annexure/section describing the CSR policy / identifying the CSR committee and providing details of CSR activities and the spending against them. The board of directors need to explain the shortfall of spend against the mandate, if any.
- Currently there are no penalties on companies which have not met the 2% CSR spend. The government believes that organizations need some time get their act together and execute. Therefore there is a leeway for the next couple of years.
Last year, when the updated company law came into effect, the central govern
ment and analysts expected anywhere between INR 15,000 Crore and INR 20,000 Crore to be spent on CSR in FY15. However the actual number seems to be between INR7,000 – INR8,000 Crore. The spending of the top 100 companies (by market capitalization), listed on BSE is illustrated in the figure.
Here are the key findings:
- Total Spend by the top 100 amounted to INR5605 Crores as against a mandate of INR8200 Crores
- Only about 17 companies are spending at least at par with the mandate
- Average Spend is 1% of ‘Profit Before Tax’
- 17% companies have a spend deficit of at least INR50 Crores
- Banking and Finance companies have been the slowest to comply. They are underspending by INR 80 Crore on average
|Top Spenders (INR Crore)
||Largest Spend Deficit (INR Crore)
||Bank Of Baroda
On a Year-on-Year basis, the CSR spend for the top 100 companies has increased by INR 1600 Crore. IT companies have done significant increments (INR541 Crore) in their spending on CSR activities. Almost all industries have shown increments in their spending except for ‘Banking and Finance’ companies. This sector has not taken measures to scale their CSR initiatives. The annual reports for some of the big companies mention reasons such as “Board approval”, “more time needed to implement the mandate” etc. However, in the next 4-5 years, as small and large companies establish the structure and connect with their implementation partners, we think that the net spending on CSR should reach the initial spending estimation of the government; i.e. at about INR 20,000 crore annually.
Findings on Areas of Impact
We have identified about 700 different programs taken up by the top 100 companies. Each program is mapped to a social / environmental impact area such as education, health, economic empowerment etc. There can be multiple initiatives under a program. Typically there are anywhere between 15 to 40 initiatives per company per financial year. The figure below illustrates the distribution of the programs across the impact areas. Education, Health, Economic Empowerment, Environment and provisioning of basic amenities account for 80% of the programs.
Typically for each company its CSR initiatives would map at least 3-4 impact areas across India. As an example, sharing the key initiatives of Mahindra & Mahindra. M&M spent INR 83 Crore, complying with the mandate, across 31 initiatives. M&M’s target stakeholders for CSR are girl child, youth and farmers. The impact areas are education, health and environment. Some of its key initiatives are as below:
||Project Nanhi Kali
Educational support to underprivileged girls from poor urban, remote rural and conflict afflicted communities across India.
Mahindra Pride School
Livelihood training program for youth from socially and economically disadvantaged groups.
Mahindra Saarthi Abhiyaan
Scholarships to daughters of truck drivers which allow them to pursue higher education thus reducing drop outs amongst girls.
Training under-graduate engineering students in automotive engineering enabling them to get jobs in the automobile industry.
|INR 12 Crore
||Swachh Bharat Swachh Vidyalaya
Construction of toilets primarily for girls in Government Schools. Constructed 5000+ toilets in 1100 locations across 11 states
Afforestation initiative to improve green cover and protect bio-diversity in the country and also contribute to the livelihood of farmers.
Integrated Watershed Development Project
A public private partnership with the Government of Madhya Pradesh for conservation of soil and water.
Setting up a biogas plant to covert food waste and other waste into energy.
M&M implements many of its programs via its 25-30 partners spread across the country. Project Hariyali led to the plantation of about 8 million trees. About half of those were planted in Araku Valley. It is a hill station in Vishakapatnam district, close to the Odissa border, inhabited by several tribes. The lives of the tribal people were transformed with the creation of the cooperative for coffee cultivation. Naandi Foundation worked in this region for 15 years to really bring the coffee cooperative to a scale of having 12000 members, covering 589 villages. There is a latest initiative to grow mangoes in the region, which is being funded by Mahindra. Now this is a good example of a large corporate partnering with an executing agency to create a long term sustainable impact.
Can SE’s be a CSR PARTNER?
To ensure that the huge sums of money being spent on CSR result in transformational social change, it is imperative for corporates and social enterprises to find each other, trust each other and most importantly to reinforce the trust by action. Typical challenges that corporates have expressed in working with execution partners are (a) alignment of vision (b) capability of the partner to deliver results (c) association of the ‘social impact’ & social goodwill with the corporate brand. From a social enterprise’s point of view, alignment of vision seemed the most important point. Social Enterprises, NGO’s and corporates need each other and therefore need ways / channels which help them to co-operate. Mr. Anand Mahindra, along with a few other eminent industry leaders happen to be on the board of directors of Naandi Foundation (one of its major partners). Now with such a structure in place, I believe there is a very positive thought exchange between the partner and the corporate leading to a very effective CSR partnership. This could be one of the strategies that Social Enterprises could adopt. It will definitely help them learn from larger businesses and also help them scale in size and social impact.
To address the challenge of discovery of the right CSR implementation partner, the government is also acting as a facilitator. The ‘Indian Institute of Corporate Affairs’ under the aegis of Ministry of Corporate Affairs has created IA (Implementation Agency) Hub. This is a sanitized database of companies working in the social sector that has been cleared by as many as seven ministries including the Home Ministry and the Intelligence Bureau. Corporates can pick an implementation partner from this list. Currently the database has 119 entries. Any NGO/Trust/Foundation/Academic Institution/Section 25/8 company can register to be listed on IA HUB here. The details on the registration process and documentation required can be found here. I think that ‘Social Enterprises’ should get on the IA Hub list to be more visible to the corporate world.
Social enterprises which have succeeded to create positive change need to think of creating transformational change. Something that takes the ‘state of being’ of the beneficiaries to a totally different level. I think now is a wonderful opportunity to make a really big difference to our country and its people. There is predictability of spending, a need of partners on both the demand and supply side and no dearth of beneficiaries. If social enterprises can take their innovative business models, democratize and replicate their solutions across the country by involving and accommodating other aspiring social entrepreneurs and partnering with appropriate corporate partner, we should be looking at some major social transformations in the years to come.
To know more on CSR regulations check out the following links on MCA website
Note: Thanks to volunteers from SIBM, Bangalore who helped compile the CSR data.