CSR: As a social enterprise ecosystem enabler

In a historic move in 2013, the Indian parliament passed its first update to the country’s corporate law in 50 years. Among many other reforms, one that caught much attention was the one that mandated CSR spend of 2% of profits (before tax) by all public and private companies registered in India meeting a revenue and profitability criteria.

At EntireIySo! we have been tracking the CSR spend trends over the last three years since the CSR law was enforced. We believe that for slightly mature Social Enterprises (having operations for 3 years or more) have significant opportunities for a win-win collaboration.  As of FY16, the top 100 companies listed on the BSE have grown their spend by almost 30% CAGR over the last three years. Despite this growth and a spend of 7100 crore, the overall underspend (as per the 2% rule) still stood at 2079 crore.  In India, there are about 7000 to 8000 companies who need to comply. We estimate that the net spend on CSR, at 100% compliance, should aggregate to 20,000 to 25,000 Crore INR annually.

[ Check the detailed CSR spend analysis and presentation at the DreamerDoers Conference 2016 Here ]

CSR, though not a core business activity of the corporates, has significant mindshare of the Board of Directors. For publicly listed companies, the Board is directly responsible to articulate the CSR initiatives and framework to the shareholders and the market regulator. Further CSR is one of the core pillars of brand building. Social and Environmental responsibility are fundamental pillars of the existence of corporations.

With “social impact” also being core to the vision and mission of social enterprises, we assume that collaboration with corporates is but natural.

Over the last 3 years, EntirelySo! has interacted with hundreds of social enterprises and understood that areas of concern.  Three that stand out are

  1. Capital Access
  2. Market Access
  3. Resource Access

The average CSR budget for the top 100 companies is about 70 Crore (maximum being 650 crore).  Capital access is one of the challenges that can really be solved with CSR collaboration.

So what can SE’s do to be visible and realise a CSR partnership ? Besides having real, on-the-ground connect and operational maturity,  our analysis indicates that the following factors are key for a successful collaboration

  1. trust and transparency
  2. alignment of cause
  3. corporate brand recognition
  4. adherence to reporting / monitoring processes

One of the major reasons, cited by the companies, for non-compliance is, lack of visibility of trusted execution partners. At the same time, data from MCA (Ministry of Corporate Affairs) indicates that as of 2015, there are 4878 companies incorporated under Section 8. Obviously there are gaps either in visibility or impact capability.  Either of them are solvable problems.

Today we have the right environment in India to create transformational social impact at scale.  Regulations, Corporations, Non-profit or For-Profit social enterprises and impacted beneficiaries have witnessed multiple examples of transformative change being brought about by CSR initiatives in collaboration with execution partners.  [ See the case study of How Naandi Foundation has transformed the Araku Valley Region here ]

EntirelySo! is a social enterprise to enable social enterprises. If you are a Social Enterprise feel free to reach and join our Social Venture Founders Forum.  Let us collaborate to  make the our world a beautiful place to live.

A brief study of CSR in India: Can it enable Social Enterprises?

“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.012516_0938_Abriefstudy1.png Few key points to note here are:

  1. 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.
  2. 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.
  3. 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, w012516_0938_Abriefstudy2.pnghen 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)
Reliance Industries 761.00 SBI 429.00
ONGC 495.23 PNB 215.62
Coal India 298.1 ONGC 169.00
TCS 253.55 HDFC Bank 129.29
Infosys 239.54 Bank Of Baroda 113.70
ITC 214.06
NTPC 205.18
NMDC 189.00
Tata Steel 171.46
ICICI Bank 156

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 t012516_0938_Abriefstudy3.pngheir 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. InitiativeDistribution

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:

Impact Area Initiative Spend
Education 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.

BAJA

Training under-graduate engineering students in automotive engineering enabling them to get jobs in the automobile industry.

INR 12 Crore
Health Infrastructure Swachh Bharat Swachh Vidyalaya

Construction of toilets primarily for girls in Government Schools. Constructed 5000+ toilets in 1100 locations across 11 states

INR18 Crore
Environment Mahindra Hariyali

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.

Biogas Project

Setting up a biogas plant to covert food waste and other waste into energy.

INR9.4 Crore

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.

CSR: A Social Enterprise Ecosystem Enabler ?

On December 13, 2014 the Entirelyso! team organized its first conference ”Dreamer Doers 2014”: a baby step in its ambitious goal of democratizing social entrepreneurship. Besides interesting topics like “Inclusive business” and “need of scale of social enterprises”, we also visited the role of “Corporate Social Responsibility” as an enabler of social enterprises. Intuitively it seems that social enterprises could be one of the major execution channels for CSR initiatives. The thought was further strengthened given the amendment to the Company’s Law, mandating a 2% share of profits to be spent on CSR activities.

CSR-Spend-2014
CSR Spend Analysis of the Top 100 Companies listed on the BSE

At EntirelySo!, we decided to do a quick study of the CSR spend (2014) and CSR activities of the top 100 companies (by revenue) listed on the Bombay Stock Exchange.  Here are the findings:

  • The cross-industry average CSR Spend is approximately 1% of ‘Profit Before Tax’.
  • Yes, ‘Profit Before Tax’ is the realistic metric to be taken to compute CSR spend amount. Once you get into the details of the law, you’ll realize that the term ‘net profits’ actually means the “PBT” and not the ‘Profit after tax’ figure.
  • Only 11 companies, out of 100, were proactively meeting or exceeding the mandated 2% spend criterion. Most of these were Steel companies.  Not IT. Reliance Industries stood out as the biggest spender on CSR with 700 Crores being pumped.
  • In fact, IT and Banking companies came out as laggards in spending. These sectors need to scale anywhere between 3X-9X to be compliant.
  • At least 20% companies had a CSR spend deficit of 100 Crores+.
  • Education and Health were the most popular areas of CSR spending (46% initiatives) while Women Centric initiatives were the least popular (11% initiatives).
AreasOfImpact
Distribution of CSR Initiatives

We did not delve into the efficacy of the initiatives. But from the description, most of the initiatives seem like one of projects which do not necessarily have an impact sustainable over the longer term.

I believe that with the push from the government, corporations big and small have an opportunity to make a phenomenal difference to our society and environment, provided we have the will.  The finance ministry and financial analysts have estimated the total inflow into CSR for FY15 to be in the range of 15,000 crores to 22,000 crores (2.5 – 4 Billion USD).

Instead of opting for a ‘tick-in-the-box’ approach, corporations need to invest in transformational initiatives:  which elevate the quality of life and the state of being to a totally new level.  If even after spending 4B$, we do not see a positive, sustainable change in the economically deprived sections of the society, collectively we have failed … and money is definitely not the problem!!

Social enterprises are for profit organizations which redefine the objective of commercial organizations from “maximization of profits / shareholder value” to “maximization of stakeholder value while ensuring self-sustainability”. Stakeholders include both core and fringe.  RangDe (www.rangde.org) and SELCO (www.selco-india.com) are some examples of successful social enterprises which have achieved significant impact and scale of operations. These and many other smaller organizations can act as execution partners for larger corporations for their CSR programs.  Social Enterprises (SEs) will gain operational and business maturity from such partnerships.  Partnership of social enterprises and corporations on CSR will therefore fuel a positive cycle of maturity thereby continuing to make SEs more mature and operationally relevant for large scale/ large impact CSR programs.  I think it is time Social Enterprises and corporations work on the hurdles that prevent cooperation.

How to make your CSR – Socially Sustainable?

Sustainability of CSR impact is the key aspect that differentiates socially responsible corporate from the rest. In the minds of every CEO or CSR Leader, the question that remans unanswered is How to make CSR – Socially Sustainable?

Today’s for-profit-business world considers several options to make there CSR contributions. Most commonly found ones are –

  • Encouraging employees to engage in community service activities
  • Supporting Education Establishments
  • Supporting Local Government Initiatives
  • Volunteering in Disaster Recovery

Continue reading “How to make your CSR – Socially Sustainable?”