India, the third largest economy by purchasing power parity (PPP), has a new Companies Bill that nudges certain companies to invest two percent of their profits in corporate social responsibility [CSR] .
While several thought leaders have categorically called it a misadventure, I choose to be optimistic. Not only because I believe it is a much needed pool of funds that can help us in solving several problems such as education, health and poverty, but also because it has brought the debate about the ‘role of business’ to center stage at a time when the Indian economy needs an added push.
CSR and sustainability have been part of the business lexicon – especially Europe – in the western world for at least a decade. In India, however, while companies such as Tata have indulged in philanthropic pursuits, others have largely chosen to approach CSR in a limited sense.
Now that the bill has been passed, we will need to, finally, move beyond the question of ‘Should CSR be mandated?’ and focus on how large Indian companies can integrate CSR and sustainability into their DNA and work with activists, shareholders, consumers and government to account for their social and environmental footprint
Here are four things that must be addressed to make this work:
Collective Funds For Greater Impact
Rather than simple charity, can corporate India collectively fund efforts to solve common problems? For example, large food and drink companies can together target the waste that their product packaging generates. Automotive companies can pool in resources to address road deaths and unsafe driving. Steel companies, large consumers of water, can work with local communities to recharge underground wells and help provide safe water solutions.
Together these corporations can leverage the kind of scale and longevity needed to solve these deep-rooted problems.
Financial Instruments such as Social Impact Bonds (SIBs)
The funds that this Bill makes available for social good will be significant. In fact, Ernst & Young estimates that the law would apply to about 3,000 companies in India and disburse $2 billion for CSR activities. To make sure that this is money spent well, innovative financial products such as SIBs will be critical.
SIBs are a form of outcomes-based contracts in which the public sector commits to pay for significant improvement in social outcomes (such as a reduction in pollution or in the number of people being admitted to hospital) for a defined population. The first Social Impact Bond was launched by Social Finance UK in September 2010.
They are not bonds or debt instruments in the true sense of the term, but multi-stakeholder partnerships in which philanthropic funders or commercial investors not governments take on the financial risk of expanding social programs. The model has three principal actors: the government, donors or investors, and service providers (NGOs or social enterprises).
Experimenting with such instruments will allow for formal relationships to be formed that are based on outcomes and follow stringent audit rules.
Indian companies’ unique culture, skills and intrinsic ability to innovate can establish unique ways to support society and build their brands. Companies could initiate best-in-class policies or reinvent a product that changes an entire industry.
Unilever’s Shakti Ammas model of empowering women to distribute their products in rural India and The Tata Swach water filter, which can clean 3,000 liters of water without electricity or running water are stellar examples of sustainable innovation. We have much to build on – in fact, if you do a Google search for “frugal innovation,” the top 20 results all feature India.
While R&D budgets cannot be accounted under CSR, partnerships with NGOs and innovative models that reach the needy can be developed via establishment of social enterprises.
CSR and Sustainability Education
Harnessing the funds released because of the new Bill will require educated and motivated individuals to provide leadership across all sectors of the economy, making management education and retraining mandatory to march toward more inclusive, profitable and sustainable businesses. Not only will corporate executives need to be trained and sensitized, business school and postgraduate curriculum will need to be reworked to confront new opportunities and challenges brought on by the twin mandate of social good and economic growth.
An Opportunity to Work Together for Common Good
The two percent requirement is merely a nudge from the government to corporate India to do good and then report these actions. For Indian brands, this is an opportunity to begin switching gears on their business strategy in favor of the long term and integrating sustainability and CSR into their brand promise.
If done strategically, rather than as a standalone activity, CSR can yield strong results. While I agree that the risks of poor implementation are real, I am confident that for every company that may struggle through this mandate, there will be others who will raise the bar with strategic thought and innovative solutions.
Originally written for and published on CSRwire’s Commentary Channel Talkback.