Will the new CSR Rules change Corporate India forever?

Corporate India has a role to play in the global stage and in their contribution to society. In a connected globalised world, intent and action counts. We have believed that India’s new CSR bill that mandates ploughing back at least 2 per cent of their net profit on upliftment of society is an opportunity.

This will be effective from April 1, as part of the new Companies Act. It is estimated that USD 3 billion dollars of CSR capital will be generated annually. The task is now to convert an opportunity to tangible outcomes that not only comply with the law of the land but also highlight the larger vision of the organization. We wondered as to what this entails for corporates. Five broad themes emerge:

  • The need for multidisciplinary leaders
  • Choosing the “right” cause
  • Measuring and verifying activities
  • The make or buy decision: doing it yourself or outsourcing
  • Reporting CSR/sustainability activities

The need for multidisciplinary leaders
For many corporates this strategic shift is difficult and is compounded by the scarcity of CSR talent which can create scalable long term strategy and also implement it. The CSR head not only needs to understand elements of CSR, Sustainability and project management, she needs strong business skills as well so that the CSR activities can led to long term stakeholder value generation. While it is estimated that in the medium term several thousand jobs will be created, several CSR jobs at all levels lie vacant or have been made part of some other department.

Key elements in this first mile of the CSR journey includes setting up a team that can design, implement and scale the CSR plan in line with company objectives. The team needs a leader that has the expertise to manage large budgets and has the appropriate signatory powers. The team also needs clear demarcation of roles, responsibilities and skill enhancement to ensure that the CSR budget is used correctly.

This will give rise to institutions that can provide trained manpower of the kind that CSR departments need. IICA has been the first off the ground but more players are gradually emerging. The CSR workforce will no longer be just the domain of those holding specialised degrees.

Choosing the cause
Once the team is in place, they need to answer the critical question – What causes should we support? What can be long term and scalable? How will we implement whatever we choose ? What will our 2014-15 CSR report look like?

The bill does list out some areas where CSR budgets can be spent and lists out 10 key areas that CSR budgets could be spent on, eradicating hunger, education, sustainability and sports are just some of these activities (Fig 1)

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Measuring and Verifying Activities
Companies are increasingly under pressure from diverse stakeholders to be transparent and accountable for how they are impacting their broader environment and society. CSR projects can no longer be just charitable contributions but need to be accountable for impact. In addition they can have a significant impact on brand and corporate reputation. One can easily assume that the CEO and senior leadership can be taken to task at any time in the future for faulty and non verifiable claims.

Measuring and setting baselines is essential to creating a successful CSR project. Companies need to decide, who will verify the activities that are being undertaken since CSR activities will now need to be reported.

Which is why the process of collecting data needs to be standardised and certified. Both internal and external audits become critical.

Rise of the CSR Agency
It is increasingly becoming clear that while the size of the CSR spends is large, in the absence of trained resources the CSR department will take time to scale.

Many are predicting the rise of the CSR agency. The intermediary firm that will take the funds available and distribute them to NGO’s while at the same time taking responsibility for training, verification, impact assessment and ongoing audits.

Reporting
Many are relying on third parties to give teeth to their proclamations. Using globally acceptable standards of reporting such as GRI and compliance to Indian rules will be critical. The reporting standards will need to improve significantly. Our study of sustainability reports indicates that the quality of reporting leaves much desired. With information flowing from both internal as well as external sources ensuring high quality reportage will be complex. This may lead to the growth of specialized agencies to ensure high quality reporting.

Article coauthored with Utkarsh Majmudar and originally published in Economic Times.

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