As the financial incentives, regulatory changes and consumer and employee sentiments rapidly evolve around ESG (Environment, Social and Governance), it is critical that organisations in India completely re-think the approach to ‘S’ and especially their corporate social responsibility (CSR).
CSR can no longer be seen as a compliance check-in-the-box item, but rather as an opportunity to enhance value and demonstrate organisational consciousness by engaging with deeper and impactful areas.
The three letters that have become a rapid force very quickly are E, S and G. They are used in the same breath and more so collectively. However, E has taken most of the limelight given the tangible climate disasters now being seen. S however is significantly lagging. Standardisation of metrics, quantification and reporting seem to be the leading reasons for this.
‘S’ is complex
A 2021 survey conducted by BNP Paribas revealed that a majority of the investors found S difficult to analyse and embed in investment strategies. Yes, S is complex! However, that doesn’t mean action shouldn’t be taken until one gets complete clarity. The approach simply means re-orienting the mindset towards impact.
One of the core components of S is corporate social responsibility (CSR). It’s the only component which has an outward emphasis. India is one of the few countries which requires corporates, subject to certain criterion, to contribute 2 per cent of their net profit towards one or more of the prescribed social or environmental themes. Given the recently changed regulatory regime, this article concentrates on providing a different perspective of revamping the organisational approach to CSR.
Most CSR strategies are developed and run by typical CSR professionals on the ground. While they bring in deeper social development experience, their approach to onboarding or evaluating projects is largely driven by a risk lens. The more standardised the project is, the easier it is to get the buy-in.
Up until now, CSR organisations and their Boards have been focussed on ensuring that the CSR amounts are spent within the given year which directly or indirectly led to standardised projects being prioritised over social models that are innovative and may have the potential to drive higher impact.
Change in law
Recently, the CSR laws changed, providing flexibility for organisations to choose impact programmes that can extend up to three years post the current year. This change enables CSR organisations and their Boards to select longer term projects. While we hope that this period is extended to five years, three years is a start. With this, there is no pressure on the organisations to spend the CSR amounts within a given year. The negative perception related to unspent amounts required to be reported should be dispelled, as long as it relates to such ongoing projects.
With this key enabler, it’s time for CSR organisations to adopt a venture philanthropy mindset and help Boards take on impactful projects that take innovative approaches and have the potential to address systemic barriers. However, first some basics. EVPA defines venture philanthropy as, ‘a high-engagement and long-term approach whereby an investor for impact supports a social purpose organisation (SPO) to help it maximise its social impact’.
The ‘investors’ are highly engaged and provide customised financing, deeper non-financial support and focussed impact management and measurement. In effect, the Boards and CSR organisations need to look at social impact organisations (SIOs) not as ‘implementer’ or ‘service providers’ but rather as ‘partners’.
In such a scenario, it’s not enough to just evaluate what SIOs bring to the table, but also how the funding organisation will support them through this journey. Further, in choosing the partners, the strength of the management team, evidence of strong presence of the social problem, the impact model (i.e., theory of change) and its ability to bring in change, and probability of success or failure are some of the key factors to be considered.
Graduation approach
How is this approach put in practice? Take the example of the graduation approach, an innovative social model being used to eliminate ultra-poverty. An ultra-poor household has an annual income of approximately ₹25,000 with unpredictable wage labor, less than two meals per day, little or no productive assets, and is socially excluded.
To lift such households from poverty, BRAC designed a series of interventions in the form of a graduation approach. This design, in a customised manner, is now being implemented in India. This programme focusses on four pillars: (i) livelihood generation, (ii) social protection, (iii) social empowerment, and (iv) social financial and inclusion.
The identified households are provided with consumption grants, livelihood training and development, and asset grants. They are also linked to government entitlement schemes and community institutions ensuring financial inclusion. This end-to-end process results in households at least quadrupling their income (on an average) along with access to various other entitlements over a period of 36 months. This model has also gone through rigorous randomised control testing and has been proven to be extremely successful.
Applying the new CSR approach, the graduation approach model checks most of the boxes viz. existence of a social problem, theory of change model and its wider impact, and risk associated with its success. What then remains is the evaluation of SIO’s management team.
More than the experience itself, it’s the approach to addressing the systemic issues, the passion as well as the ecosystem network thinking that are crucial.
Regardless of regulations driving mandatory contributions by corporates, it’s still capital in the form of grants and hence its deployment needs to be taken as seriously as a commercial investment. Regulations now provide good flexibility, enabling corporates to undertake longer duration programmes and drive much deeper impact.
It will be a significant miss if this opportunity is not utilised properly to not only to support innovative programmes, but also to strengthen the S in ESG.
Bhandari is Global COO - ESG Advisory, KPMG, and Paul is Director, The/Nudge Centre for Rural Development. Views are personal