Reimagining CSR - spending vs making a difference

Long before the advent of government regulations, many organisations had their own social conscience. They realised that they were using raw material, labour, land etc, that belong to the society.

In some cases, they took voluntary resp­onsibility for the company's effects on the environment and therefore felt the need to give back to the society through Corporate Social Responsibility (CSR) interventions.

In 2014, the CSR policy rules made it ma­ndatory for organisations (the norms apply to companies with at least Rs 5 crore net profit or Rs 1,000 crore turnover or Rs 500 crore net worth), to spend at least 2% of average net profit of the previous three years on specified socially beneficial projects.

The rules focused on spending and reporting, defined by three key parameters: a) how much: the amount to be spent, b) on what: list of activities that would qualify as CSR, and c) where: give preference to the local areas in and around where the organisation operates.

In the fine print of the CSR committee’s reporting requirements, the larger aim of social impact was missed since measuring impact was not mandated as part of the law. This can potentially encourage active giving in the first place.

Fortuitously, in 2015, the United Nations announced the Sustainable Development Goals (SDGs). There was increased awareness of sustainability and the social impact of CSR thereby broadening the purview of CSR. The result was that at an organisational level, there were attempts to quantify the effect of CSR spending, and to measure outcomes and link them to SDGs.

From 2017-18 onwards, the Securities and Exchange Board of India (SEBI) asked the top 500 listed companies to voluntarily adopt an integrated reporting framework. The purpose is to concisely explain how an organisation’s strategy, governance, perfor­mance and prospects create value over time. This brings a new focus on “how” (how the organisation is creating impact) and “what” (what impact or outcome has been realised).
Henceforth, for organisations to satisfy all three mandates, they will need to blend CSR, sustainability, SDGs and reporting into a common framework, to achieve the ultimate aim — maximising social impact and therefore, value creation.

Historically, CSR has been emotionally driven instead of strategically driven. When this was an extension of the family’s personal philanthropy, there was no focus on measuring impact or planning for sustainable interventions.

The CSR law acted as a disruptor, making reporting of expenditure and activities a part of compliance. While most companies did respond with the basic prescribed reporting requirements, a few organisations went beyond, to measure the impact of CSR, or see if they were really making a difference.

The linkage to SDGs, combined with SEBI’s directive, has created the need for measurement of impact even more data-driven. More companies are attempting to measure the effectiveness of CSR expenditure. They are also realigning CSR policy with business objectives. Today, many comp­anies face challenges in the form of no baseline study, unclear definition of parameters to measure. Measuring impact costs money.

Unfortunately, the shortcoming of the government CSR policy does not permit funds spent on measuring the impact to count towards the 2% mandatory spend on CSR.
From a government regulations perspective, if a company wants to use CSR funds for impact measurement, the only way to do so is under capacity-building of its own team or partner agencies, limited to 5% of the total CSR budget. One of the ongoing challenges of measuring the impact is removing the effect of extraneous factors on outcome and on impact. These factors include government schemes, interventions by other organisations and the domino effect of economic development.

Although the challenges are many, there are several accounting frameworks that attempt to address them using different methodologies. These frameworks include, London Benchmarking Framework, McKinley Social Impact Assessment, Social Return on Investment Methodology, World Business Council for Sustainable Development Measuring Impact Framework.

Each methodology uses a combination of tools depending on the type of intervention, or “what” is to be measured. These tools include local livelihood mapping, poverty mapping, economic contributions, learning level tests etc. Technology is the largest disruptor and latest addition to the CSR measurement space, a solution that was unimaginable a few decades ago.

Key role
Technology as enabler in CSR will enable: 1) tracking and evidence based measurement of inputs, outputs, outcomes, and impact at the all levels; 2) management of various projects and budgets; 3) tracking and measurement of progress; 4) communication of progress against goals; 5) mapping of projects against SDGs; 6) map each SDG goal with frameworks & standards; and, 7) collaborative reporting of all projects.

From a long-term perspective, companies, implementing agencies, monitoring agencies, civil society and the government, all have a key role to play in ‘reimagining CSR’. Organisations need to petition the government to change the legislation and include impact measurement as a mandatory part of CSR spending.

The government should conduct its own impact measurement studies to validate the effectiveness of government spending. Thereafter, India as a nation can show a cumulative impact, of CSR and government spending, linked to achievement of SDGs. The government can create a platform to connect companies working on similar interventions or in the same geographical area, and allow them to collaborate resources for impact assessment.

At the corporate level, CSR needs to be mapped to business impacts. This strategic alignment is essential to help corporates undertake meaningful CSR projects while companies should focus more on value creation. Some companies have experienced how CSR has helped create social acceptance for their product while for others, it is reassuring the local community that they are an integral part of their ability to operate.

For long-term sustainability of the organisation, the social value of CSR spending has to be linked to business goals. Only then will companies be willing to spend on impact assessment, whether it fits into the government mandate or not. That is in true sense ‘reimagining CSR.’

(The writer is Head of Consulting, Treeni Sustainability Solutions)