CSR in 2015: The story so far: By Kelly Scharff, Sarah Berman

Since the liberalization of the economy, Indian companies have experienced rapid growth, becoming globally competitive.  Still, social and economic inclusion has not paralleled the economy’s growth.  The previous government adopted the slogan of inclusive growth while the current government promises rapid employment generation as a path out of poverty. Both have seen the private sector as critical to the future prosperity of the country and its citizens. Consequently, the 2013 Companies Act is a push for companies to develop and expand CSR programs.  Gateway House and Lehigh University’s study of the CSR landscape reveals that the corporate sector has begun efforts to meet this rising demand, with companies adherence unevenly distributed.

India’s own approach to and definition of CSR is quite distinct from most other countries. In various parts of the world, CSR is most often intertwined with sustainable and responsible business practices as well as social work efforts. CSR in India currently takes a philanthropy centered and number-centric approach focused on output, requiring a transition to a more strategic approach focused upon outcome. In India, CSR is detached from business practices. This divide, created by the Ministry of Corporate Affairs in the hopes of avoiding brand marketing or corporate perks, has forced CSR boards to keep charity efforts separate from a corporate’s expertise. While CSR efforts ultimately create a net positive result, the current discussion revolves around whether the law is written in a way that promotes the most impactful processes and long lasting results and if not—as has been the sentiment of most—how to rework the law to reflect this. The potential of CSR lies in harnessing the particular strengths of a business to integrate sustainable business with the current societal giving rather than simply requiring them to donate money and outsourcing all of their CSR efforts.

The strict definition of CSR in the Act emphasizes the involvement of corporates with certain types of social causes in partnership with NGOs. Health and education have gained a tremendous amount of support and funding, while more controversial and non-traditional causes have received less assistance. The current narrow definition and the even narrower efforts made by companies only address specific needs rather than nurturing civil society more generally. Furthermore, government backed programs are benefiting from corporate giving, as many companies have tailored their CSR programs to fit in with governmental goals. While CSR in any form is no doubt beneficial, the CSR scale in India is tipped in favor of conventional causes and away from social innovation.

Whether narrow causes or not, the government suggests companies partner with NGOs to help in their CSR efforts. Undergoing screenings and field visits, NGOs are at the mercy of corporates when it comes to choosing whom to partner with. Corporates are looking for NGOs that possess capacity, knowledge, and resources, and that will be able to handle their strict requirements when it comes to project monitoring and reporting. This means that large NGOs have been accumulating more partnerships, while corporate support tends to shy away from smaller NGOs.  The big get bigger while the small are starved of resources, which reduces the range of new ideas and policies being developed.

While NGOs provide an established framework and infrastructure for companies to build their CSR efforts upon, the cost of compliance begs the question as to why companies should bother complying with the law. Creating a CSR Committee, reporting CSR activity annually in the specified format, creating internal CSR structure, using third parties such as law firms or CSR consultancy firms, and complying with all aspects of the law add up to quite a significant effort in the eyes of many. These hurdles take attention away from where it truly should be directed: the socially responsible practices themselves. Moreover, the Act gives no penalty for noncompliance in regards to spending 2% of their profits. Thus, the reasons to comply are a willingness to obey the law and the societal pressure to comply created by consumers and other companies.

As India is the first country in the world to legally mandate corporate social responsibility, there is no previously existing model to follow or successful example to emulate. There is, however, scope for continued discussion and reform. Corporate giving cannot be a substitute for effective governance. After only one fiscal year we spotted trends in the CSR environment and recognized the potential impact that could be made; what is less certain is whether that potential will become reality. If the 2013 Companies Act is effective, social spending will continue increasing, corporates will steadily play a larger role in CSR efforts, and the standard of living for the neediest will increase. The role of private capital in shaping society is undeniable. Implementing a law requiring corporates to be more mindful of their impact has raised a public debate about social priorities. There is great potential for corporate social responsibility to foster the energy, talent, and resources of India’s robust corporate sector toward improving a wide array of India’s needs.