Corporate altruism in India has found a new purpose since advent of the COVID-19 pandemic. With the nationwide lockdown upending economic activity at one hand and disrupting lives, especially of the poor, on the other, companies have not only opened their purse strings but also rolled up their sleeves to respond proactively to the pandemic. Over the last year, corporates have been using all or most of their CSR kitty to combat the outbreak, be it through contribution to the PM CARES Fund, other relief funds, distribution of food, masks, PPE kits or relief material to the needy.
Corporate Social Responsibility (CSR) was for the first time introduced as a statutory obligation for companies by way of Companies Act 2013 under Section 135. Thereafter, the Companies (Corporate Social Responsibility Policy) Rules were notified on 27th February 2014 to lay down the specifications and procedure to be followed by the companies while discharging their CSR obligations.
It is an unavoidable fact that the CSR mandate under Section 135 of the Companies Act, 2013 was originally founded on the ‘comply or explain’ principle, where a company could either undertake CSR activities or disclose reasons for failing to spend the CSR amount. However, within a short span of eight years, there has been a complete departure from this original intention. It turns into mere getting certificate from NGOs.
The Companies (CSR Policy) Amendment Rules 2021 issued by MCA on 22 January 2021, have overhauled India’s CSR regime. Besides giving effect to changes introduced in Section 135 of the Act, as a result of Companies Amendment Act of 2019 (regarding transfer of unspent CSR amount) and Companies Amendment Act 2020 (regarding setting off excess CSR expenditure), the New Rules have introduced new requirements like impact assessment of CSR contributions, engagement of International Organisations for CSR Projects in limited capacity etc.
As per the amendment to Rule 8 (CSR Reporting to include Impact Assessment), Every company having average CSR obligation of ten crore rupees or more in pursuance of subsection (5) of section 135 of the Act, in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study. The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR.
This development is highly appreciable, as now-a-days companies are putting more emphasis on CSR’s Triple Bottom Line: People, Planet and Profit. These economic, social and ecological values help to measure an organization’s success and impact on its stakeholders. In an increasingly competitive market place, consumers are looking for companies that not only produce a quality product or service, but also reflect their own values. Therefore, the CSR Impact Assessment helps to understand the CSR projects/initiatives of corporates and communicate the tangible and intangible changes in the lives of the communities where the projects were implemented to the relevant stakeholders.
The benefits of conducting Impact Assessment are:-
Though, Corporates need to understand that impact assessment is essential and needs to be a continuum, not just a survey at the completion of activities. The impacts can be compared before and after of an initiative with specific metrics. A key point to remember is that impact assessment cannot be an end in itself. It needs to be built into the design of the project starting with baseline evaluation, mid-term review and then final assessment. It includes local livelihood mapping, poverty mapping, economic contributions, learning level tests etc.
However, an impact assessment for the sake of conducting one is not the answer. Many companies, who are currently doing it are not measuring the real impact of their CSR spend. They do it in terms of how many children were given school uniforms or how many mothers were given protein powder, etc. Very few of them have set up mechanisms to measure the real, long-term impact on the community.
Their reports on the CSR activities might be a compilation of flowery words about ‘helping more than a billion people take action to improve their health and well-being’ but the very premise of the company’s foundations could be flawed. Their waste could be one of the biggest sources of pollution in the country and they could simultaneously be working on providing ‘safe’ drinking water. Also, these assessments across corporates are largely used for internal purposes as they believe that declaring such findings in the public domain could foster a negative perception, especially if the evaluation of a project leans in favour of course correction.
CSR is a vehicle through which companies give something back to the society, but the challenge before the companies is to identify CSR priorities and the areas of invention which are meaningful in the context of society development.
For this, a clear theoretical framework for CSR law must be established; not one that can be changed in an arbitrary bureaucratic manner based on political or policy immediacy. Furthermore, Schedule VII of the Act, must set well-defined broad categories and align them with the framework of Sustainable Development Goals (SDGs) will be highly beneficial. Such a step will assist in companies monitoring and reporting their CSR projects with the help of SDG indicators and aid the nation’s progress in achieving these goals.