Going Beyond 2% in India

India both leads the world in some areas of CSR and trails a long way behind in others. Part 4 (in a 5 part series) explores how CSR can go beyond the 2% rule of India’s Companies Act 2013.

Part 1 looked at the details of the legislation, Part 2 at India’s History of CSR and Part 3 some on-the-ground implementation, including some practical issues.

Going Beyond the 2% rule in India

My keynote at the CSR World Congress conference was titled “Going Beyond 2%”. Forum for the Future’s workshop led by its CEO Sally Uren had the same theme, and almost everyone from outside India was talking along similar lines.

We also were almost uniform in our desire to see CSR implemented across the Profit and Loss report in areas including revenue and expenditure – such as how business can think differently using CSR and make more money, provide better services and solve social problems as part of core business. Also, how CSR can lead to increased efficiencies and better management.

The people I met craved examples of Indian companies that had embraced CSR into their revenues and expenses; a business case for CSR that goes beyond meeting the 2% spend. Companies like Hindustan Unilever with its Lifebouy soap, Jain Irrigation with its microfinance, education and forward contracting scheme and Tata with its Swach water purification technology.

They only need search the internet for examples of ‘frugal innovation’ / ‘jugaad’ (think super-cheap cars, the $100 laptop project and pedal powered machines) and ‘grassroots CSR’ and they will see that India leads the world on many such initiatives.

Going beyond Charity

There are certainly over 2,000,000 registered NGOs in India, with perhaps as many as 3,500,000, or one NGO for every 400 people (NGOs can be set up under a number of different rules, and it is hard to track exactly how many there are – itself an issue). Increasing corporate spend won’t solve all the problems of the NGO sector, which includes fraudulent behaviour, corruption and perversely chasing funding at the expense of positive outcomes, which isn’t a problem unique to India, by the way. Failure to understand how companies can bring about social impact at scale will hold back India’s development.

Companies need target strategic community investment, including targeted programmes that use core skills to meet social needs. One example was an initiative that was targeting sanitary toilet facilities in every house in a particular village. Ultimately the initiative failed because women didn’t want in-house toilet facilities because their trips to the toilet were their only social interaction outside the house (and, probably more importantly, their only opportunities to converse in private without the influence of their husbands).

unintended ConsequenesSuch social consequences aren’t often considered by cheque-book philanthropists. And let’s not forget that due to the very great diversity that India has, it’s possible for women to respond this way because their men think that revenge rape is an appropriate way to behave even when most of the country thinks it’s an abomination. It’s also hard to underestimate just how much crime is ignored/dismissed/overlooked by corruption at high levels.

The Business Case

Companies need to consider a wider definition of CSR if they are to reach the conclusion that the rest of the world has reached in relation to CSR. That is, that it can make business stronger, more profitable, able to achieve better financing and reduce costs overall.

There is a big definitional problem here, in that almost everyone in India now understands CSR to mean corporate philanthropy (except a few sophisticates who have been interested in CSR for quite a long time). Which means that much of India has stopped looking for new ways of doing business using CSR as a lens.

It’s also worth noting that none of the most material CSR issues for companies include philanthropy, at least according to the Sustainability Accounting Standards Board. And my own company research indicates that philanthropy is the least compelling reason to increase CSR budgets.

Increasing your CSR Budget Materiality

Companies need to take to time to determine what the most relevant CSR issues are for their business, in their operating environment and using their business strategy.

India has many companies that use GRI, which now includes a very good materiality process (so long as it is used in conjunction with actual stakeholder engagement). ISO 26,000’s processes don’t especially help with the Materiality question, but Integrated Reporting (as laid out by the IIRC) should go a long way to increasing the quality of focus on the most relevant CSR issues (not just the 2% rule). But merely using such guiding frameworks don’t guarantee that the business takes the outputs seriously, and if India is to avoid scrapping the 2% rule, then it will need to invest in proving outcomes from amounts spent.

Social Return on Investment

While in Mumbai/Bombay I was lucky enough to sit in on a workshop with some of India’s finest CSR professionals. The topic was calculating Social Return on Investment, run by Monaem Ben Lellahom of Sustainable Square using something akin to the SROI Network’s methodology.

I think it’s fair to say that it stretched the minds of participants in ways that weren’t always comfortable (most of us CSR folk don’t really enjoy spreadsheets and numbers). But the stretching is an important part of the ways that CSR needs to expand in India if it is to meet policy goals.

The first and possibly most important stretch is to get people administering funds from the 2% rule concerned about return on investment from their CSR spend. Ratan Tata, the former chairman of Tata Sons, the holding company of the $100bn Tata group, has said:

 “We have a phenomenon which is meant to be good but is going to be somewhat chaotic … we don’t as yet know what kind of monitoring there’ll be in terms of how well this money is used.”

 I tend to agree with his insight. Teamwork


Companies need to find ways to work together if they are to solve some of the more difficult social issues in India – working alone simply won’t allow for the solving of complex issues in an efficient way, which is surely the goal of the legislation.

Next Post

In the next post I’ll explore the Future of CSR in India.

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