Fostering symbiosis between Corporates and NGOs through Companies Bill

August 21st,2013

The passage of the Companies Bill 2012, which includes mandatory provisions around corporate social responsibility (CSR) for companies, will significantly boost the level of corporate engagement in India’s social development. Around 7,000-8,000 companies in India will be eligible for mandatory CSR under this legislation and the total annual outlay on CSR, based on the requirement to spend a minimum of 2% of average profits, could be the equivalent of to US$1-2bn.

NGOs play a big role in facilitating corporates’ activities on CSR, even for those corporates that have well developed internal CSR organisations and encourage active employee engagement. In that respect, it would appear that the new Companies Bill should provide a windfall for NGOs looking for financial support for their existing programs, capacity building needs and for their growth plans. While the pool of potential funding will, undoubtedly, rise, we believe that individual NGOs will also need to take steps to truly benefit from the new regulatory landscape; in fact, indifference on their part could have a fairly deleterious impact. We spell out the reasons for our view below:

Need for strategic alignment

The Bill and the draft rules clearly state that CSR should not be viewed as charity. While the Bill provides a lot of flexibility on the types of activities that the company could support, it does encourage companies to make CSR an integral part of their business processes. As companies face-up to the need to make regular (and more sizable) spending commitments to CSR, they are likely to review the ‘strategic fit’ of their existing and proposed commitments to NGOs-driven programs, especially in regard to the alignment with stakeholders’ needs and their own core competencies. Some NGOs may thus find their existing corporate sponsors move away, if the company sees its engagement with the NGO as being non-strategic.

Support to be in project mode

The new law talks about all CSR initiatives being taken up in project mode – I.e., as initiatives with distinct objectives, timelines, budgets, monitoring and evaluation processes. Ad-hoc donations will not be counted as CSR spend. NGOs will have to ensure that they formulate credible projects for seeking corporate support and also put in place or strengthen internal processes for developing, managing and reporting on projects.

Oversight will increase significantly

With the Bill elevating responsibility for CSR policy formulation and implementation to the Board level, companies will monitor progress of projects far more closely. NGO partners will therefore have to build in their own systems and processes to monitor and drive smooth implementation. Those that fail to do so could end-up finding few takers for new projects.

Impact will become critical

As companies start to look at their CSR efforts with their same lens as their own business projects, impact and return on investment (from a social impact perspective) will become more important. NGOs will increasingly need to articulate impact of past projects and position new projects favourably on this metric to take forward conversations with corporates on partnering with them.

That said, we would not like to give the impression that the new regulatory regime will only bring in challenges for NGOs. In fact, the big positive for NGOs that have well-established, efficiently run programs and those that can position themselves for the emerging landscape is that the appetite for multi-year funding, of larger amounts, will rise significantly. The Bill is effectively forcing companies to take a longer-term, strategic approach and this will also enable NGOs to seek funding for their capacity building needs – often a challenge in today’s context more easily.