Aiming for Equity: A Challenge to Corporates from RBI

Why in News?

• The RBI’s latest report on currency and finance recommends policy options to mitigate climate risks and achieve India’s goal of net zero by 2070.
• While this is a sound recommendation, its implementation will require a shift in the ecosystem for a more equitable distribution of CSR funding.

 

CSR (Corporate Social Responsibility) in its Current Form

• It is a business model by which companies make a concerted effort to operate in ways that enhance rather than degrade society and the environment.
• It helps both improve various aspects of society as well as promote a positive brand image of companies.
• Section 135 of the Companies Act, 2013 makes it mandatory for the following companies having:
  • A net worth of rupees five hundred crores or more, or
  • A turnover of rupees one thousand crores or more, or
  • A net profit of rupees five crores or more (over the preceding 3 financial years) to invest at least 2% of their net profit in areas such as education, poverty, gender equality, and hunger as part of any CSR compliance.

 

New RBI Recommendations on CSR

• The recent report focuses on the decade-old CSR laws and the potential to amend them to support the country’s green transition plans.
• The RBI has recommended several changes to the current CSR laws, including diversifying the geographies, businesses, and timelines over which green projects are undertaken by companies.
• The paper highlights the need for more effective CSR interventions to align business strategies with pro-planet goals in response to the increasing demand from investors, shareholders, and other stakeholders for environmental sustainability.

 

Problem Associated with Current CSR: Concentration of Funding in a Few States

• Section 135 of the Companies Act states that companies give preference to areas near where they operate in deploying CSR funds.
• This has resulted in more funding for social issues but also concentrated spending in the most industrialised states.
• As of 2020-21, 10 states received 80 per cent of all CSR funding.
• In 2021, the Ministry of Corporate Affairs had clarified that preference for local areas is not mandatory, and the spirit of the legislation is to align CSR with national priorities.
• However, the concentration of funding in a few states suggests that companies still prefer to direct their CSR funding locally.

 

Reason Behind Concentration of CSR Funding

• The preference arises from a desire to help communities that live and work near their business operations, and within regions where they are familiar with the challenges.
• Local projects allow funders to leverage their knowledge of the region, utilise existing relationships and networks, and exert greater influence over outcomes through staff visits and monitoring.
• As a result, corporations are able to acquire a "social license to operate" because of the increased goodwill and influence they gain through helping out their local communities.

 

Some Other Challenges Associated with CSR Funding

• The one challenge is how can companies diversify their projects and funding into unfamiliar sectors and terrain.
• Accessing remote locations, identifying the needs of local communities, and trusted implementation partners are challenges.
• Grassroots non-profit organisations often lack the means to showcase their impact on national platforms, resulting in an information gap with funders.

 

Steps to Address the Concentration of CSR Funds and other Challenges

• A Regulatory Shift and Change at Ecosystem Level
  • This will increase the level of trust between companies inter se, and between the private, public, and social sectors is high.
  • This will enable companies to find trusted for-profit, social enterprises and non-profit partners.
• Collaboration between Large Companies and Small Social Enterprises
  • Collaborations can involve pooling funding, talent, resources, and innovations to address complex, intersectional challenges.
  • A partnerships-based approach could be helpful in achieving scale.
• NGOs Can Play a Crucial Role
  • The development sector can also facilitate equitable fund distribution.
  • For instance, pan-India non-profits with big budgets heavily rely on grassroots organisations for project implementation.
  • These larger players can promote and elevate the impact created by their lesser-known partners, handhold them with compliance, and act as trusted conduits to build a stronger social ecosystem.
• Alignment of CSR Programmes with Local Government
  • Through initiatives like the Aspirational District Programme and the Aspirational Block Programme.
  • The ADP emphasises convergence with national and state schemes, fostering collaboration among local, state, and national governance entities, and with external agencies for implementation.
  • Participation in such programmes is a win-win; companies develop meaningful relationships with government departments, influence local governance practices, and streamline district administration work while undertaking impactful projects in vulnerable districts.

 

Steps to Ensure the Smooth Functioning of Collaborations

• It is critical that these collaborations balance the autonomyof non-profit organisations while providing accountability to the funders.
• Companies contemplating remote projects where staff cannot often make field visits can rely on technology-enabled monitoring and evaluation models.
• The pandemic has already facilitated some of this shift, with tools to transfer and share real-time data, the creation of dashboards, sophisticated accounting software, virtual field visits, and video conferencing.
• However, more needs to be done to enable non-profits to adopt technology.

 

Conclusion

• RBI’s push to incorporate environmental responsibility in CSR and bring climate change goals to the centre stage of discussions will help in addressing the pressing issue of climate change and its impact on the economy and society. 
• Through proposed changes to CSR by RBI, corporations that wish to be true national partners in realising environmental and social goals will have to establish trusted partnerships with a more diverse set of non-profits and local governments.

 

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Q1) What is the ADP (Aspirational District Programme)?

Launched in January 2018, the Aspirational Districts Programme (ADP) aims to quickly and effectively transform 112 most under-developed districts across the country. The broad contours of the programme are Convergence (of Central & State Schemes), Collaboration (of Central, State level Nodal Officers & District Collectors), and Competition among districts through monthly delta ranking; all driven by a mass movement. With States as the main drivers, this program focuses on the strength of each district, identifying low-hanging fruits for immediate improvement and measuring progress by ranking districts on a monthly basis.

 

Q2) What is the mechanism for CSR funding to support government schemes?

The Government of India runs various welfare schemes across the country. The government spends crores of rupees to implement campaigns like Make in India and Beti Bachao, Beti Padhao. Large corporations work closely with the government to make these campaigns a success. Various government campaigns like Namami Gange and Swachh Bharat Abhiyan are showing impressive results due to corporate support.

 

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Source: The Indian Express