Date : 18/07/2023

Relevance –

• GS Paper 2 – Welfare Schemes
• GS Paper 3 – Indian Economy – Private Sector
• GS Paper 4 – Ethics in Public-Private Relationship

Keywords – Net zero, Company Act, 2013, Aspirational District Programm, Accountability

Context –

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. One suggestion is mandatory geographic diversification of corporate social responsibility (CSR) spending. While this is a sound recommendation, its implementation will require a shift in the ecosystem for a more equitable distribution of CSR funding.

Concentration of CSR Funding in Industrialized 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 industrialized 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.

Understanding the Local Preference in CSR Funding

This 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, utilize existing relationships and networks, and exert greater influence over outcomes through staff visits and monitoring. This in return allows corporates to obtain a "social license to operate" through the greater goodwill and influence they derive from doing good with and for local communities. This license to operate is a strong impetus for preferring projects in local areas.

Challenges in Diversifying CSR Projects and Funding

Regulatory Change for Diversification

• Overcoming Local Preference: Diversifying CSR projects and funding requires regulatory changes to address the strong preference for local initiatives.
• Breaking Barriers: Companies need to navigate regulatory frameworks to venture into unfamiliar sectors and terrain, enabling them to expand their CSR efforts beyond familiar areas.

Accessing Remote Locations and Identifying Local Needs

• Geographical Challenges: Accessing remote locations poses a significant challenge for companies seeking to diversify their CSR projects.
• Understanding Local Needs: Identifying the specific needs and priorities of local communities in unfamiliar areas is crucial for effective project implementation and impact.

Finding Trusted Implementation Partners

• Partnering with Local Expertise: Companies may face difficulties in finding trusted implementation partners with knowledge of the unfamiliar sectors and communities.
• Establishing Collaborations: Building relationships with local non-profit organizations, social enterprises, and grassroots groups can provide the necessary expertise and trusted partnerships.

Showcasing Impact on National Platforms

• Information Gap: Grassroots non-profit organizations often lack the resources and platforms to showcase their impact on national scales, creating a gap in communication with potential funders.
• Addressing Visibility Challenges: Finding mechanisms to bridge the information gap and highlight the achievements of grassroots organizations is essential for attracting CSR funding and support.

Shifting to an Equitable Distribution

• Accessing Remote Locations: Engaging in CSR initiatives in remote areas can be logistically challenging. Lack of infrastructure, connectivity, and transportation options make it difficult for companies to reach these locations and assess the needs of local communities.
• Identifying Community Needs: Understanding the specific needs and priorities of communities in different regions requires extensive research and engagement. Each community has unique challenges, and companies must invest time and effort to comprehend the social, economic, and environmental context of these areas.
• Finding Trusted Implementation Partners: Collaborating with local non-profit organizations, social enterprises, and grassroots initiatives is crucial for successful CSR projects. However, finding trustworthy partners who possess the necessary expertise and experience in unfamiliar regions can be a daunting task. Establishing relationships and ensuring alignment of goals and values may take time.
• Information Gap with Funders: Grassroots non-profit organizations often struggle to showcase their impact on national platforms, resulting in a gap in information between these organizations and potential funders. Limited resources and communication channels hinder their ability to demonstrate the effectiveness and sustainability of their initiatives, making it challenging for companies to identify and support them.

Facilitating Equitable Fund Distribution: Role of Development Sector and Government Collaboration

Leveraging Pan-India Non-profits to Promote Grassroots Impact

• Elevating Impact: Pan-India non-profits with larger budgets play a crucial role in promoting and showcasing the impact created by grassroots partners, providing them with greater visibility and recognition.
• Compliance and Support: These non-profits offer valuable compliance assistance, capacity building, and technical support to grassroots organizations, empowering them to effectively implement projects and demonstrate their capabilities.
• Trustworthy Conduits: Acting as trusted intermediaries, these organizations connect companies with grassroots partners, ensuring a more equitable distribution of CSR funds and fostering a stronger social ecosystem.

Strengthening Ecosystems through Intermediaries and Information Sharing

• Repository of Trusted Information: Intermediaries and ecosystem-building organizations maintain repositories of trusted information about grassroots initiatives, facilitating connections between companies and suitable grassroots partners.
• Matchmaking for Equitable Partnerships: By leveraging their networks and expertise, intermediaries help companies identify grassroots organizations in different regions, promoting inclusivity in CSR fund distribution and supporting impactful initiatives.
• Promoting Collaboration: Intermediaries foster collaboration between companies, non-profits, and grassroots organizations, creating synergies and strengthening the social ecosystem for more effective CSR initiatives.

Collaborating with Local Governments for Aligned Impact

• Aspirational District Programme (ADP): Collaborating with local governments through initiatives like the ADP enables companies to align their CSR programs with national and state schemes, promoting convergence and maximizing impact.
• Fostering Collaboration: Collaboration among local, state, and national governance entities, external agencies, and corporations fosters a collaborative approach to CSR, facilitating the effective implementation of projects and addressing community needs.
• Streamlining Implementation: Partnerships with local governments streamline district administration work, ensuring efficient implementation of CSR projects in vulnerable districts and enhancing overall impact.

Ensuring Accountability and Transparency

• Addressing Compliance: Non-profits, intermediaries, and local governments play a vital role in ensuring compliance with CSR guidelines and regulations, promoting transparency and accountability in fund utilization.
• Government Oversight: Collaboration with local governments adds an additional layer of oversight, enhancing accountability and ensuring that CSR funds are utilized effectively and in alignment with local development plans.
• Maximizing Impact: By aligning CSR initiatives with local development priorities, companies can address the pressing needs of communities, maximizing the positive social and environmental impact of their projects.

Achieving Balanced Accountability and Technological Efficiency in CSR Monitoring and Evaluation

• Balancing Autonomy and Accountability: Collaboration between companies and non-profit organizations must strike a balance between granting autonomy to non-profits while ensuring accountability to the funders.
• Technology-enabled Monitoring and Evaluation: To address challenges in remote projects where on-site visits may be limited, companies can rely on technology-enabled monitoring and evaluation models.
• Utilizing Tools and Resources: The pandemic has accelerated the adoption of various tools and resources, such as real-time data transfer, dashboards, sophisticated accounting software, virtual field visits, and video conferencing.
• Enhancing Transparency and Efficiency: These technology-enabled solutions enable transparent data sharing, facilitate remote project monitoring, and improve the efficiency of evaluation processes.
• Enabling Non-profit Adoption of Technology: Efforts should be made to support non-profits in adopting and utilizing technology effectively, ensuring they have access to necessary resources, training, and infrastructure to implement digital monitoring and evaluation systems.

Establishing Trusted Partnerships for National Impact

• To become true national partners in realizing environmental and social goals, corporations need to establish trusted partnerships.
• Trusted partnerships should be formed with a more diverse set of nonprofits and local governments.
• These collaborations will help achieve an equitable distribution of CSR funds.
• Establishing trusted partnerships contributes to driving meaningful impact and addressing environmental and social challenges effectively.

Conclusion:

Achieving an equitable distribution of CSR funds for climate action requires regulatory shifts, ecosystem changes, and a focus on building trust and collaboration. Companies must diversify projects, foster partnerships, leverage technology, and align with government initiatives to drive meaningful impact and work towards India's net-zero goal. Mandatory geographic diversification can break concentration, while ecosystem-level trust-building allows for collaboration between companies, non-profits, and local governments. Leveraging technology enables remote monitoring and evaluation, and aligning with government programs fosters effective implementation. This comprehensive approach ensures transparency, accountability, and broader engagement, facilitating a sustainable and resilient future for all.

Source – Indian Express