Weekly Roundup 3/16/13: Forcing CSR in India
This week I learned about two recent machinations by the Indian government to foster both corporate social responsibility and investments in base of the pyramid enterprises. The two initiatives have left me truly ambivalent. The first seems like a big misstep waiting to happen, while the second looks like a sure-footed step in the right direction.
Payal Shah, a business development manager in Acumen Fund’s India office, told us about the bill:
The Indian parliament is currently in the process of passing this bill, which will make it compulsory for companies of a certain size to dedicate 2 percent of their profits toward CSR activities. Specifically, the “Companies Bill” states:
- All companies with revenue greater than Rs. 1000 Cr ($200 million) or profits of 5 Cr ($1M) must spend 2 percent of the average of the last three years’ profits, towards CSR activity
- Boards of affected companies must designate a three-member CSR committee (including one independent director) to ratify decisions on spending
- Employee expenses will not be classifiable as CSR spending
- Poverty alleviation, health care, education and social business ventures have all been included as potential areas of investment
- If the 2 percent allocation is not made in a given fiscal year, the CSR committee would have to submit an explanation for why that has occurred to avoid being penalized
Shah was part of a recent discussion on the legislation during a CSR forum in Mumbai. As The Hindu Business Line reported, Bhaskar Chatterjee, CEO of Indian Institute of Corporate Affairs, told that forum that less than 1 percent of India’s corporations have a CSR committee board.
“The statistics are pathetic. But, this shows where CSR stands on the boardroom agenda,” he told the gathering.
I don’t question the motivations of the government. India’s become an incredibly profitable place to do business, and the economy is expected to grow 7 percent in 2013. Those profits have clearly not spurred a boost in corporate giving to social causes.
But is this would-be law really going to produce a good faith effort on the part of corporations to develop impactful CSR? I have my doubts, especially considering the wild variation of what is considered meaningful CSR in the first place. I would think this sort of heavy hand might result in affected companies putting together an impromptu program to comply with the letter of the law, instead of finding ways to innovate in the marketplace to serve the poor and the services they rely upon.
Such a system could generate an estimated $5 billion in capital for CSR efforts annually, raising another question of just how this could absorbed responsibly and productively by the social sector.
The other approach I heard about this week was the India Inclusive Innovation Fund.
As reported in Economic Times, the fund will aim to provide risk capital to enterprises creating and delivering technologies that improve the lives of those living at the BoP, supporting both early and later-stage companies looking to scale. It’s being pushed along by the Ministry of Micro, Small and Medium Enterprises (MSME) and 20 percent of its value (they’re aiming for Rs 5,500-crore or about $1 billion USD) will be derived from government dollars. The rest is being solicited from banks, large financial institutions, NGOs and, yes, corporations. (I wonder if investment in the fund would qualify as a viable CSR effort as defined by the Companies Law).
Both initiatives are in the early stages and time will tell which has the bigger impact. Admittedly, I don’t know exactly how the India Inclusive Innovation Fund will determine which businesses in which to invest, and if those choices will be made by the government. But it seems to me the carrot of investment in, and potential returns from, innovative BoP enterprises (which India arguably has more of than any other country) will get India where it wants to go faster than relying on the stick of forced CSR.
Potpourri: Research, opportunities and follow-ups
Accenture wondered if, given the disorganized nature of developing markets, it’s still worth it for big companies to invest their time and resources to procure customers. After 40 interviews with senior managers at 18 “inclusive business initiatives” they have an answer: Yes. Check out their report High-Growth Markets: Scaling business innovations to grow with the future middle class
This year`s oikos Entrepreneurship Academy theme is “Creating Hybrid Ventures: Legitimacy and Sustainability Challenges in Social Entrepreneurship”. Please find the call for papers here. The academy is offering a master’s – level student position for this year`s Entrepreneurship Academy. The opporuntiy is for students interested in journalism and academic reporting in the field of entrepreneurship. Heres the call for applications.
Technology innovators, tinkerers, and mad (good) scientists, here’s your opportunity: The Tech Awards program is seeking your applications. Since 2001, the contest has sought to recognize those using technology to help humanity, be it earthquake-resistant construction technology to managing irrigation systems via mobile phones. Here’s how to apply for the Tech Awards.
Marico Innovation Foundation is collaborating with Innovation Alchemy for the third year in a row to kick off the Social Innovation Acceleration program under its Guiding Social Innovation project. The program provides customized capacity building, strategic advisory support and acceleration facilitation over a 12-18 month period, for organizations working on innovative social enterprise models and seeking to scale the impact of their work. As part of the program, Innovation Alchemy, will work closely with organization’s team to develop goals and enable long-term growth and scalability. They hope to work with companies and organizations focused on agriculture, clean energy/technology, education, health care, gender equality/woemn’s empowerment in fighting poverty and waste management (including sanitation and hygiene). For more information and to apply contact Akshay Dandekar (firstname.lastname@example.org) and Aditi Kini (email@example.com) before March 22.
In November, Diana Hollmann of GIZ, and Christina Gradl of Endeavor, let us know about a new step-by-step guide “Growing Business with Smallholders” showing how companies can work with smallholders in developing countries as business partners. It set up a framework to help companies design each phase, from discovering a concrete business opportunity to assessing the context and challenges to planting solutions and nurturing them through collaboration, finally harvesting and sharing the benefits.The practitioner guide was launched in a public event on Nov. 19 in Berlin with a panel discussion of entrepreneurs and development experts. Over at Business Fights Poverty you can find a nice follow up on their progress.