Expert Speak India Matters
Published on Jul 30, 2020
Is impact investing the road ahead for CSR In India? By making Corporate Social Responsibility (CSR) obligatory for businesses in India, our country has set a superlative example of how businesses can create shared value for society while operating responsibly. According to KPMG’s 2018-19 report, Corporate India spent over USD 600 million (INR 5779.7 crores) in 2014-15 and more than USD 1 billion (INR 8,691 crores) in 2019-20 towards CSR. Recent amendments to the CSR law have amplified adherence to these obligations in terms of mandatory 2 percent spends in a financial year. If a corporate fails to do so, the unutilized amount is transferred into an escrow account and if not used within the following three years, is deposited in to the 'National Unspent Corporate Social Responsibility Fund'. However, while over 100 companies spent more than the prescribed two percent, the country’s most backward districts continued to remain deprived. The COVID pandemic brought with in a bevy of additional changes in the CSR rules for corporates in India. To help address a crisis of this magnitude, collective action was undeniably crucial. The government worked in tandem with corporates at multiple levels to limit the loss of life and livelihood opportunities as well as prevent economic growth from stalling. Thereafter, spends toward COVID were also added under the purview of CSR. To further this solidarity, the PM Cares fund was created to bring in additional resources for COVID-19 relief work. However, despite the intention and the necessity, all of this has led to one-time cheque-signing becoming an increasingly popular option for CSR spending among corporates. The law on the other hand distinctively spells out that development programs should be part of a corporate’s business model. Again, the country-wide lock-down and gradual unlock phase has significantly slowed down economic growth. With net profits shrinking, the amount of CSR reserves will reduce proportionately. A recent report by FSG forecasted a reduction of around 30-60 percent in mainstream CSR funding and lack of new funding by prioritizing contractual commitments to existing NGO partners.  With around USD 419 million (INR 3,100 crores) from the PM Cares fund being used to fight the COVID-19 pandemic by allocating it for ventilators, migrant labourers and vaccine development and over 80% of corporates annual CSR budget being used to address the pandemic, CSR funding for other social development initiatives will be brutally impacted in the near-term. All of these statistics point out the increasing need to strengthen the implementation and outcome frame-work of CSR initiatives. Sustained development is the need of the hour alongside relief and rescue work to build more resilient communities capable of facing such eventualities in future. Moreover, the altered CSR norms in the country make it critical to ensure funds for social impact are utilized in a manner that drives perceivable change and transparency in reporting measurable aspects of development. This is where, by blending impact investing into the social sector, companies can function logically and much more effectively to support concrete and sustainable development. This allows corporates to amplify the resource pool of CSR investments while delivering quantifiable, evidence based and measurable impact. India presently stands at the 117th position on the Global SDG Index. Considering the magnitude of the funding gap to address the COVID-19 pandemic as well as a better future, it is extremely critical to explore every single possibility of maximizing impact in accordance to the resource base. India needs over USD 500 billion annually to achieve the SDGs. The private and public sectors together spent only around USD 1 billion in 2019-20. This is where impact investing can bridge the funding gap, as well as create additional returns that can be redeployed for sustained change. Impact investing permits corporates to create shared value while contributing to social good. Corporate venture capital, incubators and impact bonds and funds among others are various models of impact investing. Each of them are undertaken to create positive social or environmental change alongside financial returns, promoting innovation, sustained change and viability of the intervention. They are thus usually focus on areas such as agriculture, micro finances, housing, healthcare or education to name a few. The COVID pandemic has further revealed much graver and deep existing socio-economic issues, in addition to all that our country was struggling with earlier. Millions are unemployed and education has become digital, notwithstanding inadequate access to the needed infrastructure and connectivity, widening the risk children from low-income families already face on account of the quality of instruction they receive. Impact investing through Edtech and digital initiatives can prove a powerful tool to address these issues not just during the COVID-19 pandemic, but even thereafter. Leveraging technology, cross-sector collaboration and innovative models, it can be used to deliver training and learning sessions or connect job-seekers at the bottom of the pyramid with prospective employment opportunities. By bridging gaps in the entire online education or job search ecosystem, it can ensure access to the necessary tools and assistance to achieve quality education for the masses or livelihood opportunities that prevent migration and job insecurity. With healthcare structures burdened by the pandemic, prevention and mitigation measures, which target not just Covid-19, but also the larger healthcare needs of marginalized communities have also become crucial. They need to be made resilient to such pandemics and other natural contingencies. Here, impact investments have enormous potential to catalyse innovative solutions. Through a combination of digital and offline business strategies technology can effectively supplement distribution of products and services to susceptible communities at the bottom of the pyramid. Further, in the healthcare sector, impact investing can allow investors address social determinants of health while maintaining their financial bottom line. This can have a significant ripple effect on the health outcomes of the marginalized populations. Impact investing prioritizes funding to NGOs/ implementing agencies who can deliver and measure outcomes and impact the best. Models that work are backed with factual statistics, which permit governments and corporates alike to pay only for programmes that guarantee impact. However, with CSR funds allowing corporates to invest only in NGOs, this leaves an important portion of innovation driven social enterprises at risk for lack of funding to scale operations. As the idea of Atmanirbhar Bharat is gaining momentum, impact investments offer inclusiveness through a clear structure of profitability and strong business models that aid social development. The mechanism even offers social enterprises a lifeline for funding and thereby promoting innovations across segments like: maternal health, child development, and education among others which are no longer simply charity. Each of these are strategic investments in human and social capital development that promotes a more inclusive future for the marginalized in our country. And through impact investing, there is a continuous generation of supplementary capital that can be employed for ongoing action in each of these spheres. Impact investments will also be essential for key infrastructure alterations particularly in developing countries like ours- from online amenities for health and education to improved internet bandwidth, more robust agribusiness value chains, or rural electrification. There will be a shift away from global supply chains to local resilient ones based on learnings from the pandemic. And extending a helping hand to these smaller players through impact investments can aid corporates in not just building sustainable indigenous supply chains, but also generating employment opportunities and regional development contributing to economic growth. COVID-19 will likely be a defining world crisis for years to come. It has shown us the way developmental funds need to be prioritized on areas like healthcare, education, digital literacy, livelihoods and poverty alleviation. In India, we need to radically improve our interventions in terms of quality, outreach and access for each of these development indicators. Only then will we be able to maintain our development trajectory and deliver inclusive growth. The transparency and result orientation that impact investing delivers makes it an exceptional medium that can help ensure funds for nation building are spent as effectively as possible. It has immense potential to unlock the additional funding that is needed to enable India to accomplish the SDGs by 2030 is enormous with retail investors, HNIs and foundations pooling in their resources together with public and private entities. The opportunities in India are matchless due to the scale and prospective the country offers for viable returns, regardless of market risks. A colossal gap still exists in the country between the prosperous and the underserved, and financial innovation can bridge this ever-widening gap. Impact investment creates social, environmental and governance benefits; while routing capital to enterprises that are capable of accomplishing results, which out dated business models cannot. In the long run, for a State that aspires to secure welfare for all its citizens as part of its constitutional pronouncements, the impact investment ecosystem offers an incredible opportunity by allowing for targeting expenditure with greater precision.
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Contributor

Akanksha Sharma

Akanksha Sharma

Akanksha Sharma is an International Development and Public Policy Specialist. She has been recognised as the 'Most Impactful CSR Leaders Globally' 'Asias Top Sustainability Leaders' ...

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