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The role of CSR in funding NGOs

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September 08, 2022

Why in news?

There has been realisation by the corporate sector on what’s good for society is good for their business.

What is Corporate Social Responsibility (CSR)?

  • Corporate Social Responsibility is a management concept whereby companies integrate social and environmental concerns in their business operations and interactions with their stakeholders.
  • CSR is generally understood as being the way through which a company achieves a balance of economic, environmental and social imperatives (“Triple-Bottom-Line-Approach”.
  • All these are done by simultaneously addressing the expectations of shareholders and stakeholders.

What is CSR in Non-governmental Organisations (NGOs)?

  • It is the funding and grants process under which NGOs can get financial and other support from the corporate sector.
  • Under the Companies Act, 2013 it is mandatory to provide contribution of 2% of the average net profits of companies.
  • According to the Act, the CSR provision is applicable for a company having a net worth of rupees 500 crores or more, or a turnover of rupees 1000 crores or a net profit of 5 crore rupees during any financial year.
  • The funds provided under CSR are for social developmental issues and make a positive impact on the living standards of the economically poor and disadvantages people of society.

 What are the funding archetypes?

  • There are three distinct funder archetypes such as program proponents, adaptive funders and organisation builders.
  • The three archetypes represent different beliefs in terms of how philanthropy becomes impact.
  • And those beliefs manifest in different practices around funding indirect costs and organisational development.
  • Programme proponents value programme outcomes above all.
  • Adaptive funders are not rigid and support indirect costs and organisational development, if the NGO makes a case.
  • Organisation builders see value in investing in stronger organisations in addition to programmes.
  • CSR funders, who now represent a fifth of all private giving in India, principally fall under programme proponents.
  • They mostly contribute little or no money to organisational development and limit what they pay for indirect costs to a fixed rate often below 5%.
  • NGOs’ indirect costs range from 5% to 55%, depending on their mission and operating model, much as a corporate’s sales and administration costs vary significantly by industry and product.
  • These practices are partly a consequence of CSR funders’ focus on regulatory compliance, amendments to the CSR law in 2021 include substantial financial penalties for non-compliance.
  • Roughly 90% of the CSR funders are relatively small, unlisted companies, and companies that spend less than ₹50 lakh annually on CSR are not required by law to have a CSR committee.
  • They generally leave decision-making and action plans to company boards, who may have little to no experience working with NGOs or on social impact.
  • Hence, their priorities tend to sway towards risk avoidance, compliance, and cost minimisation.
  • Not every company is aware of all the facets of the CSR rules they are complying with.
  • For instance, the 5% cap on administrative overhead costs is applicable only to a business’ internal CSR operation cost, not to the grantee’s administrative costs, as is widely perceived.

How can this be changed?

  • The companies can pool their resources with other mission aligned CSR or social sector stakeholders, increasing their collective impact potential.
  • The companies can also hire or tap into professionals with experience working with NGOs.
  • Since 2020, the number of philanthropic collaborative, such as the Migrants Resilience Collaborative or Revive Alliance have more than doubled.
  • The Migrants Resilience Collaborative supports migrant workers and the Revive Alliance finances semi and unskilled workers.

How CSR funding can be learnt from peer organisations?

  • CSR funders can learn from peers who view organisational development and indirect costs differently.
  • For instance, ASK Foundation, the CSR arm of ASK Group, is working to enable better livelihoods for rural communities.
  • Until four years ago, the ASK gave annual programme grants to NGOs, limited indirect cost coverage to between 5% and 10%, and did not provide organisational development expenses.
  • Then, it shifted to a multi-year grant making approach and started providing up to 20% support for indirect costs.
  • The shift in practice came after the CSR team presented benchmarks of the higher rates paid by peer CSR organisations and the beneficial effects of a stronger NGO partner on its programme outcomes.
  • These peer examples and impact stories were instrumental in ASK getting board approval for changing its NGO funding policy.

What is the future?

  • The CSR programmes cannot currently contribute to NGO reserves/corpus by law.
  • However, by covering indirect costs and organisational development, they still help to relieve financial pressure and make organisations more resilient.
  • A corporate that has developed a relationship of mutual trust with an NGO could offer volunteer financial analysis services to help the NGO.
  • For example, Edelweiss has a structured employee engagement programme where senior and mid-level professionals voluntarily offer cash flow and financial management.
  • The idea is to move beyond signing cheques to recognising that, ultimately, what’s good for Indian society is also good for business.

 

Reference

  1. https://www.businessnewsdaily.com/4679-corporate-social-responsibility.html
  2. https://www.unido.org/our-focus/advancing-economic-competitiveness/competitive-trade-capacities-and-corporate-responsibility/corporate-social-responsibility-market-integration/what-csr
  3. https://www.thehindu.com/opinion/op-ed/the-evolving-role-of-csr-in-funding-ngos/article65861246.ece
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