How To Strategically Align CSR Funds To Meet India’s Sustainability Goals

Corporate India invested a record sum of over Rs. 25,000 crores in 2021-22 toward Corporate Social Responsibility (CSR) expenditure. The expenditure was made by more than 18,000 companies that cumulatively implemented almost 40,000 projects to address various development issues. Additionally, some companies even exceeded their obligations under Section 135 of The Companies Act, 2013 and spent more than 2% of their net profit over the preceding three years. Even though this resource mobilisation is a result of mandatory regulatory imposition by the government, it reflects the notable role and contribution of India Inc. toward India’s social and developmental issues.

The distribution of these funds to various sectors, however, is skewed. The lion’s share of the CSR has gone towards education, sanitation and health. Conservation and restoration of natural assets (the environment sector) have received a considerably smaller portion of CSR funds. Sixty five percent of the funds have been allocated to Sustainable Development Goal (SDG) 3 (good health and wellbeing), SDG 4 (quality education) and SDG 1 (no poverty), while the environment sector received less than 7% of these funds.

In fact, since the mandate, the proportion of CSR funds allocated to the environment sector has never exceeded 10% of the available allocation. This may be attributed to a lack of quantifiable metrics in the environmental and ecological sector, the long gestation period required to calculate “returns” and lack of usable monitoring, reporting and evaluation frameworks. These challenges are further exacerbated by the fact that executing environmental projects requires expertise and often involves engaging and collaborating with highly specialised institutions.

In light of frequent and destructive consequences of climate change, few would argue the necessity to channel CSR funds to meet India’s sustainability goals. In terms of policy measures, Schedule VII of Section 135 of the Companies Act, 2013, includes the environment as a key CSR focus area for implementation. Similarly, in the Reserve Bank of India’s latest report on currency and finance, equitable CSR funding is listed as one of the key policy options to mitigate climate risk.

Such initiatives are poised to streamline CSR funding towards the environmental sector, but a few more steps are now required to optimise its potential. First, companies interested in investing in protecting and restoring India’s natural resource base should prepare for a long-term funding strategy if they want to achieve effective results. For example, restoring ecosystems such as forests, mangroves, rivers, grasslands and lakes is a long-term process. This requires investing in a transition period for restoration, which can be anywhere between five and eight years. It follows that planning and funding is required for projects to meticulously conduct baseline surveys, design suitable interventions and monitor results over years.

Second, funders must recognise that working in the environmental sector necessitates close collaboration with local communities and other relevant stakeholders. For example, ecosystem restoration is a clear and identified pathway to improve public health. Investing in planetary health is necessary to prevent spread of zoonotic diseases, the seriousness of which has been well-recognised since the pandemic. Generating livelihoods through restoration interventions by investing in projects at the interface of rural development and natural resource management will generate win-win situations for India’s sustainable development goals.

Similarly, restoration of degraded agricultural lands presents vital opportunities for both mitigation and adaptation to climate change, while increasing farmer incomes and well-being. Third, even when companies do invest in the environmental sector, they tend to carry out large-scale but homogenous activities such as tree plantations, which may not always be ecologically and socially suitable, or even desirable. For instance, studies have shown that planting the wrong species of trees in the wrong eco-regions can deplete water tables, disturb native biodiversity and often prove to be ineffective.

Many corporations are now looking to invest in more socio-ecologically responsible restoration strategies. For this to fructify, strategic and well planned design and operationalisation of interventions is required that minimise unintended consequences. Fourth, investing in the development and use of technology for carbon sequestration potential may prove useful in creating a knowledge base for India’s transition to green credits, carbon markets, and green growth.

Finally, having a long-term goal and vision will also help companies plan and pace their expenditures, thereby reducing unspent balances. In 2021-22, 86 companies reported unspent balances that could have been effectively utilised had there been an overarching plan. This will also enable smooth project cycles as implementing partners such as NGOs will be able to plan their initiatives better.

Furthermore, companies may also need to align these investment goals with their broader Environmental, Social and Governance (ESG) strategies and focus on reducing their carbon footprint. As the narrative shifts towards recognising the linkages between people and the planet, CSR funds can serve as a platform to operationalise the science-policy-practice interface by investing in well-researched and carefully designed projects. Close collaboration with civil society and policymakers will also foster a shared sense of ownership, which is necessary for protecting our natural assets. This sense of shared ownership and involving other stakeholders in the process is crucial to ensure the execution of projects and to prevent them from becoming a long-term responsibility for the company alone.

In summary, while CSR funds have had a significant impact on India’s social and developmental issues, the environmental sector has been a blind spot. While investment in the environment sector is pressing in times of extreme climate change events, it also presents a strong value proposition for companies. However, the win-wins are only obtainable through developing a long-term vision and rigorous planning. The evolving landscape of CSR presents a unique opportunity for corporate India to drive positive change and restore balance between socio- economic progress and environmental stewardship.