Spent, Not Solved: Why India's CSR Mandate Isn't Translating into Impact

Corporate Social Responsibility (CSR) is a portion of a company’s profits that are assigned to social/environmental projects aimed at helping the community and environment. However, despite the Ministry of Corporate Affairs (MCA) reporting an increase in CSR compliance -1271 companies out of 1291 companies were reported to comply with CSR requirements, showing a 98% compliance rate. CSR funds are often underutilized due to some common mistakes made by companies. High compliance figures show that the mandate works, but compliance and impact are not the same thing; the gap between the two is where CSR value is lost.

These mistakes can be split into three categories, based on their cause-

1. CSR Compliance:

Compliance without genuine intent is the biggest and most prevalent problem. Since India mandates that 2% of net profit over three years must be spent as part of CSR spending, this leads to most companies carelessly dumping money into NGOs or projects without any oversight into the impact. Many companies even rush spending in the last few months of the fiscal year, looking to meet quotas. Over ₹1,000 Cr. of allocated CSR funds in recent financial years went unspent and had to be transferred to the government because of poor planning rather than poor intent.

This leads to proper spending and compliance with CSR laws on paper; however, their actual societal impact is negligible. The problem is that most companies rush funds rather than addressing real world problems and trying to leave lasting impact. Current CSR regulations measure CSR obligations via just spending, rather than auditing the CSR projects, which encourages companies to consider CSR as a Government mandate, rather than a responsibility to give back to society, to contribute positively to it. This is partly due to the framing of the law, Section 135 of the Companies Act was primarily intended to mobilize capital towards social development, so the framework only monitors if the capital was moved, rather than measuring the outcome, and the law has since not caught up. Since companies can meet CSR compliance requirements by simply writing cheques, most of the reported compliance leads to no real societal impact. This compliance gap becomes even easier to exploit where corporate governance is weak, and this is supported by academic literature, which shows that it is exploited deliberately, rather than inadvertently.

According to academic literature, there is a far more severe problem with compliance, which includes routing CSR funds to inactive NGOs, over reporting CSR spending via fake invoices and under-reporting income to reduce CSR obligations. Weak governance structures and regulatory structures enable this, leading to a large gap between reported compliance and spending on ground. The consequences of this extend beyond the individual company, this diminishes the pool of capital available for developmental work, damages the reputation of NGOs in the same sector and creates an unfair disadvantage for the companies that spend honestly.

Even when companies operate in good faith, weak reporting undermines their efforts. For example, companies publishing only their successes, rather than acknowledging their shortcomings as welof misleading cherry-picked to paint the company in a good light, which damages their CSR efforts, since customers are better equipped now to identify it, even when there is no intention to mislead. True inadvertent greenwashing is usually misreporting environmental impacts which turn out to be unverified or exaggerated, selective reporting is an omission rather than an exaggeration, however both have the same impact, they erode public trust. There are also problems like weak organizational goals, mismanagement of data and failing to follow recognized frameworks, like the Global Reporting Initiative. In practice, this means that the company might set a vague goal, without defining any parameters or outcomes, and claim positive impact. Reporting frameworks like GRI standardize tracking methods and metrics, allowing for these gaps to be detected.

2. CSR Strategy

The second cause, often the root cause for even the most well-intentioned CSR programs, is often a lack of strategy. The lack of a well-planned, long-term program often causes most CSR initiatives to be dead on conception. One such grave error is treating CSR as a separate entity from the company, rather than treating it as part of the same entity. The goals of the company and CSR project are not aligned, leading to the CSR project being neglected. Treating it as a pet project or a reputation campaign, rather than trying to align it with the company’s goals, supply chain, production, or business models leads to the project feeling performative. When employees can see a direct connection between their work and the cause being supported, it feels like an extension of their job rather than an obligation imposed from above, and customers lend more trust to brands that match their projects to their company values. This is one method to ensure a long-lasting and impactful CSR project.

Another related failure is short-termism. Companies design their CSR programs for virality rather than long-term impact. Earth Day, a one-time donation, etc. produces momentary visibility for the company but leaves little to no lasting change. Over 60% of CSR projects fail, linked to the lack of a clear long-term strategy. The longevity and impact of a CSR program require a long-term strategy, with outcome-based goals, multi-year commitments, and patience to see the project through.

The same misalignment reappears in a potentially worse form, that is greenwashing, which erodes public trust. For example, a logistics company promoting sustainability and fewer emissions without addressing the emissions produced by their own fleet, constitutes greenwashing. CSR projects are not to be treated as an attempt to cover up the company’s shortcomings, rather those shortcomings should be solved internally, and the CSR project then built on top of those efforts to ensure better outcomes.

Another strategic misstep is stakeholder exclusion. Often, employees, communities, non-profit organizations and beneficiaries are not included in program design, despite being the best place to identify where and what efforts would be most effective and appropriate. Programs that are designed by head office teams without any input from stakeholders affected by the scope of said project are often doomed to fail, due to the ground reality being a complete unknown to the designers of the project. For a successful project, employees, beneficiaries and communities must be included, so that their knowledge of the situation can be used to design a cost effective and efficient program.

Finally, another problem is location. CSR projects tend to be clustered in and around major urban centers, near company offices, due to convenience. However, this leads to large scale negligence, as those farthest from urban centers need the help that these programs provide. This means that the underserved areas of the country are getting less attention. India’s own development framework indicates 112 ‘aspirational districts’ with the country’s lowest development indicators, yet their distance from urban centers means that they will likely never receive CSR attention. A national strategy is required to ensure maximum impact across the country.

3. CSR Spending:

The third problem can be attributed to CSR spending. For example, many well-intentioned companies also kill their impact by fragmenting their CSR spending. Instead of donating to a singular project over a long period of time, they donate to a multitude of smaller projects as one-off donations. These donations do not make as much of an impact as maybe one or two of those organizations receiving most of the funds, continuing over multiple years. The input shows output, instead of showing outcomes, it shows short term results that fade, rather than a long-lasting impact.

A lack of partnerships also is a major issue. Since companies prefer to start projects under their own umbrella, alone rather than partner or collaborate with NGOs and other agencies that would have been operating in the field for far longer. This is a massive waste of resources as the NGOs bring with them knowledge, community support and trust. The company on its own however would have to spend a majority of its budget on establishing its own knowledge base and community, however, a collaboration saves them money as well as redirecting those funds into known problem areas, yielding faster results. The companies that do engage in collaborations often treat their partners as vendors or try to stifle their actions by telling them the areas they would prefer their funding to be routed to. What is needed for CSR spending to be more effective is a partnership on equal terms, where the knowledge and trust that the NGOs bring is treated as equally valuable to the funds that the company provides.

Another spending inefficiency arises from the lack of measurements. Companies keep spending money on legacy projects without establishing any metrics to judge effectiveness and efficiency. This leads to a misappropriation of funds as well as general wastage. To avoid this, companies need to develop metric measurement to assess what impact their spending brings, this can be done via developing their own metrics or even using internationally available frameworks to measure the effectiveness of CSR spending. Currently, companies track output rather than outcomes, operate blindly without benchmarks, frameworks etc. As a result, they do not know where the funds they donate are being spent, and what impact it has, if any.

Employee engagement is another major source of spending problems. Companies invest in low differentiation activities, like volunteering days etc., which generate low employee engagement as well as low impact. Instead, they should focus on skill-based volunteering which consistently shows higher levels of employee engagement as well as return on investment. Here, the employee provides their professional skills to the community or the partner, rather than a generic volunteering day. The employee is more likely to be able to impart valuable knowledge in their field of expertise.

Lastly, communications spending is largely wasted. Companies invest heavily in polished annual reports that receive less engagement or under communicate progress with the stakeholders. The result is that good work goes unnoticed, while superficial campaigns receive attention, leading to funds being spent on the wrong initiatives.

Together, these three categories of failure: Compliance, Strategy and Spending, point to the underlying problem, India’s CSR system was built to ensure that the funds are mobilized, but not to measure their impact. A 98% compliance rate is a stat that looks good; however, the mandate was never meant to be the finish line but rather a starting point for genuine social impact. The system does not need to be rebuilt; it just needs to be built upon to accommodate for the next phase of CSR spending.