CSR – A force for Massive Climate Good
When CSR laws were introduced via the Companies Act 2013, India was a pioneer in aligning corporate success with the developmental progress of community and geography. Derived from the core principles of Sustainability, Accountability and Transparency, funds deployed through the CSR route have already created significant impact and development value for India.
Image credits: Adobe Stock Images
In 2021-22, CSR deployed 25% to Education, 35% to WASH, Poverty, and Hunger Alleviation and we see the commensurate developmental impacts and improvements. A small subset of organizations (7% of funding) have already deployed their CSR funding in areas such as biodiversity, environment and forestry and have created strong on-the-ground impact; however, given India’s high vulnerability to climate impacts, extreme weather events, water scarcity, and sea-level rise, looking ahead we see a significantly larger role (and opportunity) for CSR funding to play in mitigating climate change.
At the same time, we believe that integrating the outcomes-based approach to CSR initiatives can radically improve the efficiency of CSR capital deployed, while resulting in deeper impact and assured results.
The Outcomes-first approach to climate finance entails a shift in what funds are deployed towards -- outcomes vs outputs (for example, measuring litres of water saved or recharged as opposed to number of stepwells built).
Outcomes are tangible, observable and measurable, across much of the climate spectrum.
This approach sits well with the metrics and assessment parameters that CSR reporting needs to incorporate, while aligning with the fundamental principles and tenets of CSR.
When it comes to understanding the the legalities of organisations deploying CSR funds to purchase a climate outcome, Meyyappan Nagappan, (Partner at one of India’s leading law firms, Trilegal, with extensive experience in ESG & Impact Finance) tells us that “CSRs are required under law to spend on activities that fall under Schedule VII of the companies act, which includes “ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water”. The entries under Schedule VII are to be read in a broad and inclusive manner. Therefore, spending on activities that promote or make a climate impact should be considered as a valid and legal CSR spend. Further, unlike traditional granting where outcomes are tracked and verified after the funding is completed, purchasing an outcome is better since the outcomes are already agreed between parties and can be verified which eliminates performance risk."
He also clarifies that, “The legal nature of the transaction could be a grant or a service fee depending on the nature of the outcome, the seller of the outcome and the commercial ability of the CSR to purchase outcomes through grant or service fee funding. CSRs can engage via service contracts with for-profit companies. GST and income tax considerations should be borne in mind while purchasing outcomes through the grant or service fee route as the implications for all parties would differ based on the mode of funding.”
Given the flexibility of CSR to work with external implementation agencies, progressive organisations can adopt a more outcomes-based approach to drive results that project-based implementation alone cannot achieve.
The Outcomes Exchange being piloted by Green Artha is one of the tools/ platforms that can assist companies with search and discovery, reduce due diligence costs and address challenges around the timelines for deployment of CSR funds by increasing transparency and accountability. Granularity of outcomes is defined through the Outcomes Taxonomy, and technology-validated results create transparency.
The climate finance gap needs the deployment of more CSR funds strategically, efficiently and intentionally towards climate outcomes. By aligning these outcomes with the principles of CSR, organisations have the opportunity to create strong positive impacts for people, purpose and planet.