India’s new CSR Act: Spend or invest? The right approach is crucial (Part 1 of 2)

With India’s Corporate Social Responsibilities (CSR) Act now in effect, the Indian Institute of Corporate Affairs estimates that more than 8,000 companies will make up to 20,000 crores (US $3.2B) available to the development sector. That shift represents an unprecedented opportunity to drive social progress.

It also raises a big – and much discussed – question for companies tasked with distributing CSR money: “What’s the best way to spend it?”

I’d suggest that that’s not the right question to ask.

The Michael & Susan Dell Foundation has been working towards its mission of transforming lives of children living in urban poverty in India since 2006. Although we’ve committed ~700 crores (US $112M) in that time, we have not spent a single dollar. Rather we have invested in creating world-class organisations and in catalyzing new markets that serve the poor.

The goal of CSR should be to drive similar long-term social impact. The first step toward that goal? Changing our language. Companies must stop asking about CSR spends, and start talking about CSR investments.

Assuming the sector does make the shift from thinking about spending money to investing it, both companies and nonprofits need to focus on a handful of changes that can help them make the most of the new funds at play.

This shift has multiple strategic implications:

  1. Spends are short term in nature; investments are long term. The development sector needs permanent solutions and not  temporary fixes. Non-profits need to go beyond a project-based approach to develop programs that become scalable and sustainable over time. Companies, meanwhile, need to back non-profits focused on sustainability.
  2. Investments seek to drive outcomes whose performance can be measured. This focus on measurement of outcomes has two implications: It creates a need for evaluation frameworks and it increases accountability.
  3. Social problems are complex; solving them requires the best minds to come together to collaborate. Current practice in the development sector includes almost no collaborative problem solving. However, viewing CSR through an investment lens provides a path toward collaboration. In the for-profit world, companies are well-versed in creating joint-purpose vehicles to work for common cause; similarly, a co-investment approach can bring companies with common CSR missions together to create joint solutions.

Assuming the sector does make the shift from thinking about spending money to investing it, both companies and nonprofits need to focus on a handful of changes that can help them make the most of the new funds at play. I’ll look at the details in a post later in the week.

Read the second post in the series, “India’s new CSR Act: What companies and non-profits can do to maximize impact.”