India Makes CSR Mandatory

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The Indian Parliament is currently working to pass a bill that would make it compulsory for companies of a certain size to engage in corporate social responsibility (CSR) activities. Specifically, if passed, the bill would require large companies to invest two percent of their profits in initiatives related to areas such as poverty alleviation, health care, education, and social business ventures.

The passing of this bill would make India the first country to mandate all types of companies to engage in CSR. In contrast, some countries have made CSR expenditures compulsory for companies in certain sectors only.

It seems that the bill will pass, and so the question remains as to what its impacts will be. It is estimated that it will result in an additional $5 billion worth of funds being introduced into India’s social sector each year. Although there are currently 3 million NGOs in India, whether they will be able to absorb this much capital so quickly is debatable.

The bill seems to be aware of this possible problem and hints that it wants Indian companies  to not only fund worthy initiatives but to also help them prepare to scale their activities quickly. Another prescient inclusion in the bill is the mention of “social business ventures,” of which there are many in India. The passing of this bill could represent an opportunity for the private sector to help many small social entrepreneurs secure seed money.  In fact, the Finance Minister stated that funds provided to technology incubators located within academic institutions would qualify as CSR expenditures.

If India makes CSR mandatory, the effects of this mandate remain to be seen. Hopefully, it will generate successful outcomes for social and environmental initiatives in India. If so, other countries will be encouraged to pass similar legislation.

– Caroline Poterio Martinez

Source: Acumen Fund
Photo: Thornley Fallis

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