From UPSC perspective, the following things are important :
Prelims level : particulars of funding
Mains level : corporate governance
- The evolving role of CSR in funding NGOs
What is NGO?
- A non-governmental organization is an organization that generally is formed independent from government. They are typically non-profit entities, and many of them are active in humanitarianism or the social sciences; they can also include clubs and associations that provide services to their members and others.
- Corporate social responsibility CSR is a form of international private business self-regulation which aims to contribute to societal goals of a philanthropic, activist, or charitable nature by engaging in or supporting volunteering or ethically oriented practices.
Why NGO’s are important?
- When COVID-19 spurred a nationwide lockdown in India in 2020, a grave need for localised social support emerged. Giving, both private and public, flowed to NGOs working towards combating pandemic-induced challenges such as loss of livelihood for vulnerable communities, food banks, and health and medical support.
CSR key fact
All companies with a net worth of Rs 500 crore or more, a turnover of Rs 1,000 crore or more, or net profit of Rs 5 crore or more, are required to spend 2 per cent of their average profits of the previous three years on CSR activities every year.
Issues with CSR funding to NGO
- No organization development: CSR funders mostly contribute little or no money to organisational development and limit what they pay for indirect costs to a fixed rate often below 5%. 2020 primary research showed that NGOs’ indirect costs range from 5% to 55%, depending on their mission and operating model, much as a corporate’s sales and administration costs vary significantly by industry and product.
- Regulatory framework: These practices are partly a consequence of CSR funders’ focus on regulatory compliance amendments to the CSR law in 2021 include substantial financial penalties for noncompliance.
- Errors on safety: Many CSRs make errors on safety with the unintended consequence of leaving an NGO with unpaid bills or worse still, drawing on its scarce core funding from other donors to pay for these essential costs.
How to improve CSR governance?
- Increase transparency: Transparency is the ultimate trust-builder, and should be considered a guiding principle for any socially responsible company. This concept should apply to goals, ongoing initiatives, and ultimate progress or results.
- Focus on equity: Equity is a vital lens through which to evaluate business practices and CSR strategy, at both a micro and macro level. Not only is ensuring that program furthers social and racial justice a cornerstone of the very essence of corporate responsibility, but study after study establishes that improved diversity and inclusion leads to better outcomes for everyone from increased innovation and competitiveness, to stronger ethics and team culture.
- Deepen community connections: Deepening your organization’s connection to those on the other side of your CSR projects will have far-reaching benefits. These could likely include developing a more impactful program, as you strengthen your understanding of the needs of the community served.
- Encourage creativity: Creativity as a principle may feel out of place in a discussion of how to improve CSR. Yet it’s a concept increasingly invoked in philanthropic thought leadership, and for good reason.
- The idea is to move beyond signing cheques to recognising that, ultimately, what’s good for Indian society is also good for business.
Q. why the role of CSR is becoming important in NGO funding? What are the issues with CSR? Discuss the way forward.