NGOs: The credibility conundrum
To accomplish their 2% CSR spending, many companies may need to partner with non-profits. But since few NGOs have accreditation, organizations are finding it difficult to partner with them
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The rules for corporate social responsibility (CSR), under the Companies Act, 2013, which came into force on 1 April 2014, clearly state that companies have three channels to implement their CSR projects: foundations, in-house CSR teams or partnering with non-profits.
Credited with formulation of the 2014 CSR rules, Bhasker Chatterjee, director general, Indian Institute of Corporate Affairs (IICA), an autonomous institute under the corporate affairs ministry, is a strong proponent of partnership between companies and non-profits for CSR-related spending.
According to him, while company foundations have their place in channelling CSR funds, implementation of CSR activities is not possible without engaging with non-profits.
“Many a time, companies are city-centric and so are their foundations; to have a real impact, they need to go to the grassroots level and they can only do so if they engage with non-profits,” he said.
This view is echoed by many in the sector. “CSR rules emphasise that the subjectivity of non-profits with domain knowledge and grassroots reach must marry the objectivity of professional corporates to have the best impact on the ground,” said Sudhir Singh, leader-CSR (compliance), PwC India.
But forging such partnerships has not been easy.
Two factors stand in the way: many companies feel the credibility of non-profits is suspect and most would rather establish their own foundations than work with non-profits.
For instance, Kolkata-based HR consultancy, Genius Consultants, would much rather conduct its CSR initiatives through its own foundation, Grow Genius Foundation. The company provides financial aid to under-privileged children studying in classes III to X as part of its CSR spend. It aims to disburse Rs.18 lakh through the foundation in 2015-16, this is the first year for them as the foundation was only established in March.
“We felt we were capable of implementing our own CSR initiatives and want such initiatives to have the maximum impact. If we give money to some other organization, it will be difficult to ensure impact and optimal use of this money,” said founder-director R.P. Yadav. He added that the due diligence required can best be achieved if the company implements its own initiatives.
Maruti Suzuki, on the other hand, is moving towards a mix of in-house initiatives and tie-ups with non-profits. Right now, it conducts close to 80% of its CSR initiatives in-house with a team of 40 people. “We prefer to do CSR activities in-house as we have a better monitoring of money spent and targets achieved,” explained Ranjit Singh, the company’s CSR head. “However, under the new CSR rules, we are venturing into sectors that Maruti does not have domain knowledge in (and hence the need to engage non-profits),” he added.
For instance, under skill development, Maruti has adopted 29 state-run technical training institutes as part of an in-house initiative, but for campaigns like building toilets, it is working in partnership with non-governmental organizations (NGOs) like Sulabh International. “We only work with NGOs after thorough background checks and verification,” Singh said.
Sulabh has constructed 100 toilets for Maruti in 2014-15 and has been tasked with constructing 700 more in 2015-16. In 2014-15, Maruti spent Rs.37.25 crore on CSR, which was 1.48% of its profits. This figure was also a 60% jump from the spend in 2013-14.
The CSR rules say that companies with a turnover of Rs.1,000 crores or more, or with net worth of Rs.500 crore or more and companies with net profit of Rs.5 crore or more need to spend at least 2% of the average net profit of the preceding three years on social activities defined in the rule under schedule VII.
While large companies like Maruti rely on internal processes to perform background checks on the NGOs it chooses to work with, smaller organizations find this tough.
That is because there is no centralized, credible vetting process in place for NGOs, though there are several ongoing initiatives to provide accreditation to NGOs.
IICA currently lists 79 NGOs on its website as credible organizations. The list includes organizations such as Abled Disabled All People Together (ADAPT, formerly Spastics Society of India) in Maharashtra, Administrative Staff College of India (ASCI) in Andhra Pradesh and Bhagwan Mahaveer Vikalang Sahitya Samiti in Rajasthan.
However, the list comes with a disclaimer that “IICA is not responsible” for the way any organization might behave after a company starts working with them. This declaration has been put in place “to avoid legal liability to the institute in case of any wrongdoing by the NGOs”, Chatterjee explained.
All 79 organizations listed on the website are said to have undergone a rigorous process of checks and received approval from as many as seven government agencies and ministries. These NGOs submitted copies of their legal and financial documents and IICA took 90-120 days to process and cross-check the submissions and then upload the details of the organizations on its website.
This approval is valid for three years. The data-base was uploaded three months ago and the institute said it is going to expand this database exponentially in the coming months.
Industry associations like the Confederation of Indian Industry (CII) have also started work on an NGO database. In collaboration with Bombay Stock Exchange and IICA, CII launched the Sammaan portal in April, which will facilitate companies partnering with NGOs, whose credentials have been verified, to track their funds.
Five years ago, some NGOs came forward with mechanisms to establish their authenticity. One such initiative was the Credibility Alliance, a Delhi-based organization which claimed to have verified addresses and financial records of 700 such organizations. This is still a very small number, considering that the country has an estimated 1-2 million such organizations.
Another platform purportedly listing ‘credible’ NGOs is HelpYourNGO—an initiative started in 2002, which provides detailed financial records of non-profits to help donors pick and chose their organizations.
Pradeep Mahtani, CEO, HelpYourNGO, said, “You need to bring transparency to NGOs and just putting out the numbers is not enough. That is why we have attempted to create categories and sub-categories, which can easily be used and cross-referenced by people using our site.”
HelpYourNGO has seen its database expand from 200 registered organizations in 2013 to 575 in 2015.
A third source of ‘credible’ NGO data is GuideStar India. Established in 2008, this site gives ratings to organizations based on their transparency, accountability and work on the ground. “Initially, we were only listing organizations based on their legal and financial compliance,” said CEO and founder Pushpa Aman Singh.
This website lists 5,200 NGOs. “Though our primary source of information is the NGOs themselves, beginning February this year, we have started doing physical verification and looking at transparency and accountability of organizations along with their financial and legal compliances,” she explained.
Some consultants are also helping companies find credible partners for their CSR initiatives. Adarsh Kataruka, director, Soul ACE, a pan-India consultancy firm, offers such a service to his clients but this information is not in the public domain. He said the company has a list of close to 5,000 non-profits, which have been cross-checked by Soul ACE.
“So, if a company is interested in spending CSR funds in a particular sector such as women’s empowerment, the Soul ACE team identifies the best in the sector and conducts background checks and cross-references before suggesting names (of partners) to the company,” Kataruka explained.
“Since CSR initiatives are still developing and the programmes are not set in stone, such accrediting initiatives may actually help in the long run,” Sudhir Singh of PwC India said.
But verification of paperwork submitted by NGOs is not enough.
The accreditation process must verify governance within the non-profit, capacity of the organization, legal standing, financial records as well as impact on the ground, he added.