New Delhi: With Corporate Social Responsibility (CSR) Rules moving into their third year of operation, the outlook of companies towards social problems is seeing a change.

In the first and second year of the rules taking effect, most companies were focused on compliance rather than on the impact of their initiatives. Now, it is mostly about course correction and expansion.

Many companies are conducting impact assessment studies of their CSR activities to ensure long-lasting impact and optimal use of funds.

The CSR Rules 2014 state that companies with a net worth of 500 crore, a revenue of 1,000 crore or a net profit of 5 crore are required to spend 2% of their average profit in the last three years on social development-related activities such as education, healthcare and sanitation.

According to Ramraj Pai, president of Crisil Foundation, the philanthropic arm of financial analytics firm Crisil Ltd, “Resolving social problems requires the same rigour and discipline as business operations and firms are realizing that."

The ratings firm started its CSR activities on scale only after the 2014 rules and spent over 4 crore (1.42% of its net profit) in FY15 on increasing the financial capabilities of rural women and environmental conservation.

Pai believes the baseline assessment conducted by a third party at Crisil Foundation’s behest, helped it approach financial inclusion in a holistic manner. “Impact assessment is essential and needs to be a continuum, not just a survey at the completion of activities. You can only know the impact if you can compare the before and after of an initiative with specific metrics," he explained.

A key point to remember is that impact assessment cannot be an end in itself. It needs to be built into the design of the project starting with baseline evaluation, mid-term review and then final assessment. Citing Crisil Foundation’s work on financial inclusion in Assam, Pai said that while the project was aimed at creating financial literacy, the baseline survey helped the company understand that to make a real difference, it would need to work on building trust.

“Even before we could start working with women to teach them how to open an account, use an ATM, etc., we learnt that we needed to build a relationship with the community elders, who in turn, could influence and assure the women to work with us," Pai added.

The firm conducted the baseline survey in 2014 and is looking to conduct a mid-term review in early 2017.

Social development issues show wide variations based on region and community. This also makes a strong case for impact assessment as each geography and community has specific needs, limitations, etc., and cannot be addressed in a one-size-fits-all approach.

“Impact assessment helps in course correction and gives direction to a company to scale up/replicate its successful initiatives and at the same time, remodel or shut down the initiatives which have not been able to create impact," said Adarsh Kataruka, director at CSR consultancy firm SoulAce Ltd, which works with more than 60 CSR clients across 250-plus locations.

Fast-moving consumer goods company ITC Ltd started six impact assessment studies in 2015-16 across its CSR initiatives, which are currently being implemented in 17 states.

The company has been involved in community-based initiatives in sectors such as sustainable agricultural practices, social forestry, etc., long before the CSR Rules came into force.

S. Sivakumar, group head of agriculture and information technology businesses at ITC, said such appraisals have helped the company take stock of projects on the ground and tweak them. “Besides, the studies also present recommendations and highlight areas of improvement which enable us to take appropriate action in the project. The studies are also be used to substantiate and validate a point of view for advocacy purposes," he added.

The Piramal Group has been implementing CSR initiatives through its philanthropic arm Piramal Foundation since 2008. The foundation also periodically conducts impact assessments.

Paresh Parasnis, CEO of Piramal Foundation, cited the example of the foundation’s work in education, where it conducts assessments at the beginning as well at the end of the academic year in 1,200 government schools in Rajasthan, Gujarat and Maharashtra in order to gauge how much the students have actually learnt. The group spent a total of 56.65 crore in FY15-16 on CSR initiatives across sectors like education, healthcare and drinking water.

“We have realized unless we start with assessing needs of the community, designing projects that address these needs and then measure whether those needs have been sufficiently addressed, we will end up only spending money without positive outcomes or making a difference to people’s lives," said Parasnis.

He added that social return on investment is best measured by independent assessors.

However, these assessments across firms are largely used for internal purposes and are not in the public domain. For instance, car maker Maruti Suzuki Ltd conducted one such survey for internal use in 2016 as, according to Ranjit Singh, its CSR head, there is merit in conducting an assessment.

Perhaps one reason why firms do not want such information out in the public domain is because they believe that declaring such findings in the public domain could foster a negative perception, especially if the evaluation of a project leans in favour of course correction.

Urging firms to plan and execute proper impact assessment studies as well as share the information, Sidharth Dutta, senior manager of development advisory services at EY India, emphasizes that this information “can help in improving the overall effectiveness of a social initiatives. It contributes towards knowledge development beca-use it helps in establishing good practices for achieving higher success in projects and reduces individual procedural burden."

Also, firms and the public must bear in mind that shortcomings may not entirely be the fault of the companies as many have only started CSR initiatives after the rules came into force.

Dutta of EY explained, “For proper impact assessment—to understand what change has taken place on the ground—a substantial number of years of the project being in operation are needed." He said that a proper impact assessment is possible only after two-four years of a project being implemented.

Again, an impact assessment for the sake of conducting one is not the answer. “Many companies do not measure the real impact of their CSR spend. They do it in terms of how many children were given school uniforms or how many mothers were given protein powder, etc. Very few of them have set up mechanisms to measure the real, long-term impact on the community," said Sunil Chavan, honorary director at Dr. M.L. Dhawle Trust, a philanthropic organization working on issues of health, livelihood and sustainable agriculture.

According to him, the focus of the impact assessment should be on the change in beneficiaries’ socio-economic situation (or any specific component for which the initiative was planned) rather than the number of people impacted.

Citing the example of numerous firms undertaking sanitation CSR projects, following Prime Minister Narendra Modi’s call for a Clean India by 2019, Dutta highlighted that currently, assessments generally focus only on outputs like the number of toilets built. “But to understand the actual impact on the ground, firms need to move from external factors of only counting the number of toilets to analysing qualitative variables in the lives of beneficiaries such as actual usage figures, evaluating status of health indicators along with extent of improvement in sociocultural variables of community life," he said.

He also pointed out that if firms are serious about addressing or resolving social problems, they should look to conduct baseline surveys. “Without baseline surveys, impact assessments end up being partially qualitative in nature—where, though change can be noticed, the magnitude of impact created through that change cannot be analysed," Dutta said.