How businesses are using crowdfunding in their CSR strategy

How businesses are using crowdfunding in their CSR strategy: The evolving relationship between platforms and corporates

13 August 2015 1:22am

Businesses are putting money into MOAS – a private rescue operation for migrants

Crowdfunding has democratised investing and made it more efficient. But the landscape has evolved significantly. Once dominated by platforms simply enabling people to make donations to causes, debt-based crowdfunding is now by far the largest subsector, and fashionable equity gets a lot of airtime. But despite less exposure these days, the original donation-based crowdfunding is advancing too. One of the most interesting developments is the growing relationship between crowdfunding and corporate social responsibility (CSR). 

 

It’s still a tiny market, but growing numbers of businesses are considering crowdfunding in their CSR strategy. Crowdfunding “definitely offers a viable alternative” for companies looking to further their CSR,” says Peter Baeck, principal researcher at Nesta. Platforms enable firms to leverage the cash they’ve got and give in a more efficient way, he says. The fact that they are in direct contact with projects adds to this.

 

HOW TO GIVE 

In its most basic iteration, crowdfunding allows a business to donate to a project via a platform. Go on German-based Betterplace.org’s website, for instance, and you’ll see firms getting in behind MOAS – a private rescue operation for migrants in unsafe vessels in the Mediterranean. 

 

Arguably the most well-known connecter of companies and projects is Give Directly. Founded way back in 2000, since its inception, it has raised over £2.1bn for charities, via individuals and businesses. And it also has a crowdfunding arm, which enables giving to be targeted at particular projects (rather than charities). In 2011, it launched a specific company fundraising product. Since then over 1,000 companies worldwide have donated £30m. 

 

Platforms and white label product providers are growing to match demand. Companies can turn to software providers like CrowdEngine to have a customised platform built, and platforms like Betterplace.org, Crowdfunder and Bloom Venture Catalysts enable corporates to make their CSR programmes more participative by partnering with them to create a bespoke platform. 

 

The increasing popularity of match-funding among corporates, the practice of selecting projects they would like to support and, instead of donating, agreeing to double donations made by others, shows how products are developing to suit project and businesses alike. 

 

Read more: These are the most influential people in alternative finance

 

A SMALLER WORLD 

And crowdfunding has attracted a handful of big names over the past few years. Back in 2011, Gap used platform Global Giving to raise money after the Japanese earthquake. The company pulled its brand weight and sold t-shirts, donating 100 per cent of revenues. The “gap community” (customers and employees) raised over $700,000.

 

This example (Global Giving has also worked with Pepsi and Hilton Worldwide) demonstrates how large firms’ CSR can enable and encourage engagement from members of the public, rather than just engaging those within the company. “Crowdfunding gives corporates the opportunity to participate alongside the crowd... they gain huge exposure within communities, supporting the projects that are important to them, alongside positive PR and marketing opportunities,” says Phil Geraghty, managing director of Crowdfunder. 

 

And this points to a crucial change that crowdfunding is facilitating: the nature of giving. Ask platforms about corporate interests now, and one word crops up again and again: “local”. “We are seeing more companies wanting to support local causes,” says Isabel Sanchez, head of corporate partnerships at JustGiving. Hamburger Sparkasse, a regional savings bank in Germany, recently partnered with Betterplace to set up a mini donations platform solely to raise money for local initiatives in Hamburg. And Sanchez gives the example of coffee shop Harris + Hoole, which has made crowdfunding integral to its CSR: every branch has to support at least two local causes a year, with a Just Giving partnership enabling donations. 

 

Sanchez illustrates the corporate shift towards crowdfunding by highlighting how supermarkets, which support charities as part of their national strategy, are increasingly offering a physical manifestation of crowdfunding at a local level: think of the green Waitrose tokens you “donate” to a project operating in the vicinity of a given store. 

 

CAUSE FOR CONCERN 

But there are caveats. The trouble is, says Amanda Boyle, founder and chief executive of Bloom, which has worked with the likes of Dell, that corporates already know what they’re doing when it comes to CSR – it’s a very established market. Crowdfunding might offer a more efficient, democratic way of doing things, but that may not be incentive enough to strike out. It’s also not difficult to understand, she adds, that “crowdfunding can be a leap too far for people used to conventions and established structures”. This is confirmed by Geraghty, who says that, while “smaller businesses tend to understand the importance of supporting the communities they serve more... Corporates have been slow on the uptake”. 

 

Recently, Axa Insurance created a campaign on Crowdfunder to match-fund road safety projects across Britain. Speaking at the launch, Axa’s James Barclay commented on how the raise was a “natural progression of our road safety campaign”. And this of course raises another question: one of vested interests. Will projects which used to be led by the crowd end up being vassals of big companies? But Boyle thinks this is overplayed. “Working with corporates brings the paternalistic figure of the brand; it’s the crowd which brings the democracy... but spreading its message does give the company something to focus on, and that’s no bad thing.” 

 

The number of different platform models will increase significantly in the next three years, as more companies demand more products, says Sanchez. And it’s likely that this will do the opposite of increasing the corporate hold: “CSR engagement is a very mature market, so I think it will start to become more grassroots, with employees getting more involved in decisions on projects to support”. Geraghty goes further: “the model of the future is all about following the trends of the crowd. This is already happening; they’re showing what they want funded... we feel this is where the corporates should be looking to further their CSR.”

Corporations in India Struggle to Comply with CSR Law - The Minute

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Corporations in India Struggle to Comply with #CSR Law http://3bl.me/ctnvyk 6,000 businesses affected by regulation @3BLMedia #CSRMinute

MULTIMEDIA WITH SUMMARY

Thursday, August 13, 2015 - 4:00pm

Large businesses in India are struggling to deal with the Companies Act 2013 that requires corporates to set aside two percent of their average net profits earned over the previous three years for corporate social responsibility initiatives. The Act applies to companies that meet a defined benchmark of net worth, turnover, or profits.

It is estimated that 6,000 businesses, both Indian and multi-national, are affected by this regulation. The Act is not mandatory, but does require companies to “comply or explain.” Most companies are now drafting explanations. The lag in compliance is a result of two, related factors. One, there is considerable confusion over what qualifies as a CSR-spend and what does not. Secondly, businesses in India have not traditionally given CSR a high priority in their practices.

But there is evidence of change due to the Act. More companies are setting up board subcommittees chaired by a non-executive, independent director to review and define CSR policies. As the policies are developed, new approaches, strategies, and initiatives are emerging. Businesses in India are beginning to realize that social capital is a critical asset for corporate reputation.

I’m John Howell for 3BL Media.

- See more at: http://3blmedia.com/News/Corporations-India-Struggle-Comply-CSR-Law-Minute#sthash.7RxH2oSE.dpuf

Remodelling the CSR Paradigm

Posted: Wednesday, August 12, 2015 - 10:00

The first model for assessing the compatibility between employer and employee social responsibility within individual organisations could reshape the way CSR is understood and measured.

The “CSR-ESR Congruence Model”, created by Debbie Haski-Leventhal, Lonneke Roza and Lucas Meijs, shows that positive workplace outcomes are achieved when both employers and employees share high levels of social responsibility.

“We always say that CSR can achieve some good outcomes, but how come it’s working for some employers and employees but not for others? It’s because some employees care more deeply about these issues,” Haski-Leventhal, Leader of the MGSM CSR Partnership Network, said.

Previous research focussed on CSR or ESR (Employee Social Responsibility) separately, and this single-level analysis has limits in practical application, according to Haski-Leventhal.

“Our model is quite applicable for companies, they will be able to know for the first time how their employees position them, how their employees perceive their CSR, and how important it is for their employees that they are a socially responsible company,” Haski-Leventhal said.

“So they would be able to say, ok are we happy with our CSR engagement pattern that our employees perceive us to be in, or do we want to change that, do we want to inform our employees better, letting them know more about what we do in this area, or do we actually want to change our actions and behaviour so the actual CSR engagement pattern will be different.”

An article presenting the CSR Congruence Model, published in the Journal of Business Ethics, said the Model will allow businesses to define their goals for future development.

“The model can be used to assist employers and employees achieve their high CSR potential and affect each other in order to achieve high ESR-CSR congruence, with the ultimate goal of realising positive organisational outcomes,” the report said.  

Part of the Model’s assessment includes mapping out a diverse range of factors that influence a company’s CSR position.

“It would allow companies to also understand the various factors that can affect the CSR engagement pattern of a company, including the CEO of the company or the leadership,” Haski-Leventhal said.

“It could also be the employees. Generation Y care more about issues of social responsibility, so if you have a younger workforce it is possible that your employees would signal to you that it is important to them for you to be more socially responsible.

“There are external factors as well, stakeholders that can push companies to be more socially responsible, there is legislation and so on.”  

Haski-Leventhal, Roza and Meijs also separate socially responsible identity and socially responsible behaviour, creating four CSR engagement patterns:

-Low Social Responsibility: Low levels of social responsibility identity and behaviour, employees are indifferent to social issues in their workplace and corporations concentrate exclusively on maximising shareholder value

-Identity-Based Social Responsibility: Organisations and employees perceive and project themselves as socially responsible, while taking little or no action to support this

-Behaviour-Based Social Responsibility: High levels of involvement in socially responsible behaviour without adopting the corresponding identity

-Entwined Social Responsibility: Identities and behaviours are aligned, social responsibility is part of who individuals and organisations are and what they do

Haski-Leventhal said Entwined Social Responsibility is all about “walking the talk” and generates the most positive workplace outcomes.

“If you have very strong values and mission statement that you want to be more sustainable but you don’t do anything about it, it could be problematic. On the other hand if you have great philanthropy but your core business and your mission and your strategy is not aligned with that it’s also not going to be the most effective way of doing social responsibility,” she said.

“If you align your values and your behaviours to both be very socially responsible, then you’re going to be more effective with your CSR, and if your employees are in the CSR engagement pattern as well, that’s where you achieve the best workplace outcomes.”

The article said that in these workplaces, “Employees are more likely to remain within the organisation and to report higher levels of job satisfaction and organisational commitment.”

However, employers should note that the positions are easily subject to change.

“Companies cannot rest on their laurels, believing that they have achieved the highest level of CSR and related congruence,” the article said.

“Ongoing efforts are needed to maintain this pattern of engagement in social responsibility, possibly by exploring new directions in CSR.”

Interestingly, the article shows that while CSR-ESR congruence can be achieved at the Low Social Responsibility level, one of the potential outcomes are disengaged employees.

“To achieve employee engagement, companies might need to exert additional effort, in terms of salary, holidays, brand loyalty and interest in the product, as social responsibility plays in these companies no part in establishing congruence between employees and their companies,” the article said.

“A lack of congruence at any level is likely to result in employees responding to the company with indifference, resentment or disengagement.”

Coming clean on CSR

Initial CSR reports suggest firms are more or less complying with the law but lack of impact assessment, consolidated reporting are concerns

Firms such as Bharti Airtel, Infosys and Tata Steel have adhered to the CSR reporting standards to a T.

Companies have begun publishing their corporate social responsibility (CSR) reports as mandated by rules that took effect in April last year, although not all of them have met the targets set for them.

The CSR rules state that companies with a net worth of at least Rs.500 crore or revenue of Rs.1,000 crore or net profit of Rs.5 crore should spend 2% of their average profit in the last three years on social activities laid down by the Companies Act, 2013.

They have to report the total amount they spent on CSR activities in a given financial year, the activities towards which the money was directed, and unspent amounts, if any, specifying the reason why they hadn’t met the target.

“So far, there has been no shortage in disclosure. As the 2014 rules are prescriptive in nature, whatever has been mandated is being reported,” explained Abhay Gupte, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, an auditing and consulting firm. “The Act, if read between the lines, is clearly focused more towards getting companies to report even if they are not spending.”

For instance, Bharti Airtel Ltd, which failed to spend even 1% of its net profit on CSR initiatives (its annual report states that 0.59% was spent), has explained that 2014-15 “being the first year (the CSR rules kicked in), the company is in the process of evaluating the key focus areas and areas of intervention”.

The annual report said Bharti Airtel spent Rs.41.1 crore on CSR in 2014-15, mostly through the Bharti Foundation—the charitable arm of India’s largest telecom company.

Among the top 100 BSE-listed companies, firms like Bharti Airtel, Infosys Ltd, Tata Steel Ltd and Tech Mahindra Ltd have adhered to the CSR reporting standards to a T.

One reason for remaining true to compliance standards is that in 2012, the Securities and Exchange Board of India (Sebi) asked the top 100 listed companies to publish a Business Responsibility Report (BRR) alongside their annual report.

This report is based on the ministry of corporate affairs’ National Voluntary Guidelines of 2011 and consists of a set of detailed questions on what companies are doing by way of promoting social inclusion, environmental causes and transparency, among others.

The companies that have been publishing this report have made sure they are in compliance with reporting their spending on CSR activities.

“They already have mechanisms and infrastructure in place to collate and disseminate the data, while those undertaking CSR initiatives for the first time are still in the process of putting in place the mechanisms,” said Rajeev Chugh, partner, tax and regulatory services, EY.

Still, there are some concerns. For one, information related to CSR expenditure is scattered across annual reports, profit and loss statements, directors’ reports and the BRRs.

There is no uniform format for all companies to follow. Also, some companies have chosen to explain the focus area of their initiatives while others have not.

“Disclosure in the financial statements is varying currently,” acknowledged Rajeev Saxena, director, Mazars, an international auditing and advisory firm, suggesting that for auditing and monitoring purposes, the differing templates would be a challenge.

For instance, Infosys has published all CSR expenditure-related information for financial year 2014-15 in its annual report and annexure.

Tata Steel outlined the broad expenditure in its annual report and spelled out the finer details of why, when and how in the BRR.

In another instance, the Tech Mahindra report clubbed its expenditure on CSR under the subhead ‘overhead cost and direct expenditure’ while Tata Steel showed it separately. The Infosys annual report specified the location of each CSR project, which the Tech Mahindra report did not.

“This segregated information means the companies have not yet put in place an integrated reporting mechanism, which may lead to inconsistencies. Some of the information will be reported by the CSR team, some by the financial team or the director’s office. Thus no one person or authority at present seems to have all the information and can act as a one-point contact,” said Abhishek Humbad, co-founder of NextGen PMS Pvt. Ltd, a Bengaluru-based CSR consulting firm.

One challenge in terms of disclosure is that the information is disintegrated and specific responses are missing, saidPradeep Narayanan, director (research and consultancies) at Praxis Institute for Participatory Practices, a research-based not-for-profit.

While the financial details are given because the rules ask for them, there is no impact assessment, he said. The lack of physical verification of company claims or third-party impact assessment of the CSR reports is a risk, he cautioned.

“Financial claims of a company are easily verifiable through the stock market but in CSR spend, so far, we have to take the company claims on face value alone. This is not a best business practice,” Narayanan said.

Incubators evoke little CSR interest

There are multiple reasons for tepid corporate interest in incubators; among them is lack of awareness

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Arundhati Ramanathan

Start-ups incubated at the Centre for Innovation, Incubation and Entrepreneurship, IIMA. Photo courtesy CIIE

There is a list, officially called Schedule VII, which tells companies what they can do under corporate social responsibility (CSR) as prescribed by the Companies Act, 2013. Of the 10 possibilities, from eradicating hunger to promoting education, the penultimate item in that list is funding technology incubators attached to academic institutions. In the first year of implementation, few companies put CSR money into these incubators.

Incubators help start-ups survive in their very early stages when most of them rely on funding from family and friends. Incubators are valuable to start-ups because besides grants, they give them an office to work out of and act as a platform for networking. The grants to fledging start-ups are anywhere between Rs.25 lakh and Rs.50 lakh.

There are about 100 incubators associated with academic institutions and many of them are funded by the department of science and technology (DST), the ministry of micro, small and medium enterprises and the Small Industries Development Bank of India (Sidbi). About 10-12 start-ups are incubated at each of these centres, and they could be involved in developing clean technology, healthcare solutions and creating information technology (IT) innovations.

Among the eight incubators Mint spoke to, five have received CSR funding of under Rs.2 crore in total.

So far, prominent incubators like the one attached to the Indian Institute of Management (IIM) Ahmedabad got a total of Rs.75 lakh from Mahindra and Mahindra Financial Services Ltd, Take Solutions Ltd and Bajaj Electricals Ltd; the ones at Indian Institute of Science (IISc) and Indian Institute of Technology (IIT) Delhi got Rs.50 lakh each from two multinationals under a non-disclosure agreement; IIM Calcutta and BITS Hyderabad received about Rs.5 lakh each from a software company and Sidbi Venture Capital Ltd, a venture fund run by Sidbi, from its own CSR funds.

Other well-known incubators associated with institutions like IIT Madras, IIM Bangalore and IIM Calcutta have so far not got any CSR funding. They said they are in talks with a few companies, and expect to sign a few memoranda of understanding.

But all incubators admit the interest from companies has been tepid and the reasons for this are multifold.

The first is lack of awareness. “Traditionally this is not CSR. The idea of CSR is associated with doing social good, so this concept of funding incubators as CSR is alien,” says J. Salim Vali, vice-president, Centre for Innovation, Incubation and Entrepreneurship (CIIE), at IIM-A.

Vali said they were expecting to raise Rs.3 crore in CSR funding but were able to get commitments worth only Rs.75 lakh last year.

Second, many companies fund start-ups and get returns on that investment. But when they give CSR grants to an incubator, which in turn diverts some of that money into start-ups, they get no returns.

For instance, Cisco Systems Inc. has an investment arm called Cisco Investments, which will invest $40 million (around Rs.241 crore) in early-stage firms under its India Innovation investment programme, and the investment arm typically takes a stake in these start-ups. For Cisco, these start-ups are a way to foster ideas, which will benefit its business too.

“CSR funding in incubators is an interesting option but may not be sustainable for building a start-up ecosystem for the longer term. That is better done by capital that will look for returns also, as that will ensure more competitive start-ups take root,” said Alok Bardiya, director, corporate development, Cisco.

Third, CSR funding is limited to approved academic incubators but companies are not aware which academic incubators are approved, said C.S. Murali, chairman, entrepreneurship cell, society for innovation and development, IISc.

This, even though DST lists 90 approved incubators on its website.

To tackle this problem, Divya Rajput, head, Centre for Business Innovation at the Indian Institute of Corporate Affairs, Delhi, the think-tank that drafted the CSR rules, said it is preparing a list of eligible incubators that companies can give their CSR funds to.

Originally, incubators were included in the CSR list as they promote innovation. While the law does not specify if incubators should channel funding to start-ups, most have done so.

On their part, founders of start-ups are divided on whether CSR funding makes sense. Some like Nitin Gupta, founder of Sickle Innovations, a farming solutions company, believes CSR funding is valuable, especially for start-ups that are still getting their feet wet. The start-up, incubated by CIIE at IIM-A, makes farm implements that can be used by small farmers.

Gupta said even impact funds (funds that invest in social start-ups) don’t invest in the prototype stage. “You need to get to a certain level to get their attention.” So, CSR money is a much-needed source of seed funding. “With this money, it will be easier to scale and build credibility and with that we can chase after impact investors,” he said.

Sickle Innovations got Rs.18.5 lakh in CSR funding from theRs.25 lakh grant Mahindra and Mahindra Financial Services made to CIIE. The company made another grant worth Rs.23 lakh towards Sustain Earth, a start-up incubated by Villgro, a DST-approved incubator.

Piyush Jaju, founder of ONergy, which sells solar equipment to rural households, said it is difficult for incubators to get CSR funding. “Companies do not like to mix what they do for profit and what they do with a social motive. For CSR, companies are focused on charity. Changing that mindset is very difficult,” said Jaju. “ We cant rely on this as a source of funding,” he added.

ONergy got Rs.20 lakh from CIIE as part of a Rs.25 lakh grant from Bajaj Electricals.

Executives from Mahindra and Mahindra Financial Services and Bajaj Electricals said they are funding incubators as an experiment and if it yields results they will look to increase CSR funding to them.

Businesses can benefit from this, insisted Sanjay Kallapur, director of the fellow programme in management at the Indian School of Business, Hyderabad. He said using CSR to give to social enterprises can spark innovation that can stoke research and development (R&D) in their own companies. He called this a Responsible Business Framework.

“Companies anyway have to do CSR. If they encourage social enterprises in their line of business, through incubators, it could be a win-win situation,” he said.

But to attract CSR funding, incubators will also need to show that they are accountable and producing results with their graduates, said Will Poole, managing partner, Unitus Seed Fund.

“I do not believe CSR grants will be large enough to both support an incubator and flow-through incubators in any material way to the organizations they train and support”, Poole said.

CSR consultants such as Noshir Dadrawala, CEO of Centre For Advancement of Philanthropy, wondered why this criteria was included in Schedule VII in the first place. “No company has expressed interest in this. CSR funding in incubators sticks out like a sore thumb from the rest of the areas listed.”

Also, the wording is very vague, Dadrawala said. “As the law discourages CSR funding to any form of for-profit enterprise, funding incubators means encouraging for-profit enterprises.”

He said the criteria needs rewording and clarification from the ministry on its exact meaning.

Till then, few companies are considering this route.

Govt may form VC industry to fund social sector projects: Jayant Sinha

Monday, 10 August 2015 - 12:56pm IST | Agency: PTI

Sinha further said that the 2% allocation of profit made by companies as per the new Companies Act for Corporate Social Responsibility (CSR) will provide huge sums for social sectors.

• Representational image

The government is planning to create a Venture Capital (VC) industry that will help fund social sector initiatives of sustainable development and job creation, Minister of State for Finance Jayant Sinha said today.

"There is one thing that we are trying to do, is to create domestic venture capital industry that will also be able to provide funding for impact funds. We will soon be announcing our efforts in that whole area of domestic venture capital where funds would be available for impact funds as well," he said at a function organised by Axis Bank Foundation here.

"The first aspect is the impact investment... there is funding available for most good businesses," he said.

'Impact investment' refers to investments made by organisations with the intention to generate a measurable, beneficial social or environmental impact in a profitable manner.

Sinha further said that the 2% allocation of profit made by companies as per the new Companies Act for Corporate Social Responsibility (CSR) will provide huge sums for social sectors.

"The 2% CSR funding is going to be a game changer for NGOs in India because tremendous amount of money will be available...it would be thousands of crores," he said.

He said India is facing many challenges including job creation, climate change and lack of scalability and innovation.

"The first and foremost challenge that India faces is jobs. We understand...if we don t create jobs, we have whole generation which would be jobless. Jobs are our single biggest challenge.

Climate change is irreversible...water, soil cover are fairly irreversible things. So how do we have growth trajectory so that we can really be in tune with the ecological capacity that we have on this very densely populated sub-continent." he said.