Funding for both nonprofits and companies has been severely affected by the COVID-19 crisis. To survive, it is important that they find common ground to work together.
Over the last several years, capital in our country has become a lot more free-flowing, and we have witnessed a significant inflow of funds from foreign investors in our debt and equity markets. Inflows from Foreign Institutional Investors (FIIs) in June were the highest ever in 2020 and drove the Indian stock markets up by eight percent. In addition, many of our top funds, whether focused on private, public, or the alternatives markets, have had large global institutions as investors. These investors have brought with them an increasing emphasis on ESG (Environment, Social, and Governance) performance.
ESG funds are driving Indian companies to showcase CSR efforts
We are seeing the emergence of an increasing number of ESG funds focusing on investing exclusively in companies with well articulated and demonstrated ESG goals and outcomes. The top 100 companies in India are responding to this demand and are beginning to build an appropriate response to account for it. As a starting point, they have been showcasing the ‘S’ in ESG by presenting their contributions to, and their work in, Corporate Social Responsibility (CSR). ESG, in a sense, is an added bonus, as Indian companies look for bigger and more reputed global sources of financing.
With the introduction of the CSR Act in 2014, what was ‘good to do’ for corporate India has become a ‘must do’. Companies have responded in different ways: Some decided that they could become more strategic, more meaningful, and put in more effort in defining and strengthening their approach to CSR. Some decided to do the bare minimum and adhere to the letter of the law. And many in the middle, repurposed their human resources and marketing teams to also do CSR.
What was common to all, however, was that most could not bring in a long-term approach to funding, as CSR allocations are almost entirely dependent on the company’s profit numbers for the previous three years. Very few companies will look to invest beyond a year, because their investors and boards will question them. So, the year-on-year mindset is not going to change, and we are seeing the significance of these annual allocations during the COVID-19 crisis.