Akanksha Sharma, Head-Social Impact & Sustainability, Sterlite Technologies (STL) in her recent interview with ET said that India faces a huge funding gap on the social development front and that is reflected because we are placed at the 117th position on the Global SDG Index. “I definitely see the convergence of CSR and impact investing benefitting not only the investors but also the country.”, she said.
She feels that to bridge this ever-widening gap, now with CSR funds being diverted for COVID relief work, impact investing can prove to be an extremely useful tool. This pay-for-success model can be instrumental in not just reducing the funding gap through generation of returns, but also by ensuring these are used for sustained development.
Plus together with other retail investors, foundations, the resource pool can be significantly amplified while providing measurable, evidence based on impact. It also provides smaller corporates to undertake CSR by investing in data and tech driven enterprises that support concrete and sustainable development.
According to the Global Impact Investing Network (GIIN), impact investment is funding made with the intention to generate positive, measurable social and environmental impact alongside a financial return. India has been one of the chief geographies for the global impact investing movement, but Akanksha points out that 95 percent of this capital invested in the country has come in from foreign investors.
Sharma says most investment is done through the traditional ways of doing CSR, where data and technology are not optimized. According to her, impact investments focus on specific social and environmental issues through models that are result-oriented, while helping the implementing enterprise to profit and become self-sustainable.
There is a pre-defined rate of return agreed upon, which depends on the level of outcome achieved. For India Inc., this means generating additional funds through CSR investments while delivering visible and measurable results.
For NGOs it means assured funds for operations over a specified period allowing for delivering on defined targets. However, because this is a return generating model, implementing agencies need to report and monitor outcomes and impact using transparent and measuring metrics.
This is something traditional CSR is missing as many a time, qualitative factors are also considered. With impact investing being used for CSR, we will start seeing better program management, data driven and impactful programs that deliver lasting change.
We back models that work with factual statistics. This ensures that governments and corporates and other investors pay only for programmes that guarantee impact. These are managed by professional organizations that reduce the monitoring responsibility on corporates who many a time have bandwidth challenges for this.
Such pay for success models makes social impact more targeted and delivery oriented ensuring sustainability. It is about creating shared value while doing well by doing good and should be the route we follow to deliver sustainable development in India. In India, where sustainability is still evolving, such mechanisms can open alternate opportunities enabling investments in sectors like renewable energy, water security, carbon reduction, etc.
On the significance of impact investing in a post COVID-19 world, she said that the COVID crisis has redefined many things across the sectors and we have seen far more serious socio-economic challenges emerge amidst the pandemic, besides all that our country was fraught with already. Education has become digital, albeit from lack of access to the infrastructure and connectivity.
We are still struggling with the digital divide with manifold implications in the context of the new normal. Reverse migration has caused rampant unemployment across the country.
She said, “I believe that investments in technology-led interventions are extremely critical to create an enabling environment for citizens connecting them with job opportunities in their villages and for unemployed in cities with employers who need labour. Impact investing can prove to be a powerful mechanism to address matters such as sustainable housing, smart agriculture, education and others not just during the COVID-19 pandemic, but even thereafter.”
Again, it allows other players like hospitals, medical colleges and even corporates in the medicine field to invest into creating healthier communities through their CSR or funds while sustaining their commercial bottom line. This way, funds are not merely used for relief and rescue work, but for designing innovative interventions that change the way vulnerable communities are affected by such eventualities in future.
She also feels that to meaningfully address the social and environmental challenges that we are facing, we need to improve the performance of funds deployed for change. There is a need to encourage additional investments from an untapped resource base.
“We can’t just afford to depend upon the 2% CSR contributions or for someone to be more generous and contribute more as philanthropic contributions. We need to relay and structure the entire funding mechanism in the social sector to pace-up our country’s development plan.”, she said.
She said that technology would play a very critical role in developing a viable case through data-driven decisions and robust monitoring and reporting. There is an urgent need to change the way we spend CSR funds on areas like healthcare, education, digital literacy, livelihoods and poverty alleviation in India, but with the funding gap that exists, sustained change will be difficult. Also, there is a lot of duplication of programs by corporations.
The prospective impact investing has to bring in the additional funding that is needed to enable India to accomplish the SDGs by 2030 is massive with retail investors, HNIs and foundations merging in their resources with governments and corporates.
The prospects in India are unparalleled because of the scale and potential the country offers for viable returns, regardless of market risks. In the current scenario where CSR funds are being diverted to COVID relief work, impact investing offers social enterprises an assured lifeline for funding. It also promotes NGOs and social enterprises that have data and tech driven innovative models to address ubiquitous social and environmental issues.
When asked What are the major roadblocks to impact investing in India? She said that India has been one of the chief geographies for impact investing not just in Asia, but across the globe. However, 95 percent of investments are by foreign investors with a limited focus on health, education and agriculture.
On the other hand, poverty alleviation, women empowerment, climate change, resource conservation and equality are equally crucial for all-inclusive development. Even today, implementing agencies majorly focus on traditional ways of doing CSR where data and technology are still not optimized.
This is a necessity for impact investing, which functions on data driven and result oriented models where monitoring and reporting is critical. With only a handful of NGOs using data and technology to drive change, this becomes a challenge for this model. Also, the CSR law requires corporations to invest in NGOs that have a three year activity record.
On the other hand, impact investing focuses on partners that can through innovation and technology deliver results. These could be social enterprises or even for-profits, which again restricts investments through CSR. In India, companies largely implement programs directly through NGOs out of CSR. Though, there are a few impact investing bonds in the country we need to increase traction towards it.
According to her, social returns on investments is still a relative term for NGOs and corporates alike. Again data and tech are rarely used, which is fundamental for impact investing to succeed. Since a majority of Indian impact investors or corporates use exclusive gauges to measure results, defining social impact still calls for a lot of standardization globally.
Additionally, it is also important for the social sector to increasingly use tech and data softwares to construct a robust, data-centric monitoring base which shows the need for investment and how through a defined model they can guarantee the targets set out. These measures will improve not just social and environmental aspects, but also governance, basis a pre-defined framework.
While impact investing is gaining traction in India, there is still a lot of ambiguity. For corporates to leverage this model of doing CSR, more awareness and guidance is essential to address the how, what, where and other program management aspects and deliverables.
Considering the mix of enterprises current impact funds in the country focus on, to leverage impact investing for CSR, impact investing firms will need to develop funds that adhere to the country’s CSR guidelines. Here policy reforms are crucial to modify existing laws and scopes that will ensure better use of corporate, public and retail investors’ funds for nation building.
This can dramatically improve the accessible capital base for impact investments in India and make the market for impact investing more sustainable by decreasing reliance on foreign capital. Government support through tax and fiscal incentives and championing is crucial for the impact investing industry in India to grow and develop.