To augment CSR projects’ transparency and accountability flexibility, the Ministry of Corporate Affairs introduced Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 by amending Companies (Corporate Social Responsibility Policy) Rules, 2014 on 22 January 2021. The amendments addressed the significant changes in the implementation of the CSR initiatives. They introduced some new concepts like mandatory impact assessment for companies undertaking CSR activities and expenditure above a specified threshold.
The CSR Rules introduced a new requirement for mandatory impact assessment of specified projects by companies meeting the below requirements. The reports should, after that, be placed before the board and disclosed separately in the annual report.
The key aspects of the new mandatory impact assessments are as follows:
- This requirement applies to companies with an average CSR spend of ₹ 10,00,00,000 (Ten Crores only) or more in any fiscal year
- CSR projects with a budget of ₹ 1,00,00,000 (One Crore) or more completed one year need to be assessed
- An “independent agency” is required to undertake the impact assessment. The costs of such an agency should not exceed a lesser of ₹ 50,00,000 (Rupees Fifty Lakhs only) or 5% of the total CSR spend for that financial year.
Need for Impact Assessment
Impact assessment helps giving direction to the companies on whether to scale up and replicate successful initiatives or introduce modifications and close down an initiative/project which has not been able to create an impact in the society. It also helps to assess the needs of the community, design projects that address these needs, and then measure whether those needs have been sufficiently addressed.
In other words, Impact assessment is required to aid the funders and companies to understand and evaluate the impact of their social investments or CSR funds in programs and projects on their target beneficiaries or society.
Impact assessment aims to create an accurate structure in assessing the impact of CSR activities by shifting the focus from only expenditure to impact experienced by the beneficiaries. It also helps in improving the quality of CSR projects by enhancing accountability and transparency.
The new requirements of CSR Impact Assessment ensure smooth implementation and course- correction of projects while providing accountability to spend on long-term projects that run for several years. The mandatory registration of CSR intermediaries and impact assessment will lead to increased transparency and traceability of CSR expenditure for continuance philanthropic initiatives.