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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Riccardo Loschi ([log in to unmask])

*The Columbia FDI Perspectives are a forum for public debate. The views
expressed by the authors do not reflect the opinions of CCSI or our
partners and supporters.*

No. 313   September 6, 2021
*FDI and CSR to promote social entrepreneurship and sustainable FDI:
Lessons from India*
Shradha Mani* <#m_4599094635446118236__edn1>

Social entrepreneurship has evolved in India, ranging from traditional
micro-finance to technology breakthroughs delivering low-cost diagnostics
and climate resilient crops. India needs a more robust approach to channel
foreign long-term capital into these innovations, vital to attaining
sustainable development for all.

Company law in India provides that domestic and foreign companies operating
in India and meeting prescribed financial thresholds must spend at least 2%
of their net profits on specified corporate social responsibility (CSR)
activities.[1] <#m_4599094635446118236__edn2> In 2019-20, 59 foreign
companies listed on India’s stock exchanges spent US$64 million on CSR,
compared to the US$1.5 billion spent by 1,217 domestic companies.[2]

Indian law allows contributions to technology business incubators to
upgrade infrastructure and support start-ups. Despite India’s need for
technology start-ups delivering high social impact (e.g., telemedicine,
virtual education), however, CSR spending on such technology incubators has
been negligible. From 2015-2018, healthcare and education projects received
on average US$302 and US$520 million, respectively, while technology
incubators promoting social entrepreneurship received only US$2.5 million.
[3] <#m_4599094635446118236__edn4>

Neither have foreign investors shown much interest in the social venture
funds contemplated by India’s Securities and Exchange Board. These funds,
which invest in social businesses and follow impact investment objectives,
receive tax and structural incentives similar to venture capital funds.
While social venture funds raised just US$140 million and invested just
US$90 million in 2012-2019, venture capital funds raised US$1.2 billion and
invested US$900 million in Indian businesses in the same period.[4]
<#m_4599094635446118236__edn5> The risk-return payoff for social impact
start-ups renders them unattractive for traditional venture capital funding
(especially when structured as not-for-profits) due to restrictions on
dividend distribution.

Also, India permits 100% FDI in renewable energy, affordable housing and
medical device manufacturing. However, between 2000 and 2019, only US$9.1
billion and US$1.9 billion FDI has flowed into non-conventional energy and
medical appliances respectively, while US$80 billion has flowed into
financial and software technology, telecommunications, infrastructure,
automobiles, and pharmaceuticals sectors.[5] <#m_4599094635446118236__edn6>

Funds could be channeled into social enterprises by promoting UN
Sustainable Development Goals (SDGs)—in particular, regarding
environmental, social and governance issues—into the investing parameters
of India’s FDI Policy. Further, incorporating the UN Global Compact
principles or the OECD guidelines for MNEs in the implementation of the FDI
Policy could successfully intertwine environmental and socio-economic
sustainability with industrial growth. The first step is to create
awareness about active sustainable investment opportunities through the Invest
India website
and during roadshows promoting FDI into India. Global initiatives include
the SDG Investment Forum
and international investment conferences
Proposed policy measures for India’s FDI Policy could include:

   - *Promoting SDG-related sectors*. Currently, investment opportunities
   on the Invest India website are promoted by sector or location. Sustainable
   FDI can be encouraged by highlighting SDG-aligned investment opportunities
   (i) within sectors (e.g., by promoting energy storage and micro-grid
   technology within the realm of energy and infrastructure); (ii) as a
   separate sector, cutting across themes (e.g., the promotion of livelihoods
   and rural development across the manufacturing and agriculture sectors);
   and/or (iii) across regions, including by focusing on the entrepreneurial
   level or attention to SDG-related sectors within states). Initiatives
   to-date include the Baseline Report of the SDGs India Index, which tracks
   the progress made by Indian States and Union Territories towards the
   2030 SDG targets
   and the UNDP-Invest India SDG Investor Map
   - *Promoting social enterprises.* A publicly available database of
   start-ups, especially those incorporating the SDGs in their business
   models, would help bring them to the forefront. A list
   of recognized start-ups, vetted by the Department for Promotion of Industry
   and Internal Trade, is already available on the Start-up India website.
   Improvements to this database could involve adding details about the
   start-ups’ area of operation, alignment with the SDGs, impact metrics
   (human rights, labor, environment, anti-corruption practices), and some
   basic financial highlights.
   - *Combining sustainable FDI with CSR funds.* Promoting technology
   business incubators to simultaneously attract FDI and CSR funds could
   support high risk projects employing deep science and technology with long
   gestation periods in emerging markets. Without such support, such
   SDG-aligned clean technology or affordable healthcare projects that rely on
   borrowing and subsidies, could face financial or bankruptcy risk,
   jeopardizing capital already invested and the well-being of underserved

India’s policy efforts to streamline business processes improved its
position on the Ease-of-Doing-Business and Global-Competitiveness indices.
However, neglecting issues like climate change and poverty could harm the
attractiveness of any country, regardless of its strong macroeconomic
indicators. Encouraging sustainable and responsible FDI would therefore
help ensure not only inclusive and sustainable growth, but also the
country’s attractiveness for foreign investors.

* <#m_4599094635446118236__ednref1> Shradha Mani ([log in to unmask])
is a recent MBA graduate, Columbia Business School (CO 2021). The author
wishes to thank Premila Nazareth Satyanand for her valuable suggestions and
Indira Rajaraman, Harsha Vardhana Singh and an anonymous peer reviewer for
their helpful peer reviews.
[1] <#m_4599094635446118236__ednref2> Including eradicating hunger, poverty
and malnutrition, sanitation, promoting education, promoting gender
equality, ensuring environmental stability, protection of national
heritage, and rural development projects. Schedule VII of the 2013
Companies Act.
[2] <#m_4599094635446118236__ednref3> See CRISIL Foundation, *CSR Yearbook:
Doing Good in Bad Times *(Mumbai: CRISIL, 2020*)*
p. 15.
[3] <#m_4599094635446118236__ednref4> Indian Ministry of Corporate Affairs*,
Report of the High-Level Committee on Corporate Social Responsibility
2018 *(New
Delhi: August 2019)
pp. 40-41.
[4] <#m_4599094635446118236__ednref5> Securities and Exchange Board of
India, *Data relating to activities of Alternative Investment Funds* (2019)
[5] <#m_4599094635446118236__ednref6> Indian Ministry of Commerce and
Industry, Fact Sheet on Foreign Direct Investment April 2000—March
2020 (*Sector-wise
FDI flow*, March 2020)
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Shradha Mani, ‘FDI and CSR to promote social
entrepreneurship and sustainable FDI: Lessons from India,’ Columbia FDI
Perspectives No. 313, September 6, 2021. Reprinted with permission from the
Columbia Center on Sustainable Investment (***
A copy should kindly be sent to the Columbia Center on Sustainable
Investment at **[log in to unmask]* <[log in to unmask]>*.*

For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Riccardo Loschi, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 312, Tomoko Ishikawa, “Materializing corporate social
   responsibility in investor-state dispute settlement,” Columbia FDI
   Perspectives, August 23, 2021*.*
   - No. 311, Matthew Stephenson, “The OFDI policy path and the product
   space,” Columbia FDI Perspectives, August 9, 2021
   - No. 310, Mario Mancuso, “CFIUS and China in the post-COVID
   environment,” Columbia FDI Perspectives, July 26, 2021

*All previous FDI Perspectives are available at

*Other relevant CCSI news and announcements*

   - *On September 16, 2021*, the World Business Council on Sustainable
   Development (WBCSD), World Benchmarking Alliance (WBA) and Fixing the
   Business of Food (FTBF)* (**An initiative led by the Sustainable
   Development Solutions Network (SDSN), the Santa Chiara Lab at the
   University of Siena (SCL), the Barilla Center for Food and Nutrition
   (BCFN), and the Columbia Center on Sustainable Investment (CCSI)), *will
   host "Private Sector Alignment with the SDGs and Accountability to Achieve
   Food Systems Transformation," in support of the UN Food Systems Summit. *For
   more details, and to register, visit our website here

Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
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