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Leveraging CSR for Sustainable Impact: Carbon Credits as a Catalyst for Community Development

Updated: Oct 5, 2023



Leveraging CSR for Sustainable Impact: Carbon Credits as a Catalyst for Community Development


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1.Introduction


Corporate Social Responsibility (CSR) has altered the paradigm of social development and philanthropy across India in the past seven years since the Companies Act of 2013. The CSR funds have been utilised to help numerous sectors like health, education, poverty alleviation, equality, arts and culture, environment, etc. However, the funding has been disproportionate towards environmental conservation compared to other sectors like health and education. Though funding public health and education is crucial to construct a better society, there is a need to look at the impact holistically. With the advent of climate change effects and India's 2070 net zero targets and National Determined Contributions (NDCs) till 2030, there is a need to bridge the funding gap for climate change adaptation and mitigation. CSR funds have the potential to bridge the gap while also enabling community development. Carbon credits are one of the measures to achieve this that we are exploring in this paper. When CSR funds are invested in activities to generate carbon credits, it not only helps environment conservation and protection but also with overall development of communities through livelihood generation, natural resource management and making them climate resilient.




2.Corporate Social Responsibility in India


Corporate Social Responsibility (CSR) is driving a significant impact across India as a mandate from the government and also to address environmental and social issues while realising economic goals. CSR started to take shape in the early 20th century when leaders like GD Birla and Jamshedji Tata established charitable trusts to support notable social causes. Section 135 of the Companies Act passed by the Indian government in 2013 mandated companies with a particular turnover or net profits to spend at least 2% of their net earnings over the preceding three years on CSR activities. As of 2020, over 18,000 companies in India contributed to CSR activities amounting to INR 85000 crore (USD 10.4 billion). Such an amount indicates a huge potential for impact if directed to sectors addressing the country's current needs.


As per the CSR data portal data, CSR funds have been increasing at a rate of CAGR 17.1% over the past six years. The mix of funds across various sectors over the years is displayed in Figure 1, with the highest funds dedicated to Education, Differently Abled, livelihood and the least to the Clean Ganga Fund sector. In FY 2020-21, the total CSR funds utilised were INR 18,236 crores, out of which Education, Differently Abled, livelihood sector received the most funds and Clean Ganga Fund the least. The "Environment Welfare and Conservation of Resources" sector received INR 1085 Cr. funds in 2021 with a rate of CAGR 17.5% from 2014 to 2021. Again, if utilised in a great way, the funds possess the potential to bridge the gap between climate and nature finance while aiding the local communities.


Figure 1: Percentage CSR Spending Trend for four sectors, 2014 - 21


The above graph depicts the % CSR spending trend for four sectors a. Environment, Animal Welfare, Conservation of Resources, b. Health, Eradicating Hunger, Poverty and Malnutrition, Safe Drinking water, Sanitation, c. Rural Development and d. Education, Differently Abled, livelihood from period 2014-21. It depicts the asymmetric funding to environment sector over the years where education and health sector are leading in terms of bestowment of CSR funds.


Figure 2: CSR Spending Trend for “Environment Animal Welfare, Conservation of Resources" Sector, 2014 - 21


The above graph depicts the CSR spending trend for Environment, Animal Welfare, Conservation of Resources sector from period 2014-21. It shows that though the absolute funding has increased for the environment over the course of seven years, the percentage allocation with respect to total CSR fund per year remains approximately the same.


The prioritisation of CSR funding for environmental issues in India has been underwhelming compared to equally important social challenges like health, poverty, education and sanitation. The disproportionate allocation of CSR spending towards certain sectors further highlights this bias. According to the Corporate Social Responsibility Data Portal of India's Ministry of Corporate Affairs, the majority of CSR spending in the last seven years has been concentrated towards education (38%), followed by health and sanitation (22%), rural development (10%), and the environment sector (8%). Even within the environment sector, spending is primarily focused on renewable energy projects and awareness initiatives, with little allocation towards tree planting and natural resource restoration.


Although the agroforestry sector has received marginal funding, it supports both livelihood and carbon sequestration objectives.




3.The State of Ecosystem Restoration in India


The report on the Bonn challenge in India indicates a less-than-encouraging contribution from businesses towards restoration efforts. Over a period of six years, only 2% of the total area restored, which amounts to 193,290.3 hectares out of 9,810,944.2 hectares, was reported to be done by private companies. However, it is important to note that this data may need to provide an accurate representation due to limitations in data collection. The reports from the Indian corporates may not fully disclose the information regarding their impact on the climate crisis, water shortage, and deforestation (CDP, Mongabay). At the moment, In India an amount of 122.97 crores is being spent on soil moisture conservation, water conservation, biodiversity conservation and to name a few.


From the above data, it can be seen that there has been a small contribution of private funds for restoration in India, however, it has been in isolation, in bits and pieces. Ecosystem Restoration is aiding the recovery of degraded or destroyed ecosystems while conserving the healthy ones. The UN General Assembly officially declared 2021 - 2030 the UN Decade of Ecosystem Restoration. India voluntarily pledged to achieve land degradation neutrality (LDN) by restoring 26 million hectares of degraded land by 2030, around 8% of the country's total land area. However, ecosystem restoration in India is not only about reducing human disturbance in the environment, removing pressures, or actively planting native species. It is also about mobilising the adjacent communities, securing their livelihoods, ensuring food and water security and maintaining ecosystem services for the well-being of the country's population. About 20% of India's population, including indigenous communities, marginal farmers and women, depend on forest resources, and approximately 50% is directly dependent on agriculture.


India's GDP suffers a loss of 2.5% due to land degradation, and our inability to act will cost us more than that of restoring ecosystems. Land degradation is also closely coupled with climate change, which could reduce the agricultural income of Indian farmers by 25% (Economic Survey of India 2017-18)




4.Carbon Credits and Carbon Market in India


In 2015, at the United Nations Climate Change Conference (COP21) in Paris, almost 200 countries agreed to limit the rise of global temperature to 2.0 degrees Celsius above preindustrial levels, and ideally 1.5 degrees. In order to reach the 1.5-degree target, the global greenhouse gas emissions need to be cut down by 50 percent of current levels by 2030 and reduced to net zero by 2050. According to Joseph Stiglitz and Nicholas Stern, in order to meet the goals set by the Paris Agreement, the price of carbon across the world needs to be between $50-$100 per tonne by 2030.

The Article 6 of the Paris Agreement, provides for the use of international carbon markets by countries to fulfil their NDCs (Nationally Determined Contributions). Carbon markets incentivize climate action by enabling parties to trade carbon credits generated by the reduction or removal of GHGs from the atmosphere. It is estimated that trading in carbon credits could reduce the cost of implementing countries’ Nationally Determined Contributions (NDCs) by more than half – by as much as $250 billion by 2030.



With respect to the Indian context, the Energy Conservation Act, 2001 was enacted to provide for the efficient use of energy and its conservation. The act provided for the establishment and incorporation of the Bureau of Energy Efficiency (BEE) under the Ministry of Power. The act mandated BBE to be responsible for the implementation of policies and programmes related to energy. Even though the act focused upon energy conservation it did not address the issues pertaining to carbon markets.

Since, the Energy Conservation Act, 2001 did not address the issue of carbon markets, the Government of India passed the Energy Conservation (Amendment) Bill, 2022 in order to establish Carbon Markets in India and specify a Carbon Trading Scheme. Under the Bill, the central government or an authorised agency will issue carbon credit certificates (which will be tradable) to companies or even individuals registered and compliant with the scheme.


4.1Green Credit Programme, India


On June 27, 2023, the Government of India launched the first draft of the Green Credit Programme. It is one of its kind instruments with the potential to reward ecosystem services and enable green projects to reach optimal gains beyond just carbon.

The main objectives of this program are:


1.To create a market-based mechanism for incentivising individuals or organisations with Green Credits for environment-positive action.


2.To mobilize people to advance environment-positive actions and realise the vision of "Mission Life".


Initially, Green Credits can be given for the following sector. The Ministry of Environment Forest and Climate Change shall add more such sectors per the iterative feedback from implementing the Green Credit programme.


● Tree Plantation-based Green Credit

● Water-based Green Credit

● Sustainable Agriculture-based Green Credit

● Waste Management based Green Credit

● Air Pollution Reduction based Green Credit

● Mangrove Conservation and Restoration-based Green Credit

● Ecomark-based Green Credit

● Sustainable building and infrastructure-based Green Credit


Activities generating Green Credits under this programme may also earn carbon credits under the carbon market. However, this is only a first draft and would require adding more nuances like the mechanism of accounting credits, setting emission standards, measurement standards for reporting and verification and reducing entry barriers to allow more individuals and small project developers to access the market.




5.Carbon Credits and Ecosystem Restoration


While carbon credits are a valuable tool in the fight against climate change, it is important to recognize that carbon credit mechanisms are continuously evolving. Whether it is removal, reduction or avoidance, carbon credits shouldn't be seen in silos. Instead, we should consider the multitude of benefits that nature-based climate solutions, such as forests, biodiversity, and communities, can provide. These solutions not only help to mitigate climate change but also offer a range of co-benefits, including supporting local livelihoods, protecting biodiversity, and improving the resilience of communities to environmental challenges.


Thus, we must also recognize the importance of preserving natural habitats and supporting local communities. The numerous landscapes of India, like the Central Indian landscape, the Western Ghats, the North-eastern region and even the Himalayas, exhibit a great relationship of communities with the forests. The forest dwellers not only help in the administration and protection of the forests, but their activities also contribute to maintaining the ecological balance of the concerned area. While the relationship between carbon, biodiversity, and community is complex, it is clear that these factors are inextricably linked on the forest floor. A holistic approach to land use is needed to address these issues in tandem, ensuring that carbon storage is balanced with the preservation of natural habitats and the well-being of local communities. Failure to do so risks exacerbating the environmental and social challenges we face.


For instance, one such approach to generating carbon credits is the CCB (Climate, Community and Biodiversity) standard. Projects designed with such an approach can foster sustainable livelihoods for the local communities through various activities like ecosystem protection and restoration, soil and water protection, trade of forest products, diversification of agriculture, direct employment and ecotourism. This can also help communities adapt to climate change's future effects. Moreover, carefully designed projects also contribute to conserving biodiversity, especially the threatened flora and fauna. All these objectives can be achieved through effective planning and implementation in a cost-effective way.


5.1An Example from Madhya Pradesh Forest Department


A similar step in the proposed direction was taken through "Policy for Using CSR/ CER and Private Funds for Plantations through Joint / Community Forest Management Committees" by the Government of Madhya Pradesh, Forest Department, in November 2021. The policy's objective is to restore the degraded forests to strengthen the forest-based livelihoods of local communities and enhance the ecosystem services. Companies are encouraged to take up public welfare activities of environmental protection utilising the funds under CSR. These activities can also be planned and executed with the help of local communities, which can be facilitated through a microplan created by Joint / Community Forest Management Committees (JFMC) and approved by the Divisional Forest Officer. After that, the proposed microplan shall be carried out by CSR, CER or other sources of private funds.


Such a process shall run through a tripartite agreement between the private entity, JFMC and Forest Development Authority. One of the points related to the agreement points out the carbon credits generated by the activities undertaken in the area.

"The entity providing funds for plantation will not have any rights on the forest area or forest produce. The entity shall have the right to use carbon credits in lieu of providing funds."

In a case of a for-profit organisation looking to invest in plantation activities and acquire carbon credits, the policy works fine. However, for CSR activities, the credits would constitute the surplus income generated for companies. The income from credits can then be transferred directly to concerned communities or even given to the forest department, which can facilitate community development.




6.Bridging the Finance gap


India has announced ambitious emission reduction targets and a net zero goal by 2070, but implementing these goals requires significant financial resources. India needs approximately USD 10.1 trillion (INR 716 lakh crores) to achieve Net-Zero emissions by 2070. Moreover, to achieve India's Nationally Determined Contributions (NDCs) under the Paris Agreement, it is estimated that the country needs USD 2.5 trillion (INR 162.5 lakh crores) from 2015 to 2030 or roughly USD 170 (INR 11 lakh crores) billion per year. Around USD 1.4 trillion has to come from additional financial support. Climate finance includes the need for both mitigation and adaptation measures. While the mitigation activities include clean energy, energy efficiency and clean transport, adaptation incorporates nature-based solutions, drought management, disaster preparedness and capacity building, disaster risk reduction, flood and cyclone mitigation, etc.


Climate Policy Initiative, an analysis and advisory organisation, estimates that 25% of the total green/climate finance requirement is met for mitigation measures. The financial flows are even low for adaptation, though exact figures are not available. However, there is a pressing need to pour funds into the adaptation sector, considering India is one of the most vulnerable countries to climate change. In FY 2020, USD 5 Billion (INR 37 thousand crores) were tracked for adaptation which is particularly low compared to the required funds. Multi Stakeholder collaboration and planning are crucial to develop adaptation investment plans for the country.


Nature-based solutions impart a great solution in the said area. As defined by IUCN in 2016- "Nature-based solutions (NbS) are actions to protect, sustainably manage and restore natural and modified ecosystems in ways that address societal challenges effectively and adaptively, to provide both human well-being and biodiversity benefits" NbS includes a plethora of activities such as restoration, protection, habitat creation and management and food production across a spectrum of ecosystems. NbS holds the potential to meet one-third of climate mitigation targets under NDC, saving USD 57 million for flood damages and extra benefits of USD 170 through ecosystem services. Additionally, NbS can also generate around 20 million jobs globally, especially in South Asia (A report by the International Labour Organisation).


CSR funds can potentially bridge a part of the funding gap for adaptation. As discussed in the above sector, regarding the CSR policy by the MP forest department, CSR funds can be used for restoration or nature-based activities. The carbon credits it generates can go directly to communities or the forest department.


6.1An Example from Meghalaya


Carbon Forest to Alleviate Poverty (COTAP) is a global non-profit with a mission to tackle climate change and extreme poverty, the world's biggest environmental and humanitarian challenge, respectively. COTAP balances the carbon emissions through certified forestry projects in the least developed regions to improve the livelihood and earnings of rural communities where income levels are less than USD 2 per day. The non-profit started a REDD+ project with the Khasi Hills community of Meghalaya in 2011. The 30-year lifespan project spans 27,000 hectares and incorporates both protection (Reducing Emissions from Deforestation and Forest Degradation, or "REDD") and restoration (Assisted Natural Regeneration, or "ANR") to improve the area. The project has also created long-term plans for 4400 households to enhance their livelihoods.


In 2013, the project made its first community payments of USD 25,949 for 5,695 tonnes of carbon dioxide emissions reductions. Till 2021, the project has made payments of around USD 350,450 to the communities across 7262 families. For the Khasi Hills project, COTAP's donation rate is USD 9.90 per tonne, of which USD 9 is handed to the indigenous community federation to carry out various activities related to the project. This shall generate over USD 7.5 million for the Khasi communities




7.Recommendations


Even though, the government has adopted a bill in order to address the issue of carbon markets, there are few concerns which need to be addressed in order to enable the CSR funds to be utilised for developing carbon credits:


7.1Legislative


From a legislative point of view there are concerns regarding the Energy Conservation (Amendment) Bill, 2022 as the bill does not provide clarity on the mechanism to be used for the trading of carbon credit certificates, i.e., whether it will be like the cap-and-trade schemes or some other method would be adopted. Furthermore, it is also not specified in the bill whether the carbon certificates under already existing schemes would be interchangeable with carbon credit certificates and tradeable for reducing carbon emissions. Therefore, it is recommended that the various stakeholders, i.e., the government officials, industry representatives, civil society members etc., address this issue by factoring in the regional needs.


7.2Market Oriented


The carbon markets across the world are of two types, namely compliance markets and voluntary markets. The compliance markets are officially regulated and are governed by the policies set up at the national/international level, while, in voluntary markets, the participation of companies, governments and other organisations to offset their carbon emissions is voluntary. According to a Refinitiv report the war in Ukraine caused uproar in the global energy and commodities markets. It is estimated that the total global carbon market turnover – the number of transactions times their price – grew to €865 billion, i.e., by nearly 14 per cent as compared with 2021. The high emissions prices were largely the result of global regulators adopting more ambitious climate targets and tightening carbon caps within their emissions trading systems to achieve the carbon reductions pledged under the Paris Agreement. Nonetheless, the global carbon markets face challenges like poor market transparency, greenwashing (wherein the companies may buy credits, simply offsetting carbon footprints instead of reducing their overall emissions or investing in clean technologies) etc. It is recommended that a community awareness and participation plan may be prepared which addresses the issues concerning the global markets and encourages the use of CSR funds with respect to transacting carbon credits.


7.3Land Reforms


Land has always been a challenging issue in India. In pre-independent India, the ownership of the land lay with large landowners known as ‘zamindars’ or ‘jagirdars’, who leased land to farmers. Thus, the farmers who cultivated the lands did not own them. Post-independence, land reforms stood out as a challenge for the government, as the practice of leasing out land was widespread, which resulted in inefficient farming practices. In order to address this issue, the government of India undertook various measures like the formation of an Agrarian Reforms Committee under J. C. Kumarappan to investigate issues concerning agrarian land. The committee made the following recommendations:

● The abolition of intermediaries between the state and the tillers

● Tenancy reforms

● Fixing ceiling on landholdings

● Consolidation of landholdings


These reforms were undertaken in phases as they required a sort of political will which could resonate in all the strata of the society. The reforms are a political instrument which has the potential to deliver social justice and equality, however, the society will also have to take initiative as the preservation of land plays an equally important role in the context of justice and equality. According to a report prepared by the Indian Space Research Organisation (ISRO), about 29.32 per cent of the total 328.72 mha geographical area of India is affected by land degradation. It accounts for 96.4 mha of forest, non-forest and agriculture land spread across the country. It has been observed that while there is a diverse set of variables that drives land degradation, land tenure-the relationship between people to land – often has a causal linkage with land degradation. Therefore, it is recommended that in order to restore community forest lands, agrarian lands, riverine beds etc., they will have to be made a part of the revenue commons. It is proposed that the local communities, along with local self-government institutions like Panchayati Raj Institutions (PRIs), Tribal Councils, Van Samitis etc., collaborate with the local administration and the corporates so that the CSR fund can be leveraged towards incentivizing the restoration efforts. This will not only result in land conservation but will also create jobs thus boosting the local economy and creating a feasible economic ecosystem.




Meet The Thought Leader




Karan Patel is a mentor at GGI an undergraduate from IIT Madras. He is correctly employed with Teachmint, an ed-tech start-up in their strategy team. Prior to Teachmint, he worked at Dalberg Advisors as an analyst where he worked with multi-laterals and international foundations on gender, education and energy sectors. He has also interned in MIT Sloan, Qualcomm and IIM Ahmedabad giving him a plethora of experience in the corporate and academic world. He also started his own venture in hyperlocal air-quality monitoring. Karan is an avid sport-person and masala chai fanatic.




Meet The Authors (GGI Fellows)



Aditya Mandloi is an Environment and Development professional working as a Project Associate at The Nature Conservancy, India. He manages Narmada's Riparian Area Restoration initiative, a Nature-Based Solution Programme of TNC. His involves implementing work plans, monitoring the restoration sites, stakeholder consultations and managing numerous grants for the project. He pursued his Post Graduation Diploma in Forest Management (Conservation and Livelihoods) from the Indian Institute of Forest Management, Bhopal.

Aditya loves to swim, read books, trek often and take frequent dips in uncharted water bodies.



Basim is a public servant with expertise in policy analysis, risk advisory and strategy consulting. He is intrigued by policies which balance competing needs like human progress and natural preservation. He was formerly associated with Deloitte Global Financial Advisory and was a part of a global team which dealt with financial crime investigations, anti-corruption due diligence and business intelligence. He enjoys poetry and is an ardent mountaineer.



Ankeetaa is lawyer, educator and a content writer with a passion for children’s rights. With an LL.M in International Children’s Rights from Leiden University, Netherlands, she wishes to make a difference by uplifting and protecting the rights of the children. She currently works as Project and Content Associate with a non-profit called Centre For Learning Resource.





Akanksha is an Analytics professional with 8+ years of experience. She has expertise in FMCG and Insurance domains. She is a believer in continuous learning and up skilling. She is gearing up for strategic and leadership roles in next phase of her career.




If you are interested in applying to GGI's Impact Fellowship program, you can access our application link here.



 

References


Top Environment and sustainability CSR Projects, at: https://csrbox.org/Top-Environment-and-sustainability-csr-projects-in-india

Study on Economics of Desertification, Land Degradation and Drought (DLDD) in India, at: https://www.teriin.org/project/study-economics-desertification-land-degradation-and-drought-dldd-india

The Economics of Immense Risk, Urgent Action and Radical Change: Towards New Approaches to the Economics of Climate Change, Nicholas Stern, Joseph E. Stiglitz & Charlotte Taylor, National Bureau of Economic Research, at: https://www.nber.org/system/files/working_papers/w28472/w28472.pdf

Paris Agreement, United Nations Framework Convention on Climate Change, at: https://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement.pdf#page=9

The Economic Potential of Article 6 of the Paris Agreement and Implementation Challenges, Carbon Leadership Pricing Coalition, at: https://www.ieta.org/resources/International_WG/Article6/CLPC_A6%20report_no%20crops.pdf

The Energy Conservation Act, 2001, India Code, at: https://www.indiacode.nic.in/bitstream/123456789/2003/1/a2001-52.pdf

The Energy Conservation (Amendment) Bill, 2022, PRS India, at: https://prsindia.org/billtrack/the-energy-conservation-amendment-bill-2022

The real value of carbon credits and why nature is more than a carbon sink, at: https://www.weforum.org/agenda/2022/01/nature-more-than-carbon-sink/

CCB Standards Climate, Community & Biodiversity Alliance, at https://verra.org/wp-content/uploads/2017/06/CCB_Standards_2nd_Edition_ENGLISH.pdf

Policy for Using CSR/ CER and Private Funds for Plantations through Joint / Community Forest Management Committees, at: https://csr.mp.gov.in/uploads/files/merge_from_ofoct.jpg

Landscape of Green Finance in India 2022, at: https://www.climatepolicyinitiative.org/publication/landscape-of-green-finance-in-india-2022/

What are Nature-based Solutions and why they Matter for India, at: https://www.ceew.in/blogs/nature-based-solutions-for-climate-change-and-why-they-matter-for-india



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