What due diligence is, and what the law expects

Due diligence is the work a funder does before it commits money, to answer three questions: is this organisation eligible to receive CSR money, is it capable of doing the work well, and is it the right fit for this project and these communities? It is done by the CSR team itself, or by an agency the company appoints and supervises. Either way, the decision and the responsibility stay with the company.

What the law asks of the company

Neither Section 135 nor the CSR Rules use the words “due diligence”. But several duties can't be met without it:

• The board ensures CSR is properly delivered. Under Section 135(4) the board approves the CSR policy and ensures the activities in it are undertaken. Rule 4(1) says they must be carried out by the company itself or through an eligible implementing agency.
• Agencies must be eligible. Rule 4(1) lists the kinds of organisation that can implement CSR, and Rule 4(2) requires each to hold a CSR registration number from Form CSR-1. Money routed through an ineligible organisation may not count towards the company's obligation.
• The committee plans the manner of execution. Under Rule 5(2), the CSR committee's annual action plan sets out each project, how it will be executed, how the money will be used and on what schedule, and how it will be monitored and reported.
• The board must be satisfied about the money. Rule 4(5) requires the board to satisfy itself that funds disbursed were used for the purposes and in the manner it approved, and the chief financial officer, or the person responsible for financial management, certifies this.
• Ongoing projects are monitored. Rule 4(6) makes the board monitor ongoing projects against their approved timelines and yearly budgets.
• Agencies are disclosed. The annual report on CSR and Form CSR-2 name the implementing agencies and their CSR registration numbers, and the notes to the accounts disclose contributions to related parties, such as a trust the company controls.

What due diligence is not

• Not an audit. You're not re-doing the NGO's statutory audit. You're reading it, asking questions and judging the answers.
• Not a guarantee. Good due diligence lowers the risk; it can't remove it. That is why agreements, tranches and monitoring follow.
• Not a stamp from someone else. A registration, an award, a listing or a profile on a platform shows something exists. It doesn't tell you this partner is right for this grant. Stories and profiles on SocioStory can help you discover NGOs, but SocioStory doesn't verify NGOs' compliance, finances or work, so they never replace your own checks.
• Not a hunt for reasons to say no. The aim is to find good partners and understand the risks well enough to manage them.