SEBI’s Proposed Revisions to the Social Stock Exchange (SSE) Framework

Key Objectives of the Proposal

• Enhance transparency and accountability of Not-for-Profit Organizations (NPOs) and social enterprises listed on SSEs.
• Better align the SSE framework with the operational needs of NPOs and social enterprises.
• Improve governance, financial reporting, and the measurement of social impact.

Social Stock Exchange (SSE)

• What does an SSE do?
  • SSEs facilitate the raising of funds by social enterprises for social causes.
  • SSEs offer a clear and controlled atmosphere for raising money by social enterprises.
  • SSEs facilitate investors to invest in areas they believe in and can make some financial gains in return.
• Who can employ an SSE?
  • For-profit social enterprises (FPSEs), Not-for-profit organizations (NPOs), and Non-government organizations (NGOs).
• How does an SSE work?
  • Social enterprises can be listed on an SSE and, similar to a mutual fund, raise funds as equity, debt or units.
  • Social enterprises have to disclose their social impact.
  • Investors can engage with causes they believe in while potentially generating financial returns.
• What are the advantages of an SSE?
  • SSEs create a marketplace in which social impact is valued equally with financial performance.
  • SSEs help stimulate the ecosystem of outcome-driven philanthropy.

Proposed Changes to the SSE Framework

• Expanded Disclosure Requirements
  • Welfare and Environmental Activities:
    NPOs must disclose welfare activities for disadvantaged groups, vocational/skill training initiatives, and environmental conservation projects.
  • Governance and Financial Details:
    More specific reporting on governance practices, financial performance, and utilization of funds.
  • Social Impact Focus:
    Detailed disclosures on the social impact achieved, including metrics and outcomes.
• Legal Forms of NPOs
  • SEBI recommends including the following legal forms for NPO registration:
    • Trusts.
    • Charitable societies.
    • Companies registered under Section 25 of the Companies Act, 1956 (now Section 8 under the Companies Act, 2013).
• Reporting Requirements
  • Annual Disclosures:
    NPOs must submit annual disclosures within 60 days of the financial year’s close.
  • Financial and Non-Financial Reporting:
    Separate categories for financial (e.g., fund utilization) and non-financial (e.g., impact assessments) disclosures with updated reporting timelines.
• Terminology Changes
  • Replace “Social Impact Assessment Firm” with “Social Impact Assessment Organization” to reflect a broader scope of entities involved in impact evaluation.
• Improving SSE Operations
  • SEBI emphasizes operational adjustments to better serve the unique needs of NPOs and social enterprises, ensuring the framework is user-friendly and practical.

Current Status of SSEs

• As of December 2024:
  • 111 NPOs are registered on SSE platforms at the NSE and BSE.
  • ₹22 crore has been raised by 10 NPOs through Zero Coupon Zero Principal (ZCZP) instruments.

Expected Impact of the Revisions

• Transparency: Improved disclosures will enhance stakeholder confidence in the activities and outcomes of listed NPOs and social enterprises.
• Efficiency: Updated timelines and clear reporting categories will streamline compliance.
• Inclusivity: Expanding legal forms will encourage more organizations to participate in the SSE framework.
• Accountability: Emphasis on social impact ensures that funds are utilized effectively for intended purposes.