Shaping the Design of the Social Stock Exchange
Background
Hon’ble Finance Minister Nirmala Sitharaman, in her budget speech in July 2019, called for the creation of a Social Stock Exchange (SSE) to help non-profits and social enterprises unlock a mainstream pool of impact capital and resources to support their work; a pioneering initiative which promises to take capital markets closer to the inclusive growth agenda.
Envisioned as an electronic platform, an SSE will bring together social purpose organisations and investors on a common platform. On this platform, investors, like in any other stock exchange, will be able to buy shares (trading of securities or potentially debt, in the form of bonds) of listed entities — in this case of a social purpose organisation which has a mission aligned to their interests. On the exchange, a listed entity’s value will be linked to its social impact.
Sattva worked with Mr. Amit Chandra (A.T.E. Chandra Foundation), official member of the SEBI working group, to incorporate the experience and feedback of institutional funders and foundations into shaping the design of the SSE.
Sattva consulted institutional funders through an online survey (responded by 52 funders across archetypes – CSR, domestic foundations, global foundations) and qualitative consultations (in-depth theme-based discussions with 16 organisations). To capture retail donor insights across the country, Sattva conducted computer aided telephonic interviews across 3 Tier I and 5 Tier II cities and circulated an online survey campaign through social media. Sattva collected 400 responses stratified across 8 cities and income levels on attractiveness of the proposed SSE.
Key Findings
1. Massive opportunity in unlocking convenient capital from the institutional funders. Incentives for adoption by institutional funders are critical to figure out. To enable adoption and pool in diversified capital, ‘alignment with existing laws’ is critical.
2. 73% of respondents seem keen on adopting the SSE and over 60% active retail donors were willing to shift to the SSE.
3. SSE is perceived to play a critical role in unlocking capital through diverse financial instruments and to increase outcome accountability of both funders and non-profits. In addition, 62% CSR and 83% HNWIs mentioned the platform has a significant role to play to reduce Individual Funder due-diligence efforts.
4. 82% CSRs felt alignment with existing laws is the most critical enabler, while 79% domestic foundations identified sustainability of the SSE business model as the most critical enabler to SSE.
5. 97% CSR’s identified ‘Challenges with legal structures – CSR law, Tax law, legal structures of SPOs’ as a high-risk barrier.
6. Almost all institutional and retail donors called for the inclusion of financial statements, compliance metrics and independent impact evaluation for social purpose organisations registered on the SSE portal.
The full report can be accessed below.
Shaping the Design of the Social Stock Exchange
In addition to these findings, the final recommendations had additional inputs from social enterprises, non-profits and from a roundtable on innovative finance instruments. With the first level of recommendations submitted, the next steps which are underway, are specific task forces to deliberate on various design aspects such as the credibility framework, impact reporting framework etc. We hope to have an update about these deliberations in a few months from now.
Would you like to partner with us to further the conversation around the potential of social stock exchanges? Write in to impact@sattva.co.in.
