Investing for Impact: Social Stock Exchange in India

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The Social Stock Exchange (SSE) is envisioned as a regulated stock exchange that will bring together non-profit organisations (NPOs), for-profit enterprises (FPEs), donors, and investors to direct more capital towards the development sector. The National Stock Exchange of India (NSE India) received in-principle approval from the Securities Exchange Board of India (SEBI) to set-up SSE as a separate segment in December 2019. In November 2022, a detailed framework for the SSE, specifying minimum and compulsory organisational disclosure requirements for NPOs and FPEs, was published by SEBI.

India sees a combined capital inflow of over USD 10 billion, to the development sector, from philanthropic organisations, impact funds and others, underscoring the potential for an SSE to bridge the gap between the development sector, and philanthropic and private capital. There is much potential for SSEs in India, where more than 3.1 million Non-Profit Organisations (NPOs) and 220 For-Profit Enterprises (FPEs) saw a capital investment of USD 1.6 billion in 2016.

In the wake of the economic downturn brought by COVID-19 pandemic in India, the SSE could also be helpful in rebuilding the livelihoods of people who were affected. SSE can provide a unified funding channel, to the listed Social Enterprises (SE), including NPOs and FPEs, thereby giving the potential to uplift those enterprises that are working with the population at the bottom of the socio-economic pyramid. Further, with SEs impacted due to the COVID-19 induced lockdown, SEBI had recommended direct listing of NPOs and FPEs through the issuance of bonds and a range of funding mechanism.

Globally, countries like Brazil, Portugal, South Africa, Jamaica, the UK, Canada & Singapore have already established Social Stock Exchanges (SSE). However, only the ones in Canada, Jamaica and Singapore are active. This is because of the lack of a common taxonomy or metrics to measure social and environmental impact. This combined with self-assessments and self-reporting by listed organisations led to capturing only outputs, not outcomes or impact. The composition and nature of eligible listed enterprises also varies.

In India, NPOs and FPEs with strong social intent and impact as their primary goal will be eligible to participate in the SSE. Such an intent should be shown by its emphasis on social goals that are appropriate for under-served or less privileged sectors, populations or areas. The NPOs and FPEs aspiring to be listed on SSE will have to engage in at least one social activity out of 17 broad activities listed by the SEBI. These include promoting healthcare, education, employability, and livelihoods; eradicating hunger, poverty, malnutrition, and inequality and supporting incubators of social enterprise and gender equality empowerment of women and LGBTQIA+ communities, among others.

The SSE ecosystem aims to empower NPOs/FPEs to understand the platform, the process and stakeholders involved, and deploy adequate awareness across the ecosystem through three primary initiatives. The Capacity Building Fund will be established to assist ready or near-ready NPOs to understand stakeholders and the process of the SSE. Social Venture Funds (SVFs) will be promoted among investors and donors as an alternative, consisting of investment funds pooled in together which can then be used in investing private equity, hedge funds and so on. Social Audits to improve organisation’s social and ethical conduct will also be undertaken.

Looking ahead, six key steps would be crucial to shape the Indian SSE:

  • A blended revenue structure involving ideation and identification of various revenue structures
  • Establishing standardised data collection, measurement and reporting frameworks to measure developmental, financial and environmental
  • Building awareness among the NPO community about the advantages of listing on the SSE, as it would be crucial in expanding the scope of
    investment transactions
  • Encouraging NPOs and FPEs working in the Aspirational Districts (ADs) to list on SSE and featuring them could attract more investments to ADs.
  • Easing tax deduction restrictions could significantly encourage donations and investments.
  • On the basis of global learnings, the ecosystem should avoid an “all at once” approach and continue to refine the working of the SSE, as it grows.

Authors: Piyush Agrawal and Palagati Lekhya Reddy.

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