India’s economic imperative is to feed, clothe, educate and empower more than a billion people in ways that conserve and grow its natural, cultural and social heritage. This cannot be achieved through the efforts of conventional commercial capital alone. By revolutionising the state of play in the social sector, the Social Stock exchange (SSE) is being designed to contribute to India’s social and economic development. Social Stock Exchange (SSE), created as a separate segment under the existing stock exchange, is a platform where securities or other funding structures are listed and follow procedures for funding selected entities that make and report measurable social impact. The concept of Social Stock exchange is built on the premise that private sector and non-profit sector can play a significant role in national development outcomes if more funding is made available to them.
The three dimensions of education, health and income are used by the Human Development Index to measure a country’s development achievements. India ranks 129 among 189 countries for the year 2019, thus, indicating the need for more funding to the social sector to achieve national development outcomes. According to a 2020 survey by the Global Impact Investing Network (GIIN), the impact investment market size is $715 billion globally. Social Stock Exchange has the potential to tap this vast pool of funds for social development, growth, innovation, and the creation of a sustainable ecosystem. While there are many funding channels in India – CSR, Impact investing, Socially Responsible Investing, philanthropy, government agencies, etc., it must be acknowledged that they work to varying degrees of effectiveness. SSE envisages the development of the social sector by enabling diverse funding channels to come together on a common platform with uniform frameworks in reporting, measurement and standards.
While both For Profit Organisations (FPOs) and Not for Profit Organisations (NPOs) operate in different ways and have different financing needs, SSE recognises the unifying elements, the common minimum reporting standards on social impact, governance and financials for both FPOs & NPOs. The Social Stock Exchange envisages to meet the following needs – Help social organizations commercialize their financing so that they can scale up operations and break their dependency on grant funding. Demarcate the difference between social and conventional finance by creating a separate marketplace for impact investments
Set up mechanisms for enforcing all these rules, such as clear de-listing conditions and accessible grievance mechanisms. Act as an agent of change in the social sector of India. Improve market access to social enterprises and increase transparency to investors. Establish a minimum reporting standard and social audits to boost market discipline and encourage healthy competition among social enterprises to help them achieve their impact goals. Bridge the gap between social sector and private capital. Reduce the trust deficit between government, markets, civil society, and citizens. However, SSE is an emerging concept and will mature over the coming years.
Till that time comes, it is important to be aware of the following risks – Chances of misuse of funds by ‘For-Profit’ organizations that raise funds through SSE. SEBI may have to keep amending certain regulations according to the actual performance of SSE in India. Risk of favoring larger, urban, or established organizations over grassroot, local or new ‘non-profits’. This publication issued by the Sustainability Reporting Standards Board of ICAI introduces some basic concepts of the Social Stock Exchange – the challenges and the opportunities that this new innovative idea presents.
The Bombay Stock Exchange (BSE) and the National Stock Exchange of India (NSE) being India’s two largest stock exchanges, they also have the unique distinction of being amongst the top ten stock exchanges around the globe. Furthermore, NSE has received the in-principle approval from SEBI to set up Social Stock Exchange as a separate segment of the NSE, while BSE has received its final approval for the same. 1 The objective of the traditional stock exchange & the proposed social stock exchange is similarto raise capital. However, the difference between the two lies in the utilization of this capital. A traditional stock exchange provides a trading facility, where public companies sell partial ownership of the company to the public, in the form of stocks. The funds received from these sales form the share capital. The public company’s main objective is wealth maximization of their shareholders.
On the other hand, the objective of the social stock exchange is to take capital markets to the masses; specifically, organisations working towards social welfare, in order to make it easier for them to raise funds. The first stock exchange was started in Amsterdam in 1611. There were 60 stock exchanges in the world with a total market capitalization of all publicly traded securities worldwide amounting to US $93.7 trillion (2020). There are a diverse number of industries and businesses listed on the stock market. The global first of the 7 Social Stock Exchanges was launched in 2003 in Brazil. The evolution of SSEs has been slow but consistent. As per a McKinsey Report titled ‘Impact Investing: Purpose Driven Finance finds its place in India’ (2017), Impact Investment in India could grow between $6 billion to $8 billion by 2025.
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