The advent of the Social Stock Exchange (SSE) in India - MMJC

The advent of the Social Stock Exchange (SSE) in India

The manoeuvre towards setting up an SSE began in July 2019, when India’s Finance Minister proposed the same as a way to elevate capital, through debt, equity or mutual funds, for enterprises working to advance social welfare. The establishment of SSE is under the jurisdiction of the Securities and Exchange Board of India (SEBI) – the watchdog for the country’s securities and commodity market. Eventually, a working group was operationalized, which then released a report in June 2020 that outlined a comprehensive approach for setting up SSE.

On September 28, 2021, the board then approved the creation of the SSE. Subsequently, on July 22, 2022, SEBI amended and inserted Chapter IX in LODR Regulations and meanings of various words like social impact fund, and social unit in AIF Regulations.

SEBI then introduced the framework for modus operandi for SSE on September 19, 2022.

The SSE shall act as a trading platform to raise capital for social enterprises, making several fundraising instruments available under the regulatory guidelines for these enterprises. It shall provide enhanced market access and visibility using the SSE platform, giving them the requisite opportunity to raise capital through impact investing, philanthropy, corporate social responsibility and government funding.

The SSE establishes the reporting standards and specify a criterion for social impact assessment for enterprises listed on the exchange, subsequently leading to improving market discipline and stimulating healthy competition amongst them to achieve SDG goals. The intent is to safeguard the investor’s interest. This will help the SSE leverage the existing infrastructure and build client relationships to onboard investors, donors, and social enterprises.

The purpose to build the regulatory framework is to encourage compliance, be as much transparent as part of the governance mechanism, give out requisite disclosures and avoid conflict of interest. The key aspects of the framework include: –

• Minimum Registration Requirements
• Minimal Initial Disclosure Requirements
• Annual Disclosure Requirements
• Annual Impact Report at the end of the financial year
• Statement of Utilization of Funds
• Social Audit
• Impact Scorecard

Building on the learnings acknowledging the Indian context – some key aspects for setting up an effective SSE in India include the following: –

• Innovation, learning and regulation are key drivers of the SSE’s development, but the regulator should avoid an “all at once” approach unlike consistently refine the working of the SSE as it grows.
• The SSE has created a structured strategy to onboard, screen and scale funding to impactful social enterprises.
• The platform shifts investors’ focus from seeking financial returns to building reputation through social impact.
• The SSE in the future course is expected to build social enterprises’ ability to attract sufficient capital by mobilizing funds from investors.

The SEs shall focus on improving governance, managing operations, addressing key financial issues, maintaining credibility, create a social impact and risk management mechanisms.

While the momentum behind the creation of an SSE represents a promising step towards building India’s impact investing ecosystem, it is just the dawn. The enabling regulatory environment created for SSE is to accomplish the outcome. The same ensures minimal barriers for the on-boarding, reporting, and overall functioning of social enterprises.  The SSE has the opportunity to create the requisite infrastructure to adhere to the framework in order to get the desired outcome.

Pradnesh Kamat – Partner