Social Stock Exchanges: A Chance to Invest into Our Future

Source: This post is based on the article “Social Stock Exchanges: A Chance to Invest into Our Future” published in Livemint on 1st September 2021.

Relevance: Social Stock Exchange

Synopsis: The concept of a Social Stock Exchange is a worthy idea, but still needs deliberation and consultations with all stakeholders.

Context

The Securities and Exchange Board of India (SEBI) constituted a 15-member working group on a social stock exchange (SSE) in September 2019.

Need for a Social Stock Exchange

1. To enable Non-Profit Organizations to raise money from the market by registering and listing on the SSE.
2. It would enable the use of market instruments for investing in social endeavors.
3. The SSE would boost both corporate and individual investments in social and ecological projects.

Proposals by the working group

• First, the working group has proposed that first-time retail investors be allowed to avail of a 100% tax exemption on a maximum investment of ₹1 lakh in an SSE mutual fund.
• Second, it has proposed doing away with the 10% cap on income eligible for deduction for donations to NPOs that benefit from the SSE.
• Third, the SSE is also meant to aid for-profit social enterprises (FPEs). The working group has not defined an FPE, and it has left it to enterprises to choose whether they want to be categorised as a social enterprise and consequently commit to additional reporting on social impact.
• Fourth, the SSE technical group notes that an FPE can list on the stock exchange provided it is a company registered under the Companies Act 1956/2013.
• Lastly, to enhance transparency the working group’s proposals ask that NPOs furnish more rigorous assessments of the social impact and shift towards outcomes-oriented measurement. It also places emphasis on the role of social auditors for independent verification.

Issues/concerns

1. First, since the working group has proposed a five-year tax holiday for FPEs listed on the SSE, it could be potentially misused and used as a tax-saving vehicle.
2. Second, the SSE seeks to give the NPO sector transparency by mandating increased reporting. However, it leaves out smaller NPOs from the SSE’s ambit.
3. Third, it also risks alienating organizations whose or impact may not be amenable to adequate data capture. For instance, NPOs involved in environmental justice and digital rights where the existing systems and processes are stacked against them.
4. Fourth, the SSE technical group lays down protocols for social auditors, but the worry is that middlemen agencies might emerge. They may gain unchecked influence over the SSE-NPO-donor ecosystem due to lack of checks and balances.

Conclusion

Fund-raisers such as social stock exchanges that go beyond a narrow set of quickly measurable outcomes need a proper plan.