Opinion
Why NSE’s Social Stock Exchange is just what India needs
Summary
- Sebi’s framework for this new exchange segment is envisaged as an electronic platform for raising funds by both not-for-profit and for-profit organisations.
Over a year ago, the annual Hurun report, which tracks philanthropists and their contributions, pointed out quite rightly that current day billionaires aren’t quite keeping up with philanthropy. The message was that they were making money much faster than they were giving. That will surely echo with most Indians, as the equality divide widens.
India may have a rich legacy of giving – led by the founder of the Tata group, Jamsetji Tata, and the relatively newer lot of entrepreneurs such as Azim Premji, Shiv Nadar and Nandan Nilekani. And there are many who prefer to contribute anonymously to many social causes or projects. There is also a growing number of people who are willing to invest or put money but are unsure whom or where to give and to track outcomes. It is equally a challenge for over three million of what are called Non-Governmental Organisations or NGOs in India to tap such potential donors or investors.
The National Stock Exchange of India (NSE) received in-principle approval from market regulator Securities Exchange Board of India (Sebi) on December 19, 2022, to set up its Social Stock Exchange (SSE) as a separate segment of the NSE.
Though late in the making, the soon to be launched Social Stock Exchange, three years after a budget announcement in 2019, could provide a platform to help bridge this gap. It is a concept which has been tried out in countries such as UK, Canada, Singapore, South Africa and Brazil. Sebi’s framework for this new exchange segment is envisaged as an electronic platform for raising funds by both not-for-profit and for-profit organisations. That could be in the form of equity or debt, units and new instruments such as the recently notified zero coupon zero principal bonds. It would mean listing on this new segment after a vetting process which would entail the issuer – the social enterprise – signing up for disclosures and reporting standards including on financials, governance and an annual impact report. This should lead to the emergence of a new class of social auditors and hopefully a rising number of social entrepreneurs.
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On the face of it, the more professionally run social enterprises should attract investors or donors. India was the first to mandate companies to set aside a part of their average annual profits of the last three years to spend on development sectors or projects in a few areas. In FY 21, Indian companies spent ₹24,865 crore as part of Corporate Social Responsibility (CSR). Of this, close to ₹7,000 crore was in the health sector. The government says close to 60% of this spending is in areas such as education, healthcare and rural development. Clearly, Indian corporates can and should be spending more.
But that would mean much more management and board-level bandwidth and investment in identifying, monitoring and ensuring outcomes. That is a challenge specially for medium and small firms with limited resources and reflected in the number of prosecutions for not conforming to government norms on CSR spending.
A social stock exchange should help tick many of these boxes, easing worries of investing valuable time by managements. So would fiscal incentives for social investing which have been proposed.
It is not just the Sustainable Development Goals and the country’s commitments to those which may have prompted the government to back this Social Stock Exchange. For a government perceived to be hostile to NGOs, especially those receiving foreign funds, nudging more of them to raise money through this platform could mean a greater regulatory gaze and channelising of money. Equally, given recent moves by government agencies against some not-for-profit enterprises too, this may also put off investors who have so far preferred to remain in the background. This is best addressed by the government, the regulator, the NSE and BSE which will offer the platforms for fund raising, making it incumbent on them to go the extra mile in due diligence to ensure that the early listings help boost confidence and attract more investors and donors.
For the exchanges and the government, there is much to do, especially the task of evangelising the concept of social investing over the next few years. This will call for building a team which understands social investing and its impact; investing generously in building awareness, both from the corpus of the exchanges Investor Protection and Awareness Funds and that of the government; light-touch regulation in the early stages; and working on convincing investors and donors to put money in the social sector in not just India’s over half a dozen developed states but also in the hinterland through capacity-building programmes, delivery systems and emerging areas.
Finally, India’s policy makers should also be mindful of the sobering fact that the going has been tough for the few social stock exchanges in other jurisdictions. Including countries where social investing isn’t as much of a challenge as it is here.
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