According to official reports, the Security and Exchange Board of India (SEBI) has sent a proposal to the government asking to amend the corporate social responsibility (CSR) provisions under Company’s Act, to include donations made by companies through Social Stock Exchanges.
Social Stock Exchanges (SSE) are a segment under stock exchanges where non-profit organisations that are working for social welfare can register themselves and raise funds after being listed. The concept of Social Stock Exchanges was first proposed by Finance Minister Nirmala Sitharaman during her FY20 budget speech. Both BSE and NSE run social stock exchanges.
Current CSR Law
Currently, under the Company’s Act, the companies are required to spend 2 per cent of their average net profit over the last three years for CSR initiatives that are listed in the act. The non-profits listed under Social Stock Exchange work for the same causes as listed in the Company’s Act. Even so, if the companies want to extend their support to these organisations under CSR, they can do so by making financial contributions directly to the organisation, but cannot do so through SSE.
The amendments to the Company’s Act as proposed by SEBI will allow companies to utilise the funds allocated for CSR to support organisations through SSE. According to SEBI, the minimum donation that can be made through SSEs is Rs. 50 lakh.
Purpose of SSEs
Social Stock Exchanges provide credibility to a non-profit organisation. It acts as a bridge of trust between a donor and recipient. This is because all the enterprises that are listed on an SSE are required to file a social impact report. This is an accountability measure which is supposed to be audited by a company secretary, cost accountants, or a chartered accountant (CA). The report must include details of activities of the organisation for the benefit of its donors. The first such report is set to be published in December 2024.
R Balasubramaniam, chairperson of Sebi’s special advisory committee on SSEs said at a seminar on SSEs in New Delhi organized by the National Stock Exchange, “The time is not far when donors will ask whether a non-profit organization is registered with a social stock exchange before moving funds.”
Donors can help the organisation listed under SSE by investing in Zero Coupon Zero Principal (ZCZP) securities. This is a unique asset that appears in a donor’s demat (dematerialisation) account, but does not yield any profits.
The main purpose behind introduction of SSEs was to provide information to potential donors about legitimate institutions for philanthropic donations. The principle of SSEs is to not provide financial returns, but instead focus on social returns – welfare of society, as per Sebi.
