The Social Stock Exchange (SSE) is a segment of the existing stock exchange, designed to help non-profit organizations (NPOs) and for-profit social enterprises raise funds. It’s a new approach to impact investing, where financial investments are made with the intent to generate social impact alongside financial returns.

Why the Need for SSE?

The UNDP estimates that India requires USD 1 trillion annually to meet the UN Sustainable Development Goals by 2030, and has a funding gap of USD 560 billion per year. The government alone may not be able to address this gap. This is where SSE comes into play, offering a platform to involve the private sector and High Net Worth Individuals (HNIs) in filling this gap, making it a crucial instrument for financing sustainable development in the country.

The Social Stock Exchange (SSE) also provides a solution to the common dilemma of donors who wish to help but are uncertain about the legitimacy of NPOs. SSE addresses this by acting as a trusted intermediary, connecting willing donors with verified NPOs with the required expertise and engaged in genuine social work. Thus, the SSE platform not only simplifies the process of finding credible NPOs but also amplifies the impact of donations by ensuring they reach the right hands.

How Can Investors Buy These Instruments?

Investors can buy Zero Coupon Zero Principle (ZCZP) instruments through the application form which will be available on website of Social Stock Exchange. In case of payment by way of Cheque/demand draft, the same shall be attached to the application form and should be submitted to the Registrar Transfer Agent (RTA) before the Issue Closing Date. In case of electronic Transfer to the Escrow Account then the Application must mention UTR no. and date of Transfer in the application Form. Every investor should mandatory have a demat account in any of the depositories in their name in which their ZCZP instrument will be reflected in case of allotment.

How Will the Update System Work?

The update system in an SSE typically involves mandatory reporting by the listed social enterprises. These entities are required to periodically submit detailed reports about their financial health, social impact, and any other relevant metrics. These reports are made available to investors, ensuring continuous monitoring and evaluation of the investments’ social impact.

How Will Transparency Be Ensured?

Transparency is usually ensured through rigorous listing standards, continuous disclosure requirements, and independent auditing. Social enterprises listed on an SSE will be required to adhere to specific governance standards and provide regular, audited financial and impact reports. This helps maintain investor trust and ensures that the enterprises are genuinely committed to their social goals.

Can You Actually Trade with These Bonds?

No, Zero Coupon Zero Principle (ZCZP) instruments are not tradable. These instruments serve as a unique bridge between social enterprises or charitable organisations and potential donors. Unlike traditional bonds or equities, zero coupon zero principal instrument don’t yield interest, nor do they return the principal amount upon maturity; instead, they operate as pure donations.

How is This Different from Donating Directly to NGOs?

Investing through SSE is different from direct donations. It offers a structured way to support social causes, with added benefits like transparency, legitimacy and potential tax benefits, not usually available with direct donations. Further, investing in stocks or bonds of social enterprises also provides a financial return potential. While investments in NPOs are purely philanthropic and don’t offer financial returns, investing in social enterprises is like impact investing where you aim for both social impact and financial gains.

How Will These Bonds Show Impact?

The impact of bonds/ZCZP instrument listed on an SSE is demonstrated through impact reporting. Issuers of these bonds are required to report on how the funds are used and the impact they generate, often verified by third parties. These reports detail the specific social outcomes, like improved learning outcomes, youth employed, entrepreneurs supported, etc., providing investors with measurable and tangible evidence of the impact of their investment.

In summary, the SSE is a pioneering effort in India, providing a transparent and structured platform for impact investments. It offers a unique opportunity for investors to contribute to meaningful social causes, backed by regular impact assessments and reporting.

The author Neeraj Ahuja is Associate Director (Mass Rural Entrepreneurship Program), Transform Rural India. Views are own.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of Economic Times)


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