SEBI proposes Govt to include Social Stock Exchange Donations under CSR

SEBI Proposes Integrating Social Stock Exchanges into Corporate Social Responsibility Framework
SEBI - Social Stock Exchange - Corporate Social Responsibility - CSR framework - TAXSCAN

The Securities and Exchange Board of India ( SEBI ) has proposed an amendment to the Companies Act, 2013, aiming to integrate donations made through social stock exchanges ( SSEs ) into the existing Corporate Social Responsibility ( CSR ) framework. This move, if approved, could significantly enhance the landscape of social impact investing in India.

Introduced in the 2020 budget by Finance Minister Nirmala Sitharaman, SSEs operate within established stock exchanges like NSE and BSE. They function as dedicated platforms for social enterprises – non-profit organisations focused on tackling social welfare issues – to raise funds by listing themselves. Currently, eight such organisations are listed on the NSE SSE.

SEBI’s proposal seeks to address a key limitation in the current CSR framework. Companies in India are mandated to spend at least 2% of their average net profit over the past three years on CSR activities listed in Schedule VII of the Companies Act.

These activities encompass a wide range of initiatives, including poverty alleviation, education promotion, environmental sustainability, and cultural preservation. While companies can currently donate to non-profit organisations outside of SSEs to fulfil their CSR obligations, they cannot utilise SSEs for this purpose.

The proposed amendment aims to bridge this gap. By allowing donations through SSEs to count towards CSR spending, SEBI’s proposal presents several potential benefits. Firstly, it could significantly boost the visibility and credibility of social enterprises. Listing on a recognized platform like an SSE can enhance trust and attract more potential donors, including corporations seeking to fulfil their CSR mandates.

Secondly, the integration of SSEs into the CSR framework could promote greater transparency and accountability in the social sector. SSEs operate with stricter regulations, ensuring that funds raised by social enterprises are used responsibly and demonstrably contribute to their stated social impact goals. This increased transparency can further bolster confidence among corporate donors.

Thirdly, SEBI’s proposal opens doors for a more impactful form of CSR contribution – impact investing. Through Zero Coupon Zero Principal (ZCZP) securities offered on SSEs, companies can support social enterprises without expecting financial returns. These securities essentially function as donations, but with the added benefit of direct involvement in supporting a social cause.

Overall, SEBI’s proposal holds the potential to create a win-win situation for both companies and social enterprises. Companies can access a new avenue for fulfilling their CSR obligations while contributing to positive social change. Social enterprises, meanwhile, can benefit from increased funding opportunities, enhanced credibility, and a potentially more engaged pool of donors. The increased focus on social impact investing through SSEs could ultimately lead to a more robust and impactful social sector in India.

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