New Delhi: The Securities and Exchange Board of India (Sebi) has sent a proposal to the government to amend corporate social responsibility (CSR) rules in the Companies Act, 2013, to include donations made by companies through social stock exchanges (SSEs), an official said on Friday.
Speaking to reporters on the sidelines of a seminar on SSEs in New Delhi organized by the National Stock Exchange, Kamlesh Chandra Varshney, whole time member, Sebi, said that "The Companies Act has to be amended."
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Social stock exchanges, proposed by finance minister Nirmala Sitharaman in her FY20 budget speech, are a segment under stock exchanges where non-profit organisations that work for social welfare can be registered and listed to raise funds. The BSE and the NSE both run social stock exchanges.
CSR Amendments
Current CSR rules mandate companies to spend at least 2% of their average net profit over the last three years on any social welfare activities listed in the Companies Act, 2013. All organisations listed on SSEs operate in the same domains of social welfare mentioned in the Act, said Varshney.
Currently, companies can donate to non-profit organisations outside of SSEs under their CSR activities. They cannot, however, fund non-profit organisations through SSEs to fulfil their CSR mandate. For this, an amendment in Schedule VII of the Companies Act, 2013, would be necessary. Schedule VII of the Companies Act lists the activities that companies undertake for CSR.
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Sebi's proposed amendments would allow companies to carry out their CSR activities by donating to social welfare organisations through SSEs, Varshney said. "Not only retail investors, even the corporates will invest," he said. The minimum donation that can be made through SSEs is ₹50 lakh, per a Sebi notice issued in December last year.
SSE Impact
As many as eight non-profit organisations are listed on the NSE SSE currently, an NSE spokesperson said. “The time is not far when donors will ask whether a non-profit organization is registered with a social stock exchange before moving funds,” said R Balasubramaniam, chairperson of Sebi's special advisory committee on SSEs at the seminar. Representatives of the already-listed organisations who were at the seminar said they believed SSEs would have more than 100 listings by the end of FY25.
"This proposal is a welcome move and will help bolster the private philanthropy space and meet the deficit in India's social sector spending," said Rashmi Birmole, a senior associate at Finsec Law Advisors, a securities law firm. "SSEs will give credibility and visibility to social enterprises," she said.
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Donors can invest in Zero Coupon Zero Principal (ZCZP) securities issued by non-profit organisations, an innovative asset that will show up in a dematerialisation (demat) account but will not give monetary returns, as per Sebi. For-profit enterprises can raise funds using equity and debt instruments, like any other company listed on a stock exchange, a Sebi report said.
Social Impact Reporting
All enterprises listed on an SSE need to file a social impact report, an accountability measure which will be audited by a company secretary, cost accountants, or chartered accountant. The report has to detail the activities of the organisation to donors. The first such report is expected to be published in December 2024, said Varshney. "We have approached three bodies overseeing company secretaries, cost accountants, and chartered accountants to make an organization to assess social impact auditors and certify them with National Institute of Securities Markets (NISM) certificate. NISM has started the course to empanel them," Varshney said.
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One of the key challenges for social welfare organisations may be the high cost of compliance. "Not-for-profit organizations will have to engage in capacity building, because there is a lack of familiarity around innovative instruments like ZCZPs," said Birmole, the securities lawyer quoted earlier.
For donors, it may be the lack of financial returns on investment or inadequate information before donating. "There is no standard taxonomy or metric to assess or compare social impact," she said about donors' woes.
SSEs were introduced to provide information to willing donors to park their funds with legitimate institutions for charity. The principle of SSEs is to not provide financial returns, but instead focus on social returns - welfare of society, as per Sebi.
HomeIndustryBankingSebi seeks changes to CSR rules to include donations via social stock exchange
