A social stock exchange (SSE) is a concept that has gained attention in recent years as a mechanism for raising capital and investment for organizations that have a strong social or environmental mission.
While the specifics of SSEs can vary with different countries, the general idea is to create a platform or exchange where investors can buy and sell securities issued by entities focused on achieving positive social or environmental outcomes, in addition to generating financial returns.
Last year, on December 19th, the National Stock Exchange of India received approval from SEBI to set up SSE as a separate segment within its own domain.
It serves as a medium for enterprises to seek finance for their social initiatives, acquire visibility, and provide increased transparency about fund mobilization and utilization.
Any non-profit organization or for-profit social enterprise that establishes the primacy of social intent would be recognized as a social enterprise and will be eligible to be registered or listed on the SSE.
Corporate foundations, political or religious organizations, professional or trade associations, infrastructure, and housing companies (except affordable housing) would not be identified as social enterprises.
Under the plan to establish the SSE, a few financial instruments have been approved and notified, to date:
Mutual funds, where the returns on the parked capital (principal) would fund activities of social organizations, while the principal amount is potentially redeemable.
Social impact funds, with two working models of a 100% grant-in/grant-out model and a 25% grant-in/grant-out model also permitted.
A new instrument called Zero Coupon Zero Principal (ZCZP) bonds has been conceived and approved. These have a zero interest and no principal payment at maturity and may be issued to NPOs for social development projects/activities, in which the NPO has demonstrated expertise. ZCZP may not offer financial returns to the investor like conventional investment instruments, but they come with the promise of a social return on the investment to the funder.
In India, particularly, an SSE could go a long way toward inculcating professionalism, objectivity, and a culture of tracking, measuring, documenting, and reporting the social impact they are creating. The transparency and the opportunity to impact social change at scale is a clear win-win for all stakeholders in the ecosystem.
Overall, social stock exchanges represent a unique approach to aligning capital markets with social and environmental goals. They provide a platform for organizations and investors to collaborate in advancing their shared mission of creating a more sustainable and equitable world.
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