The Promise of the Indian Social Stock Exchange

In a world rife with social, environmental, and humanitarian challenges, Non-governmental Organisations (NGOs) are tirelessly working towards positive change. #WorldNGODay serves as a reminder of the invaluable contributions these organisations make in addressing pressing global issues. This year, the theme “Building a Sustainable Future: The Role of NGOs in Achieving the Sustainable Development Goals (SDGs)”, underscores the critical role NGOs play in advancing sustainability.

In India, over 3 million NGOs engage in critical development activities. However, their financial health doesn’t always inspire confidence as raising funds remains a big challenge. In a study conducted by Sattva Consulting, we analysed the incomes of 176 of the largest Non-governmental Organisations (NGOs) in 2019-22 and just 19 nonprofits earned over ?100 crore in 2021-22.

Reliance on foreign donations and inconsistent funding streams hinder the operations of remaining non-profits in India. Parallely, over the years, the landscape of philanthropic capital in India has also transformed, especially with the introduction of the CSR mandate, contributing to the growth of philanthropic funds. Recent data anticipates family philanthropy in India to achieve approximately an 18 per cent CAGR from FY22 to FY27. Despite these positive developments, the efficient convergence of these funding opportunities has yet to materialise and philanthropy grapples with uncertainty around optimal fund allocation and impact tracking metrics.?

One such measure towards enhancing transparency in fund allocation and impact tracking is the Social Stock Exchange (SSE). First mooted by Nirmala Sitharaman in 2019 budget speech, the SSE holds the potential to connect a vast network of these 3 million NGOs, and facilitate a substantial annual capital influx of ~?60,000 crores. In February 2023, SSE achieved a noteworthy milestone with formal approval from SEBI, firmly establishing its position as a regulated entity. Operating under SEBI's supervision, SSE is now integrated into both the NSE and BSE, providing a regulated platform for socially responsible investment initiatives.

Globally, countries like Brazil, Portugal, South Africa, Jamaica, the UK, Canada & Singapore have already established SSEs. However, only the ones in Canada, Jamaica and Singapore are active. This is due to the lack of a common taxonomy or metrics to measure social and environmental impact. This combined with self-assessments and self-reporting by listed organisations has led to capturing only outputs, not outcomes or impact. The composition and nature of eligible listed enterprises also vary.

In the Indian context, particularly for NGOs, the establishment of a SSE has the potential to bring in efficiency by:?

1. Streamlining reporting and compliance: For both investors and social organisations, the SSE can provide a unified reporting framework, while ensuring transparency and accountability in the utilisation of funds.?
2. Expanding reach and inclusivity: SSE has the potential to promote inclusivity by welcoming a diverse range of organisations, including for-profit entities, and in future, collectives like federations and Self Help Groups (SHGs), that face issues in seeking funding. This will also enhance visibility of smaller organisations and enterprises working towards social impact on a common platform.?
3. Enhancing funding, and impact data availability: Like CSR funding data from Ministry of Corporate Affairs (MCA), SSE has the potential to enhance data availability within the impact sector, by providing information on funding flows from investors (family foundations, HNIs, retail investors), trends on sectors, geographies that are receiving investments, and provide analytics on effectiveness of social investments, and funding gaps/opportunities.?
4. Unlocking greater, and diverse capital for a single listed project from various stakeholders such as HNI/HNWIs, family foundations, retail investors, private capital, and impact investors (CSRs and corporate foundations are not allowed to channelise funding yet).?
5. Providing investors with access to a curated pipeline of social and environmental impact projects for investors, and potential for financial returns alongside measurable social impact.

However before registering and listing on the SSE, NGOs should:

1. Understand the SSE landscape thoroughly and engage in self-reflection on readiness: NGOs must prioritise thorough feasibility assessments, evaluating their preparedness to meet stringent SSE compliance requirements and navigate regulatory complexities. Introspection on whether listing is a viable option ensures informed decision-making and helps sidestep potential pitfalls.?
2. Clear dues promptly and be cognisant of third-party interventions: It is essential to clear tax or notice dues that the NGO might have as soon as this can be a major point of interjection, further halting the process. There could also be scrutiny and hygiene checks on the related parties to the NGOs and their workings, so the NGO is advised to decide to list accordingly.?
3. Be open to collaboration: The journey of various organisations who have successfully registered on SSE highlights the invaluable role of partnering with experts and intermediaries from onboarding to regulatory navigation. Active engagement with the SSE council, known for responsiveness and support, facilitates a smoother integration process.
4. Develop a funder pipeline before listing: One of the reasons for success could stem from targeted outreach to diverse investor segments, including high-net-worth individuals and philanthropists. NGOs should proactively initiate conversations with funders and not wait until the listing begins.?
5. Committed and proactive leadership: Active involvement of key decision-makers at every strategic step is essential for SSE participation. Their commitment ensures strategic oversight and timely decision-making, contributing to the organisation's seamless onboarding on the platform.?

We recognise that streamlining the procedural aspects of the registration and listing process can be relatively new for NGOs, potentially compounded by limited familiarity with industry jargon and documentation intricacies. This poses an impediment to unlocking the benefits of SSE. In collaboration with SGBS Unnati Foundation, the first non-profit in India to list on SSE, we are currently developing an easy-to-understand practical toolkit leveraging insights from their listing journey. In the toolkit, we also address potential pain points that the NGOs might face and offer recommendations to navigate the same. The toolkit is expected to launch in March, however, in the meantime, you can check other resources on the Social Stock Exchange below.?

• Our 101 primer on Social Stock Exchange here
• How can SSE be harnessed to support FPOs and what steps need to be taken in future to enable the same here
• Webinar with Hemant Gupta, Head- BSE SSE, to understand the current ins and outs of its working, interesting fundraising instruments that will be incorporated and potential of SSE in future- here
• Webinar with Unnati Foundation, the first NGO to list on SSE in India, to understand their end-to-end journey from registration, listing to raising funds- here