You, Me, the Social Stock Exchange and Carbon Finance

Earlier this week, the interim Lok Sabha budget was announced. I followed it with the same eagerness that I do every year, especially with a vested interest in finance and the facilitation of sustainability and green initiatives.?

Unlike last year, this year was much more stable in nature and more consistent.

My dear friend Mahima Mall , also made a beautiful infographic on this year’s budget and its rather sustainable allocation:

But this made me look at the financial imperative and its sustainable allocation a bit differently.?

A few months ago, I had written a three-article series on Green Finance. The necessity behind it, the way it works, and how one can access these sustainable finance tools and instruments - you can read the series here .

But I realised that the connection between Sustainability and Finance is much deeper. And it in reality starts from the Companies Act, 2013, which mandated Corporate Social Responsibility (CSR) for companies with a net profit of INR 5 crore or more.

Though CSR is considered to be preliminary and nascent to sustainability, Social Sustainability and People’s welfare empowers and facilitates greater impact and a rather behavioural change for a brighter future.

While CSR has enabled organisations to work actively towards community benefits and pressing issues like hunger, education, afforestation, etc. It is still through a non-profit organisation or a non-governmental organisation that an individual can be a part of social activism and implementation. In my Green Finance series, I had introduced sustainable finance instruments, including something called social impact investments. Where essentially the money you invest is utilised for a social cause which you can choose by virtue of your investment option, and the money keeps getting utilised for social good as well as yielding monetary gain through ‘good’ work. This is one of the very few avenues where an individual can directly choose to invest sustainably.?

India is a part of a few key countries with a regulated Social Stock Exchange (SSE), and when our Finance Minister, Nirmala Sitharaman and SEBI first declared the SSE open, they said how this was an action plan towards solving the fund crunch faced by social enterprises, how this would increase transparency and accountability to ensure proper utilisation of funds and how could philanthropy translate into profits.

Well, I was really excited that this is a direct venture into social impact by anybody, but it is not as transparent as it seems and public investment platforms don’t even have social investments listed in many cases.

Because, on a more realistic level, the SSE is still looked at as an extension of CSR, and it is rather big banks and corporates which are utilising these social funds.

Potential of-course lies in creating an ecosystem and leveraging the same because the SSE can be seen as a regulated umbrella tool for all NPOs and NGOs to come together and become more active as well as be more profitable.

The Bombay Social Stock Exchange has an openly available NPO eligibility platform , wherein if you are a non-profit organisation or under any arm of social or community service, you can list yourself and be a part of SSE and its inclusion. In corporate sustainability jargon, I can compare social investments to double materiality pretty conveniently. Because from a personal standpoint, one can rationalise their individual level of impact as well as monetary gains through the same.

While thinking of finance and sustainability, I had a rather extended and a very enriching conversation with Archit Batra , a senior Carbon Business Developer and one of the founding members of FairClimateFund | Certified B Corp India - a one-of-a-kind company working towards climate finance facilitating community impact with substantial base in the carbon markets sector as well.

Archit and I touched base upon a lot of topics related to carbon finance with an overall purview of sustainability-linked financial instruments.

When we break down the Social Stock Exchange as well as the Carbon Market, it can be compared very easily to the normal market, consisting of both, debt and equity.

I had introduced my readers to carbon credits and the carbon market earlier. And when we talk about carbon credits, they are also of several types.

There can be reduction credits, removal credits, EV credits, nature-based credit, renewable energy credits, etc. And since these credits are being utilised to offset an organisation’s carbon emissions, facilitating the journey towards towards carbon neutrality or net zero, the most trending thing works. Sustainability is still a buzzword for many, and sustainability intiatives can also be profiled under the same!

To take an example, in India, we are still heavily focused on solar and wind energy as a part of the renewable energy portfolio and a recent popular and successful model has been electric vehicles. So, companies would purchase carbon credits that focus upon these two avenues than other credit portfolios because that is not that normalised in India as yet.

Archit also explained to me how India is a very mixed market with our population being on extreme sides of money as well as poverty. And in an opportunistic market, every thing that is hot, essentially sells. What happened with crypto, is a good analogy for the same.

To foster a flourishing carbon market in India, regulations is key. We have seen how SEBI 's Business Responsibility and Sustainability Reporting (BRSR) mandate has enhanced transparency and accountability; and if something similar is done for carbon markets, India’s race towards being net zero can be escalated very well.

We also spoke about how it is actually very subjective.

The flag bearer in sustainability regulation has been the European Union. It is essentially because of a system of checks and balances, uniform laws for all countries consisting of the union, and eventually because of the wealth that the union has.?We cannot suddenly start putting a carbon tax on companies in India because we are still very fossil fuel intensive, and offsetting is always going to be a better option for India until we reach our goals. The carbon market as well as social instruments in India can be rather made mainstream through incentives for organisations as well as individuals. In my brain, it is much more psychological and behavioural at the same time.

Rewards for good behaviour yield better results and this universal strategy can be applied here as well.

The big players in the sector still remain oil and gas giants who can use carbon credits to their benefit, and money in the market also comes from such companies and wealthy global areas like the Gulf.

Lack of transparency is also a very big problem because when we talk about social bonds or climate finance, a person or an organisation will do it because of their conscience, or because of a mandate - and there is no in-between.

India also has, to my surprise, the Indian Energy Exchange and the India Carbon Exchange , which are not new but still nascent and are again based on the same model of the stock market.

While this article might sound more critical than resourceful to some, I think recommendations and suggestions are fundamental to our own civic duty. And as was optimistic as Archit was, he believed and so do I, that we just need to be patient, be involved, and focus on covering genuine gaps like climate education, the need for climate finance, what is net zero, why is impact creation important and likewise.?

It has been a very long article, but if you have reached here, thank you so much. Your inputs and feedback really matter to me, and if you feel you can help me take my article to a bigger platform or to a rather important individual or organisation - it would be extremely helpful.

Thanks a ton!