[FAQs] Boosting Social Impact through Social Stock Exchange and Audit

A Social Enterprise is a Not-for-Profit Organization. A Social Enterprise can be any of the following entities:

• • A charitable trust registered under the Indian Trusts Act, 1882;
  • A charitable trust registered  under  the  public  trust  statute  of  the  relevant state;
  • A charitable  society  registered under  the  Societies  Registration  Act,  1860;
  • A company incorporated under section 8 of the Companies Act, 2013

The entity shall be a Not-for-Profit Organization or a For Profit Social Enterprise, who has established primacy of its social intent by engaging itself at least one of the activities prescribed[1].

Pursuant to SEBI Regulations[2], a  Not  for  Profit  Organization  shall  mandatorily  seek  registration  with a  Social  Stock Exchange before it raises funds through a Social Stock Exchange.

The Social Enterprise shall target[3] underserved or less privileged population segments or regions recording lower performance in the development priorities of central or state governments.

A Social Enterprise may raise funds through the following means[4]: –

(a) A Not-for-Profit Organization may raise funds on a Social Stock Exchange through:

• • • • Issuance of Zero  Coupon  Zero  Principal  Instruments;
      • Donations through Mutual Fund schemes;
      • Any other means as specified by the Board from time to time.

(b) A For-Profit Social Enterprise may raise funds through:

• • • • Issuance of   equity   shares   on      the   main   board,   SME   platform   or innovators’ growth  platform  or  equity  shares  issued  to  an  Alternative Investment Fund including a Social Impact Fund;
      • Issuance of debt securities;
      • Any other means as specified by the Board from time to time.

A “Social Stock Exchange”[5] means a separate segment of a recognized stock exchange having nationwide permitted to register Not for Profit Organizations and / or list trading terminals the securities issued in accordance with the provisions of Chapter X-A of SEBI (ICDR), Regulations, 2018.

The Social audit is a systematic and independent evaluation of an entity’s social and environmental performance, impact, and accountability. It involves an assessment of a company’s policies, practices, and procedures against established social and environmental standards and benchmarks.

As per ICSI[6], the “Social Audit” means an independent, qualitative and quantitative assessment regarding a Social Enterprise engaged in any of the activity enumerated[7].

The SEBI mandates[8] Social Audit of the Social Enterprise. The Social Audit Standards issued by the ICSI shall be complied by the Social Auditors empanelled with the ICSI Institute of Social Auditors who undertake the Social Audit assignment.

A “Social Auditor”[9]  means  an individual  registered  with  a  self-regulatory organization under the Institute of Chartered Accountants of India or such other agency,  as  may  be  specified  by  the  Board,  who  has  qualified  a  certification program  conducted  by the National  Institute  of  Securities  Market  and  holds  a  valid certificate.

Some of the issues which must be addressed by the Social Auditor are as under:

• • Will the project significantly impact the economic, environmental and social condition of the local community?
  • Will there be a significant change in the general access that the communities have to natural resources, such as drinking water and energy?
  • Does the local community have effective governance mechanisms to deal with the project’s long-term effects?
  • Will the project increase or decrease the demand for services, such as education or health?
  • Will the project produce any population or demographic movement, such as a change in the size of the communities affected by the project?

The main object of a Social Audit is to ascertain the impact made by the Social Enterprise through its activities, intervention, programs or projects implemented during the reporting period. Some of the key objectives are as follows:

• • Assessing the impact made by the Social Enterprise through the implementation of activities, interventions, programs or projects;
  • Verifying the authenticity and validity of implementation of activities, interventions, programs or projects;
  • To identify and report the gap between desired object and the actual impact made by the Social Enterprise;
  • Evaluating the cost and efficiency of the projects/ interventions being carried out by the Social Enterprise;
  • Verifying whether all the statutory requirements are fulfilled or not.

Some of the key benefits are as follows:

• • Social Audit assesses the source of funding, its utilisation and appropriate reporting to the Governing Body of the Social Enterprise.
  • Encouragement for social performance.
  • Improve relationships with Stakeholders.
  • Enhances Social Reputation.
  • Sense of Social Responsibility among Shareholders and the Community as a whole.

The Social Auditors empanelled under IISA shall maintain and preserve the records and evidences collected in the course of Social Audit for a minimum period of eight (8) years[10] from the date of the respective Social Impact Assessment Report.

The Report of Social Audit shall be as per the format notified by the ICSI from time to time. Presently, there is no prescribed format as per SEBI Regulations.