If SSEs could operate in India, they would ensure efficacious sustainable unity of the people, the planet and profits
Since the beginning of the financial year, investments aiming at higher returns along with a socially-desirable environmental impact are being stressed upon. This is why the concept of social entrepreneurship becomes even more relevant, especially in the wake of the UN’s 17 Sustainable Development Goals and the Paris Agreement at the UNFCCC 2015. The precedence varies from the UK, Canada, Mexico, Mauritius, Singapore and Brazil to the USA. The Indian economy, too, has realised the need to shape up entrepreneurship set-ups under Socially Responsible Investments (SRIs). Social enterprises in the country undoubtedly have a tendency to flourish, owing to the fact that India holds one of the highly-developed “social impact” networks among emerging nations. However, there are certain difficulties that such social enterprises deal with, the predominant one being the lack of funding.
In this backdrop, the concept of a Social Stock Exchange (SSE) is quite ground-breaking but definitely not novel. SSEs already function in some arrangements in the UK, Canada, Kenya and Singapore. However, the models may be different. SSEs are understood to be the platform that offers prospective investors opportunities to invest in social enterprises (SEs) so as to facilitate the realisation of welfare objectives in the larger landscape of financial inclusion and clean energy. SSEs are proposed as a key step in achieving the objective of attracting efficient, effective, transparent and scalable capital and investors with the combined elements of crowdfunding, donation, peer-to-peer lending and so on, so as to equip SEs and voluntary organisations with the wherewithal to meet their capital structure requirements. The fundamental question that needs looking into is whether SSEs would work like conventional stock exchanges or be governed by social and green businesses. Globally, it is often debated that the idea behind “impact investing” is that those putting in money can pursue financial returns while also intentionally addressing social and environmental challenges. It is believed that UN SDGs could be an answer to instrumentalise the universal Theory of Change. For the uninitiated, theory of change is a methodology for planning, participation and evaluation that is used in companies, philanthropy, not-for-profit and government sectors to promote social change.
Undoubtedly, SSEs could be considered the response from unconventional actors, namely private fund advisers who foresee real value in the form of a more holistic investment market by entailing viable Social Return on Investments. International markets have already supported bond issuance for social purposes. For instance, green bonds are debt instruments intended to raise funds for projects that have a tangible environmental benefit. Unlike successful precedents internationally, the Indian economy needs to strive even more prudently to accord compliance under environmental, social, governance investment standards. These could be a tailor-made solution to social woes where markets and governments fail. Broadly, such an exchange enables private capital to be mobilised for the public good. Indeed, this requires greater capacity-building on the demand side and education on the supply side of the market, especially in the context of the Indian economy. Additionally, sanctions from all stakeholders including investors, social businesses and the intermediaries become a prerequisite. Moreover, the concept of “impact investing” needs to grow exponentially so as to lure mainstream investors along with incremental incentives for them that could eventually reflect via reduced information and transaction costs. Indubitably, SSEs possess the potential of combining corporate social responsibility, financial prerogatives, venture philanthropy and sustainable development. Despite such a bearing, any sort of global framework that could prove to be the best class benchmarking approach to drive SSEs remains largely absent. The revisited philosophy should travel from responsible investments to sustainable ones to thematic ones to impact first investments. Only then can it realise competitive (social good) returns on the world stage with simultaneous independence from foreign aid. To get this right, enabling conditions and contextual factors should be vigilantly determined in advance towards the successful scaling of ecosystem synergies.
Of course, the regulatory, legal and policy implications of “impact investing” and SSEs should be the key policy agenda. It is vital that the SEBI, while launching the SSE, also comes out with the guiding principles of recruiting capable impact assessors. Worldwide, the SSEs founded so far are building progressively. Yet incremental change can be transformative in providing one mechanism to mobilise more capital for organisations that seek to address many of the current social and environmental problems. Likewise, rules must be put in place to coordinate trading, settlement and clearance to make SSEs a path-breaking move. If SSEs could operate in India, this would ensure efficacious sustainable unity of the people, the planet and profits.
(Jain is an Assistant Professor and Senior Research Scholar and Nagpal is a Senior Research Scholar at Delhi University)