Sebi Proposes Broader Definitions for NPOs and Expands Social Enterprise Activities
Expanded Definitions for NPOs
The Securities and Exchange Board of India (Sebi) has proposed expanding the definition of Not-for-Profit Organizations (NPOs) to include activities like supporting disadvantaged groups and promoting arts and culture as social enterprises. Sebi also proposed allowing NPOs to register on the Social Stock Exchange (SSE) for up to two years without the need to raise funds.
Issues with Current SSE Framework
Many NPOs register with the SSE but do not proceed to listing or renew their registration due to the associated costs, such as annual reporting and social impact assessments. Sebi's consultation paper highlights these issues. The regulator aims to enhance clarity, expand eligibility, and improve transparency within the SSE framework through these changes.
Proposed Changes to the SSE Framework
The Social Stock Exchange Advisory Committee (SSEAC) has recommended several changes, including broadening the list of legal structures recognized as NPOs to include Trusts, Charitable Societies, and Companies. The committee also suggests expanding eligible activities to make the SSE framework more inclusive.
Expanded Eligible Activities
Key proposals involve adding welfare for disadvantaged groups, vocational skills training, environmental stewardship, and promoting arts, culture, and heritage. The scope for sports is expanded to focus on promotion rather than training. Research and development in fields like science and medicine, funded by public entities, are also included.
Enhancing Social Impact Assessment
Sebi proposes replacing "Social Impact Assessment Firm" with "Social Impact Assessment Organization." These organizations should have at least two full-time assessors with a minimum of three years of experience in social impact assessment and should be empanelled by self-regulatory organizations like ICAI, ICSI, or ICMAI. These organizations may employ or engage assessors long-term, emphasizing expertise and competence. The committee also suggests separating annual disclosures into financial and non-financial aspects with revised timelines and recommending separate impact reports for listed and significant non-listed projects.
Improved Governance and Reporting
The proposals include adding tax registration details for NPOs in initial disclosures, along with governance and remuneration information. Annual reports should include governance and financial details, using a logic model for impact reports. Updating governance body details in the reporting annexure is also suggested. Feedback on these proposed changes is sought until February 10.
The SSE framework, introduced in 2022, covers capital issuance, disclosure, and alternative investment funds. As of December 31, 2024, 111 NPOs are registered on the SSE segments of both NSE-SSE and BSE-SSE, and 10 NPOs have raised ₹22 crore through SSE by issuing Zero Coupon Zero Principal instruments. These efforts aim to make the SSE framework more inclusive and aligned with its regulatory goals.
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