CSR's Social Impact Assessment In India & Social Stock Exchange


* Birendra K Jha
Practitioner "Social Impact Assessment Audit"; "Social Audit"; "CSR Audit";  Qualified Member of the Institute of Social Auditors of India; Director, HR Lab

The SEBI (LODR) Regulations 2015, Amendment 2023, has moved one step further and defined clearly the "Social Impact Assessment" Audit and the "Social Auditor" and clearly given the Qualification norms of the "Social Auditor". This definition is absent in the Company Law 2013 so far. This law is immediately applicable in all the SEBI listed companies. The CSR compliance for the SEBI listed Companies, shall have to go with the new SEBI Law. 

The important part of the SEBI Law change this year is not only the clear definition and direction on the   "Social Impact Assessment" Audit and "Social Auditor", but has also added another wing on the social economy. This is  the creation of the Social Stock Exchange. Now fund scarcity NGOs, who begs for CSR fund or Government funds, have  bright prospects ahead, if they have excellent portfolio. NGOs registered in the Social Stock Exchange, shall have to provide every year, duly audited, Social  Impact Assessment Audit Report, to the Social Stock Exchange compulsorily within 90 days from the end of Financial Year. The Social  Impact Assessment Audit Report, is crucial part of the new frame work. This is audited by a Qualified Social Auditor, who is a Registered Qualified Member of the Institute of Social Auditors of India, ( now working under the Institute of Chartered Accountants of India at Mumbai ).  

The ZCZP instrument has been declared by the Finance Ministry  as securities. This shall help the CSR arrangement to provide proper route to the funding structure. As the name is clear, the zero coupon zero principal instrument is an instrument issued by a NGO for raising fund. This is registered at the  social stock exchange as per SEBI Law. 

This is the plan of Ministry of Finance to provide grant and assistance, which is now through the "Niti Ayog" Darpan Portal, to get it shifted to the Social Stock Exchange. This is done in order to remove wide scale inefficiency, slow achieving target of the SDG Goal and large scale corruption prevalent in the  Government donation and fund support. The Government has seen in the Andhra Pradesh experiment, that the social projects, do suffer from wide scale corruption. The compulsory provision of the Social Audit at Andhra Pradesh so far has detected Rs 142 Crore and has undertaken criminal trial by the fast track court leading to suspension and termination from service of responsible officers. The Andhra Pradesh and Telangana Government has enacted new Law and has linked "Social Audit" with the "Prevention of Corruption". As per enacted Law, now  "Social Audit" Report is deemed itself an enquiry report for disciplinary action against the defaulter.    

In order to strengthen the Social Sector and to make it more transparent, accountable and free from corruption,  the Zero Coupon Zero Principle ( ZCZP) has been introduced to fund the social sector. This funding shall be allowed now through the Social Stock Exchange, having nationwide terminal, which shall be another wing of the National Stock Exchange.  
 
ZCZP operates in following frame:  

1. ZCZPs is issued in dematerialized form only. 
2. The minimum issue size is Rs. one crore. 
3. The minimum application size is Rs. two lakhs. 
4. The minimum subscription is  75% of the funds proposed to be raised through issuance of ZCZPs. 
5. Only institutional and non-institutional investors are allowed to invest in the ZCZPs of the NGOs


This new SEBI Law, on the "Social Impact Assessment Audit" of CSR Projects  is applicable on the entire SEBI Listed Companies including entities listed on the Social Stock Exchange, with effect from this year.  So far hitherto, many unqualified people have been auditing the "Social Impact Assessment" report. This poor practice has been terminated here. Any "Social Impact Assessment" Audit report of the SEBI Listed Companies, without Qualified Social Auditor, shall attract major  punishment for violation of the SEBI Laws. This is specific duty of the Board of Directors and Company Secretary to ensure this provision. Any failure of the SEBI Law, the minimum fine is Rs one lac and  maximum is Rs one crore. Wherever, Company Law 2013 is only applicable, the definition of the "Social Impact Assessment" Audit and the "Social Auditor" is required to be borrowed from the SEBI Law. The Government of India and SEBI both have  directed Department of Corporate Affairs and Income Tax Department, to bring immediate change in the relevant provision, according to the SEBI Law. 

The SEBI has directed the Institute of Chartered Accountants of India (ICAI), to come out with standard formatted procedure on the Social Impact Assessment Report. The ICAI has introduced 16 Social Audit Procedures Guideline covering various sectors. The Qualified Social Auditor shall now follow the ICAI Guideline and audit the Social Sector Area including the CSR Projects.  

Currently, there are several windows for raising funds by NGO and For Profit Social Enterprise (FPE).  Now NGO mostly begs for CSR funding and depends upon donations/philanthropic contributions from companies/individuals and funding from the government on  social development.  For FPE, it includes funding under "impact investment" and "Socially Responsible Investing" (SRI).

However, many investors find it difficult to identify good NGO, out of  near about  3.3 million NGOs  in India.  This is a big challenge for the Government as well as investors. Government fund ends up mostly with corruption and illegal use of fund. As there is lack of transparency and accountability. This has been eliminated through compulsory Social Audit by the Qualified Social Auditor. The Social Auditor shall ensure transparency and accountability of fund. This shall also  reduce the probability of risk in initiating CSR projects with poor outcomes and impacts.  This process will send a boosting market signal, giving positive  confidence to the  investors.

The tax incentives to investors on Social Stock Exchange, is underway. Section 80G of the Income Tax Act, benefits will also be made available to the investors, allowing all   investments in securities/instruments of NGOs  listed on the Social Stock Exchange for tax  deduction. Corporates shall be able to  deduct CSR expenditure from their taxable income, which shall be a big move in the Corporate business. 

( The writer is a Pan India Practitioner on the "Social Impact Assessment Audit"; "Qualified Social Auditor" under SEBI Law & Company Act. He heads "Social Audit Firm" HR Lab as its Director. This firm provides services  on the "Social Impact Assessment Audit" &  "Social Audit". He provides consultation on the CSR Program Need Assessment; CSR Program Measurement; Entry & Registration- Social Stock Exchange & provides Capacity Development Training to industries on the CSR Audit.  He is  based at Delhi-NCR. He overlooked at senior position in the HR - CSR in previous MNC Company in India for more than a decade.  He may be approached at: birendrajha03@yahoo.com ) 

#CSR #SocialImpactAssessment #CSRHead  

 

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