Regulatory updates

On 19 September 2022, SEBI had notified the detailed framework on Social Stock Exchange (SSE)¹ The framework on SSE included the following:
- Minimum requirements to be met by a Not-for-Profit Organization (NPO) for registration with SSE
- Minimum Initial Disclosure Requirement for NPOs that are raising funds through the issuance of Zero Coupon Zero Principal (ZCZP) instruments
- Annual disclosure by NPOs that are either registered on or raise funds through the SSE
- Disclosure of Annual Impact Report (AIR) by all social enterprises which have registered or raised funds using SSE
- Requirement to issue a statement of utilisation of funds . Based on the feedback received from various stakeholders, on 28 December 2023, SEBI issued certain modifications/additions to this framework. The key amendments include:

• Disclosure of details of past social impact: As part of the minimum initial disclosure requirements for Not-for-Profit Organisations (NPOs) raising funds through the issuance of Zero Coupon Zero Principal (ZCZP) instruments, details of past social impact carried out should be provided. In this regard, SEBI has now clarified that the past social impact should highlight trends in key metrics/parameters relevant to the NPO for which it seeks to raise funds on SSE, number of beneficiaries, cost per beneficiary and administrative overheads.
• Procedure for public issuance of ZCZP instruments: SEBI has now prescribed the procedure for public issuance of ZCZP instruments by NPOs and states that:

• NPOs need to file the draft fund-raising document with the SSE, where it is registered, and an application seeking in-principle approval for listing of its ZCZP instruments on the SSE
• The draft fund raising document should be made available on the website of the SSE and the NPO for a period of at least 21 days for public comments
• The SSE should provide its observation on the draft fund raising document within a time period of 30 days from the date of filing of the draft fund raising document or receipt of clarification, if any, sought by the SSE, whichever is later
• The NPO must incorporate the observations of the SSE in the draft fund raising document and file the final fund raising document, prior to opening the issue
• SEBI would prescribe the disclosures to be included in the draft and final fund raising documents. The SSE could mandate additional disclosures in this regard.

• Other conditions relating to issuance of ZCZP instruments: SEBI has laid down certain other conditions w.r.t. the issuance of ZCZP instruments. Some of these include:

• ZCZP instruments would be issued in dematerialised form only
• They would not be transferable from the original subscriber/holder till the expiry of the tenure of the said instrument
• The minimum issue size would be INR50 lakhs (earlier INR1 crore)
• The minimum application size would be INR10 thousand (earlier INR2 lakh)
• The minimum subscription required would be 75 per cent of the funds proposed to be raised through issuance of ZCZP instruments. In case of undersubscription of the funds, stipulated details would need to be provided in the final fund-raising document.

Effective date: The provisions of the circular are effective immediately, i.e., 28 December 2023.

To access the text of the circular, please click here

In July 2023, SEBI had issued the Master Circular for ESG Rating Providers (ERPs) (the master circular). The master circular specified the procedural/disclosure requirements and obligations with respect to ERPs. SEBI has now issued certain Frequently Asked Questions (FAQs) on the registration as an ERP. Some of these relate to:

• Meaning and scope of ESG rating
• Eligibility criteria for becoming an ERP
• Requirement for registration of ERP before functioning in India
• Meaning of Indian and global asset classes in the context of ESG ratings
• Meaning and requirements of Core ESG rating
• Specific transparency and disclosure requirements for ERPs with respect to publishing ESG ratings, etc.

To access the text of the FAQs, please click here