Companies Gain New Flexibility in Utilizing CSR Budgets through Social Stock Exchange

India's Social Financing Ecosystem Set to Receive a Boost

The Ministry of Corporate Affairs (MCA) has recently amended Schedule VII of the Companies Act, 2013 to include subscription to Zero Coupon Zero Principal (ZCZP) instruments listed on Social Stock Exchanges (SSEs) as an eligible Corporate Social Responsibility (CSR) activity. This amendment, notified on May 27, allows companies to allocate up to 10% of their annual CSR expenditure towards such instruments.

The move is expected to provide a new avenue for corporates to support not-for-profit organisations (NPOs) registered on Social Stock Exchanges through a regulated and disclosure-based platform. Market participants believe that the change could help channel more institutional funding into the social sector while improving transparency and accountability.

The Social Stock Exchange framework was first proposed in the Union Budget 2019-20 as a mechanism to connect social enterprises and voluntary organisations with capital markets. Since then, the Securities and Exchange Board of India (SEBI) has developed regulations governing the platform, including the issuance of Zero Coupon Zero Principal instruments by eligible non-profit organisations.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

Under the framework, ZCZP instruments do not offer financial returns or repayment of principal to investors. Instead, they serve as a mechanism for raising funds for social impact projects while ensuring disclosure standards and oversight through the exchange platform.

The latest amendment is expected to provide a significant boost to the Social Stock Exchange ecosystem by enabling corporates to incorporate SSE participation into their CSR strategies. This is a significant step for India's social sector, enabling corporates to deploy CSR funding through a transparent, regulated and impact-driven platform, leading to strengthening trust, accountability and access to capital for social enterprises.

The amendment is expected to benefit both corporates and social enterprises by expanding access to funding for verified non-profit organisations, strengthening governance and disclosure standards, and encouraging outcome-based social investments.