Disclosure Norms, Reporting Requirements by Social Impact Assessor and Penalties

Social Enterprises, encompassing both Not-for-Profit Organisations (NPOs) and For-Profit Social Enterprises (FPEs) listed on Social Stock Exchanges (SSEs), are mandated to provide comprehensive disclosures regarding their social impact. These requirements ensure that strategic intent, planning, and impact scorecards are transparently communicated to stakeholders. While NPOs must disclose general, governance, and financial details, FPEs must additionally comply with existing disclosure requirements for their specific listing segment, such as the Main Board, SME platform, or Innovators Growth Platform (IGP).

9.1 Disclosures as per SEBI ICDR Regulations

9.1.1 Minimum Initial Disclosure Norms for NPOs

NPOs raising funds via Zero Coupon Zero Principal (ZCZP) instruments must adhere to minimum initial disclosure requirements as specified under Regulation 292K of the ICDR Regulations. The SSE ensures that fund-raising documents contain the following critical "differentiators":

• Vision: A clear statement ensuring that the organisation’s activities and programs align with the aims stated in its constitution.
• Target Segment: Identification of the specific underserved or underprivileged population being reached and how the NPO's approach improves inclusion for these recipients.
• Strategy: A detailed formulation of how the vision will be accomplished, considering existing capabilities and lessons learned from past challenges.
• Governance: Details regarding the highest governing body, its composition, and the frequency/content of board meetings.
• Management: Information on key managerial personnel (KMP) in departments like Fundraising, Finance, and HR, including performance appraisal processes.
• Operations: Proof of physical existence and operational status, including a verifiable address for site visits.
• Finance: Audited financial statements for the last three years prepared in accordance with Institute of Chartered Accountants of India (ICAI) guidelines.
• Compliance: Documentation of annual accounts without material irregularities and disclosure of any pending notices or scrutiny from regulatory authorities.
• Credibility: Essential legal documents including Registration, Trust Deed/MoA, IT PAN, 12A/12AA/12AB certificates, and FCRA returns.
• Social Impact: Trends in key metrics relevant to the NPO’s work, such as the number of beneficiaries, cost per beneficiary, and administrative overheads.
• Risks: Disclosure of specific project risks, unintended negative consequences, and the proposed mitigation strategies.

9.2 Disclosure Norms under SEBI LODR Regulations

9.2.1 Disclosures by For-Profit Social Enterprises (FPEs)

Under Regulation 91(B), FPEs with listed designated securities must follow the standard disclosure requirements applicable to their specific listing board (Main Board, SME Exchange, or IGP).

9.2.2 Annual Disclosures for Not-for-Profit Organisations (NPOs)

Registered or listed NPOs must make annual disclosures to the SSE within the timelines specified by the Board.

1. General Aspects

• Legal and popular name of the organisation.
• Location of headquarters and operational sites.
• Organisational vision, mission, purpose, and goals.
• Outreach details, including the number of direct, indirect, and institutional beneficiaries reached.
• Scale of operations, including employee and volunteer strength.
• List of the Top 5 donors or investors by budget.
• List of the Top 5 interventions or programs by budget.

2. Governance Aspects

• Ownership and legal form of the entity.
• Governance structure, including board mandates, internal controls, and charters.
• Names of governing body members and executives with key responsibilities.
• Details of board meetings and the process for performance reviews.
• Organisation-level potential risks and corresponding mitigation plans.
• Reporting of related party transactions.
• Ethics mechanisms and conflict of interest policies.
• Remuneration policies and stakeholder grievance redressal processes.
• Statement of compliance from a senior decision-maker.

3. Financial Aspects

• Full financial statements: Balance Sheet, Income Statement, and Cash Statement.
• Program-wise fund utilisation reports for the year.
• Auditor’s report and specific auditor details.

9.3 Standardized Reporting Forms and Event Intimations

9.3.1 Reporting Formats for Social Enterprises

The Social Stock Exchanges have adopted specific forms to streamline reporting:

• Form 1A: General and governance aspects independent of financial audits.
• Form 1B: Governance and finance aspects referencing audited statements and statutory filings (Income Tax, FCRA, RoC).
• Form 1C: Annual Social Impact Reporting for significant non-listed projects.
• Form 2.1: Annual Social Impact Reporting specifically for listed projects.
• Form 3.1: The standard format for the Annual Social Impact Assessment Report.

9.3.2 Intimation of Material Events

Social Enterprises must frame a board-approved policy for determining the materiality of events. One or more KMPs must be authorised to determine materiality and make disclosures to the SSE.

Material Event Reporting Rules:

• Any event significantly impacting planned outputs or outcomes must be disclosed.
• Timeline: Disclosures must be made as soon as possible, but no later than seven days from the event occurrence.
• Content: Details of the event, potential impact, and remedial steps taken must be included.
• Updates: Regular updates and explanations must be provided as long as the event remains material.
• Website: All disclosed events must be hosted on the organisation’s website.

9.4 The Annual Impact Report (AIR)

All Social Enterprises that have registered or raised funds through an SSE must submit a duly audited Annual Impact Report (AIR) within 90 days from the end of the Financial Year.

9.4.1 Minimum Contents of the AIR

The AIR must capture qualitative and quantitative social impact across three main sections:

A. Strategic Intent and Planning:

• The specific social or environmental challenge being addressed and any changes since the previous year.
• The target segment being impacted.
• Planned outcomes, including both positive effects and potential unintended negative consequences.

B. Approach:

• Baseline status and context description at the project's start.
• Solution implementation plan and measures for project sustainability.
• Alignment with Sustainable Development Goals (SDGs) and national/state priorities.
• Evidence of stakeholder feedback and how it was considered.
• Major risks to impact achievement and mitigation strategies.

C. Impact Scorecard:

• Metrics monitored and their performance trends.
• Narratives of impact on the target segment.
• Beneficiary validation through surveys or other feedback mechanisms.

9.5 Fund Utilisation and Penalties

9.5.1 Statement of Utilisation of Funds

Listed NPOs are required to submit a statement to the SSE on a quarterly basis regarding the funds raised. These statements must continue until the funds are fully utilised or the project purpose is achieved.

• Reporting Categories: Amount of money raised, amount utilised, and balance remaining unutilised.
• Ring-fencing: Unutilised amounts must be kept in a separate bank account and cannot be co-mingled with other organisational funds.

9.5.2 Penalties under SEBI Act, 1992

The SEBI Act empowers the regulator to impose penalties and initiate adjudication proceedings for defaults.

• Grounds for Penalties: Failure to furnish required information or returns, and failure to enter into required agreements with clients.
• Penalties are updated and specified by SEBI periodically to ensure market integrity.

Key Terms and Definitions

Important Formulas

Investment Efficiency: Total project cost / Number of families benefited.

Project Timeliness: (Number of families benefited on time / Total number of families) * 100.

Quality of Housing Improvement: (Number of families with significantly improved housing conditions / Total number of families) * 100.

Key Takeaways for Impact Assessors

• Timeline Awareness: AIR must be submitted within 90 days of FY end; material events within 7 days of occurrence.
• Audit Responsibility: The AIR must be assessed by a Social Impact Assessment Firm that employs certified Social Impact Assessors.
• Dual Role of FPEs: FPEs must comply with Main Board financial disclosures while simultaneously providing social impact reports.
• Negative Impact Reporting: It is mandatory to disclose not just successes, but also potential unintended negative outcomes in the AIR.