Materiality policy
Also written Policy for determination of materiality · Materiality determination policy
The board- or management-approved policy a listed social enterprise must frame and disclose, setting out how it decides whether an event is material enough to report to the exchange.
In plain language
SEBI requires a listed social enterprise to report any material event within seven days. It does not say what counts as material.
That gap is deliberate. A ₹5,00,000 problem may be nothing to one enterprise and serious to another. So the judgement is handed to the enterprise itself — under conditions.
Regulation 91(D) requires the enterprise to frame a policy for determination of materiality. The policy must be approved by its board or management. And it must be disclosed on the exchange, so anyone can see the yardstick being used.
Then it names the people. The board and management must authorise one or more Key Managerial Personnel to decide whether an event is material and to make the disclosure. Their contact details must also be disclosed to the exchange.
That is the whole design: a written yardstick, approved at the top, published, and applied by named people who can be reached.
Materiality matters elsewhere in the paper too. An impact report must meet the principles of transparency and materiality. And an assessor must trace the materiality of the data back to the impact indicator reported.
How it works
The requirement (SEBI LODR Regulation 91(D)(1) and (2), Chapter 9, section 9.2.3).
| Element | What the regulation says |
|---|---|
| Who must have one | A Social Enterprise whose designated securities are listed on the SSE or the Stock Exchange |
| What it is | A policy for determination of materiality |
| Who approves it | Its board or management, as the case may be |
| Where it goes | It shall be disclosed on the Social Stock Exchange or the Stock Exchange |
| Who applies it | One or more Key Managerial Personnel, authorised by the board and management, for determining materiality and for making the disclosures |
| What else is published | The contact details of those personnel, disclosed to the exchange |
What the policy is for. It is the bridge between a vague statutory test and a decision someone has to make in a week. Regulation 91(D)(3) requires disclosure of any event that may have a material impact on the planned achievement of outputs or outcomes, and 91(D)(4) allows not more than 7 days. Nobody can apply that under time pressure without a written yardstick agreed in advance.
No threshold in the regulation, and none in the workbook. Neither Regulation 91(D) nor the workbook prescribes a percentage, a rupee amount or a category list for materiality. The workbook states the duty to frame, approve and disclose the policy, and leaves its contents to the enterprise. So there is no figure to memorise here — the examinable facts are who approves it, where it is disclosed, and who applies it.
Why "board or management, as the case may be". A social enterprise on the SSE may be a company with a board, or a trust or society with a governing body and a management committee. The regulation's wording covers both, which is why the same phrase recurs through Chapter IX-A.
Materiality elsewhere in the paper. The word carries two other jobs, and they are not the same as this policy:
- In reporting (Chapter 7, 7.3.2). An impact report should be as short as possible while meeting the principles of transparency and materiality, so that stakeholders get the information they need quickly. Materiality here is an editorial test on the report.
- In assessment (Chapter 5, 5.12). A social impact assessor must be skilled enough to trace the materiality of data to the impact indicator reported, particularly for softer outcomes such as confidence, self-esteem and sense of agency. Materiality here is an evidence test on the data.
- In the ICDR disclosures (Chapter 9, 9.1.1). An NPO's compliance disclosure requires audited accounts for the latest three financial years with no material qualifications or material irregularities reported by its auditor. Materiality here is the auditor's own test.
A candidate who keeps those four uses apart will not be caught by a question that switches between them.
A worked example
Illustrative enterprise and figures; the approval and disclosure requirements are the workbook's.
Anantha Livelihoods Foundation has a listed ZCZP project of ₹2,00,00,000 to train 3,000 weavers, with a planned output of 3,000 trained and an outcome of ₹4,000 a month added income.
Its governing body approves a three-page materiality policy and files it with the exchange. The policy's core is a table:
| Event type | Treated as material if | Rationale |
|---|---|---|
| Loss of planned output | More than 10% of planned output is at risk — here, more than 300 weavers | Ties materiality to the regulation's own outputs-and-outcomes test |
| Funding | Any single funder withdrawing more than ₹20,00,000 (10% of the raise) | Threatens completion within the stated tenure |
| Regulatory | Any suspension, notice or licensing action affecting a project site | Judged material regardless of size |
| Key personnel | Departure of the project head or the only technical trainer | Judged material regardless of numbers |
| Force majeure | Any event stopping work at a site for more than 21 days |
It also authorises two KMP — the Chief Executive and the Chief Financial Officer — to determine materiality and make disclosures, and files their names, phone numbers and email addresses with the exchange.
Two events, tested against the policy.
In July, one of 14 master trainers resigns. Output at risk: roughly 90 weavers, or 3%. Under the policy's 10% line this is not material and no disclosure is made — and because the policy is published, that decision can be checked by anyone later.
In September, the district administration seals the Mangalagiri training centre pending a fire-safety clearance. Output at risk: 700 weavers, or 23%, and it is a regulatory action. Material on two counts. The CFO discloses it to the exchange within 7 days, states the potential impact and the remedial steps, publishes it on the foundation's website, and updates it until the centre reopens.
What the policy bought. Not a softer rule. A defensible one. Without it, the July decision looks like a judgement call made by whoever happened to hear the news, and the September decision has no benchmark behind its urgency.
Why NISM asks about it
Chapter 9 (Disclosure Norms, Reporting Requirements by Social Impact Assessor and Penalties, 10% weightage), section 9.2.3, sets out Regulation 91(D)(1) and (2). Chapter 7 (11%) requires an impact report to meet the principles of transparency and materiality, and Chapter 5 (10%) requires an assessor to trace the materiality of data to the indicator reported.
Expect a question on who must approve the policy (the board or management), where it must be disclosed (on the Social Stock Exchange or Stock Exchange), and who is authorised to determine materiality and make disclosures (one or more Key Managerial Personnel, whose contact details are also disclosed). Because the regulation sets no threshold, any question offering a percentage as the statutory test is offering a distractor.
Common exam traps
- The regulation requires a policy; it does not set the threshold. The enterprise's own board- or management-approved policy does. A percentage presented as SEBI's own materiality test is wrong.
- The policy itself must be disclosed on the exchange. It is not an internal document.
- KMP are authorised for two things — determining materiality and making the disclosures — and their contact details are published too.
- "Board or management, as the case may be." A trust or society has no board in the company sense; the regulation covers both forms deliberately.
- This is not the same materiality as the auditor's. The ICDR compliance disclosure asks for three years of audited accounts with no material qualifications or irregularities — an audit concept, not this policy.
- Nor is it the reporting principle. Chapter 7's "transparency and materiality" is about keeping an impact report short and relevant.
- It binds a listed social enterprise. A registered-but-not-listed NPO has annual disclosure duties under 91(C) and a self-certified Annual Impact Report under 91E, but no 91(D) materiality policy.
- Framing the policy does not discharge the event duty. The policy is the yardstick; the material event disclosure within 7 days is the obligation.
Where this is taught
Free preparation for NISM Series XXIIIRelated terms
- Social Stock ExchangeA separate segment of a recognised stock exchange on which Not for Profit Organisations and For Profit Social Enterprises register and list securities to raise money for social impact, under SEBI rules.
- Annual Impact ReportThe yearly report of social impact every social enterprise registered on or raising funds through an SSE must file under LODR Regulation 91E, covering at least 67% of the previous year's programme expenditure.
- Impact reportingCommunicating to stakeholders the difference an organisation has made; it may be an independent impact report, or part of an annual report or a sustainability report.
- LODR RegulationsSEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 — the post-listing rulebook, whose Chapter IX-A sets out what a social enterprise on an SSE must disclose and when.
- Material eventAny event that may have a material impact on a listed social enterprise's planned outputs or outcomes, which must be disclosed to the exchange within 7 days and updated until it stops being material.
- Suo motoA Social Enterprise's power under SEBI LODR Regulation 91(D) to confirm or deny, on its own initiative, any reported event or information, without waiting to be asked by the exchange.