Should you join the B Corp movement?
Social consciousness is taking a seat in the boardroom. For years, the goal of business was to maximize value for shareholders. But according to the co-founders of B Lab, an independent nonprofit, the purpose of business in the 21st century is to maximize value for society.
A major part of this movement has been the rise in B Corporations, a new type of company that uses the power of business to solve social and environmental problems. Today’s consumers don’t want to take companies’ social and environmental brand claims at face value. They want them verified by independent, credible third parties, such as the certification process launched by B Lab in 2006.
Setting the gold standard for “good” business, B Corps are for-profit companies certified by B Lab to meet rigorous standards of social and environmental performance, accountability and transparency. According to the B Corp website, B Corp certification is to business what Fair Trade certification is to coffee or a USDA Organic certification is to milk.
There are now more than 2,400 certified B Corps from 50 countries and more than 130 industries working together toward one unifying goal: to redefine success in business. Current B Corporations include well-known names like Ben & Jerry’s, Patagonia, Natura and DanoneWave (maker of Dannon yogurt). Locally, there are around 30 B Corps in Illinois and 21 of them are located in Chicago.
Why Are Companies Becoming B Corporations?
Companies seek B Corporation certification as a way to meet the higher expectations of the next generation—consumers who want to align their purchases with their values, employees who want to work at companies that mirror their values and investors who are focusing on companies with an environmental or social commitment. In addition to creating a competitive advantage, B Corps offer several other benefits:
Increasing Sales by Attracting Millennials
One impetus for B Corp certification is to satisfy consumers who are increasingly voicing their social consciousness through their purchases. A Brookings Institution report illustrated that millennials’ commitment to companies that value good citizenship may impact the future of corporate America. The report found that millennials overwhelmingly “responded with increased trust (91 percent) and loyalty (89 percent), as well as a stronger likelihood to buy from those companies that supported solutions to specific social issues (89 percent).”
Attracting and Retaining Talent
Achieving B Corp certification can also be a powerful tool for both attracting and retaining key talent. Inc.reported that was the case for LimeRed Studio. The Chicago-based UX design agency found recruiting to be the number one benefit of B Corp certification, with top candidates now seeking out the company. In fact, a Cone Communications study found that 76 percent of millennials consider a company’s social and environmental commitments when deciding where to work and almost two-thirds (64 percent) won’t take a job if a potential employer doesn’t have strong corporate social responsibility practices.
A company’s focus on social responsibility is also an important element in keeping employees engaged in its mission, making them more customer-focused and less likely to leave. The impact can be staggering. Gallup estimated that within the U.S. workforce, disengaged employees cost companies $450 billion to $550 billion in lost productivity annually
Capital markets are changing as well to reflect new expectations from investors. The Brookings Institution paper by the B Lab authors showed a growing recognition by the largest institutional investors that investing with an environmental, social and governance (ESG) lens creates more long-term value. It pointed to a recent meta-study by Arabesque Asset Management which reviewed 190 research studies on responsible and ESG investing, concluding that: 90 percent of the studies on the cost of capital show that sound sustainability standards lower the cost of capital of companies; 88 percent of the research shows that solid ESG practices result in better operational performance of firms; and 80 percent of the studies show that stock price performance of companies is positively influenced by good sustainability practices.
In addition, companies which achieve B Corp certification have access to a free Global Impact Investing Rating System (GIIRS). The rating system has become the gold standard in impact measurement within the impact investing community—those who seek to generate social and environmental impact alongside a financial return.
The Pros and Cons of B Corps and Benefit Corporations
Certification as a B Corp provides many advantages, including demonstrating a company’s social mission to its consumers, employees and investors. There are also additional options for a company to deliver on its commitment to social purpose. Beyond B Corp certification, companies can also become benefit corporations under new state corporate statutes. A company’s shareholders must approve the benefit corporation legal structure, which requires the company to consider the interests of society and the environment when making decisions.
According to Conscious Company Media, a benefit corporation must assess its overall social and environmental performance on a yearly basis using an independent third-party standard, report its overall social and environmental performance to its shareholders and the public in an annual benefit report and provide a material positive impact on society and the environment as a whole. There are currently about 4,400 benefit corporations.
Business owners need to evaluate the pros and cons of attaining B Corp certification or incorporation as a benefit corporation. For example, B Corps can face a higher level of scrutiny than their peers and have to practice what they preach. In addition, B Corp leaders have to demonstrate that they’ve moved away from the short-term, profit-maximization vision that has dominated capitalism in past decades and can deliver on the vision of the B Corp movement of an inclusive economy that can create shared and sustainable prosperity.
On the other hand, according to Fast Company, benefit corporations can expose themselves to internal activism since shareholders who own only a two percent stake can launch “benefit enforcement proceedings” if they believe managers are failing a public benefit mission.
For companies interested in certifying as a B Corp, the following is a quick guide to the process.
How to Become a B Corporation
Companies that want to become B Corp certified should start with the following:
- Complete the B Impact Assessment, an analysis of a company’s impact on its employees, community and the environment. The Assessment is customized by company size, industry and locations.
- Achieve a minimum verified score of 80 out of 200 on the Assessment.
- Complete a legal requirement designed to expand fiduciary duty. The requirement varies by corporate structure and state of incorporation.
- Pay an annual certification fee that will range between $500 and $50,000, based on revenues; the lower-end fee of $500 would apply for annual sales up to $150,000 while $50,000, the highest certification fee, would be for annual sales over $1 billion.
- Make the results of the assessment public by publishing their B Impact Report on bcorporation.net.
- Recertify every two years.
Whether or not a company chooses to complete B Corp certification, it can still use the B Impact Assessment. Companies can join the more than 16,000 businesses that are already using this free, confidential tool to benchmark their impact and sustainability program. It can be a great way to see how your company compares against others that are leading the charge on this cultural shift towards creating a positive societal impact through business.