What is a B Corp? – ESG | The Report
In the last few decades, there have been the emergence of entrepreneurs who want to do more than just make money at any cost. They want their business ventures to have a positive impact on society and the environment. With the global supply chain being all but destroyed by the pandemic, recurring billion-dollar weather events and the divestment from Russian oil, there is a growing doubt about the sanctity of our collective futures. The emergence of new types of companies are shifting the definition of success. One that goes beyond purely profit-centered objectives but also focuses on achieving public benefit. The long view, which includes people, planet and profit. This movement has already yielded considerable changes to redefine both sustainability and business success. Read on to see what the future looks like for business.
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What is the meaning of a B Corporation?
A B Corp, or Benefit Corporation, is a sustainability certification of businesses that strive to make social and environmental priorities an integral part of their operations. It is a new way of meeting the traditional goal of maximizing shareholder value without compromising sustainability goals. These may include reducing poverty, promoting health and wellness, and creating strong economic growth. Furthermore, becoming a certified B Corporation means being legally obligated to consider the impacts of the business. Including impacts their decisions have on workers, customers, suppliers, communities, the environment and all stakeholders who will be affected by the venture. This encourages businesses to approach sustainability initiatives with forward-thinking strategies that prioritize sustainability goals while considering changing conditions and opportunities for development. Ultimately, B Corporations create shared value with their stakeholders by using sustainability as a business model to increase shareholders’ returns while simultaneously having positive effects on society overall.
What is the process to become a B Corporation?
Businesses that want to become B Corporations must first assess their impact on all stakeholders, including employees, customers, vendors, the community, and the environment. They must then change their legal structure and incorporate as a benefit corporation. After that, they must complete an Impact Assessment administered by the nonprofit B Lab to earn a certification. This includes submitting documentation and paperwork proving that they meet at least two of the ten B Corp Certification Standards. This might include a statement of purpose, a corporate social responsibility report, an sustainability report and a community investment strategy. Then a third-party verifier conducts an intensive review of company legal and financial records to provide assurance that they meet all criteria for certification. It is a rigorous and thorough examination, but it all begins with an ESG score. The final step is to make a public commitment to being a force for good in the world. The process usually takes a minimum of 8 months to complete. In order to be successful, companies will need to score 80 or higher. A good place to get started is to to Get the Checklist! ✅
What are the barriers to becoming a Certified B Corp?
B Lab believes that changing the world requires business as usual. The current system for companies is not conducive to creating sustainable businesses in an effort to both make money and be of service to society. The biggest barrier to becoming a Certified B Corp is the current definition of success in business. Businesses are taught from day one to increase shareholder value, which incentivizes companies to look out for themselves and ignore how their decisions affect others and the planet.
This makes it challenging for businesses to compete with each other to do what’s best for all of us, because the normal way of doing business only considers their impact on shareholders.
It takes a lot of work and effort to change what is considered “normal” in business. Not only that, but it also takes an open-mind and willingness by companies to take into consideration how they can be beneficial and sustainable for years to come. But with an increase in billion dollar storms and increasing weather events around the world, the time to change is NOW, because we have delayed it for too long already.
How is B Corp different from a corporation?
B Corps are different from traditional corporations in that they have a legally binding fiduciary obligation to take into account the interests of workers, community, and the environment along with their shareholders. In the past, corporations have faced numerous lawsuits because they chose to release dangerous products into the market, or pay their workers extremely low wages.
However, with B Corps, there is no legal difference between maximizing shareholder returns and doing good for the world. Businesses like this are seen as an incredible opportunity for corporations looking to make a change in society without giving up their business stability. And this has opened the doors of opportunity.
How many B Corps are there?
B Corps are certified by a nonprofit organization called B Lab in terms of meeting certain criteria in governance, workers’ rights, environmental impact, and so forth. Currently, over 3,500 companies in over 70 countries have been certified as B Corps. But that number is expected to increase as awareness of environmental and social imbalances become more acute. See “What is ESG?“
FAQ
What is the minimum verified score for B Corps?
The minimum verified score for B Corps is 80 out of 200 points. This score must be maintained for two years before a company can officially call themselves a B Corp and it must be verified every two years after that. If the score falls below 80, then they no longer qualify to use the term “B Corp” in their name. The testing is rigorous and most companies fail at their first attempt.
What is the difference between B Corp and B Lab?
There are many different types of companies that use the term “B Corp” in their name. While all of them are for-profit entities, not all of them are what is known as Certified B Corps. This means that they do not meet at least two of the ten standards required by certification, which includes having a legally binding fiduciary obligation to society. This certification is only available to companies that are required to provide documentation of meeting the requirement, which includes having a certified score of 80 or higher.
B Lab, on the other hand, is an independent nonprofit organization that serves as an advocate for B Corps by powering people who want to change their lives and the world through businesses that compete to do what’s best for all of us. The main goal is to help spread awareness about sustainable, community-minded companies that want to make a difference while doing good.
What are the 10 B Corp standards?
The ten standards that must be met in order to become a Certified B Corp include:
- legal accountability to shareholders
- commitment to transparency
- consideration of employees
- impact on the community
- climate change
- commitment to high standards of environmental performance
- stakeholder engagement
- respect for all communities
- anti-discrimination policies
- commitment to long term goals
What are some popular companies that have become B Corps?
Some well known companies that have become B Corps include Patagonia, Warby Parker, Etsy, Beautycounter, Method Home, and Seventh Generation. There is also a popular company that you have most likely heard of called Ben & Jerry’s.
And it’s not just large companies that have become B Corps, either. There are also many smaller companies such as the New Jersey based outdoor apparel company Diggs, and the Chicago-based accounting firm Faraci Lange LLP.
What is a for-profit company that offers public benefit?
A for-profit company that offers public benefit is one which aims to provide social value in addition to its business operations. This not only allows businesses to create sustainable models, but also changes the way people view success by going beyond simply maximizing shareholder value. These companies help contribute revenue to the community instead of taking it away. The idea behind the B Corp certification is that it allows companies to become an instrument for good while remaining competitive. These are known as Certifiable B Corps.
What is the purpose of a B Corp?
Businesses certified as B Corps prioritize people and the planet, above profit. B Corps use their profits and business models to support context-rich communities and create innovative approaches to areas such as sustainable energy, human rights, and minority rights. This is achieved through rigorous requirements set for these organizations, requiring them to demonstrate a level of commitment to social and environmental sustainability that meets approved standards. Achieving official certification as a B Corp allows organizations to signify their dedication to this practice and be rewarded for being more than just another business with a strong financial presence.
What is the difference between a B Corp and ESG?
There are a number of differences between a B Corp and companies that have Environmental, Social, and Governance (ESG) goals. ESG adopts these goals as part of its businesses planning to increase long term value for all stakeholders. In addition to the commitment to public benefit, B Corps are legally obligated to make decisions in the best interest of all their stakeholders, not just stockholders.
How do benefit corporations get certified in the United States?
B Corp certification is set up by state and there are currently nearly 40 states that have certified companies including California, Pennsylvania, Colorado, Maryland, New Jersey. Once a company has been verified as meeting the B Corp criteria it is allowed to operate as a B Corp and use the logo on their products.
What is the difference between a traditional company and a B Corp?
A traditional company focuses solely on maximizing its profits for investors, with little regard for the consequences of its actions. This often leads to poor employee treatment, environmental damage, and sometimes even unethical sales practices. A B Corp is legally obligated to create public benefit and sustainable practices. It does this with rigorous independent assessment and transparent reporting on its performance that is available for anyone to see.
What is the Benefit Corporation Act?
The Benefit Corporation Act represents a legal framework under which entities can incorporate as B Corps in certain US states with strong provisions for stakeholder rights and accountability. The most important principle of the act is that “A benefit corporation shall be a for-profit entity, intending to create general public benefit, and meeting standards of verified performance.”
How are B Corps taxed?
B Corps are taxed in the same way as traditional corporations. The company pays its tax when it earns a profit, and shareholders pay their taxes on any dividends they receive.
What is the difference between B Corp and social enterprise?
A social enterprise is a company that creates products or services in order to solve social or environmental problems. They are typically mission-driven, meaning they have an explicit aim to improve the world with their business. B Corp is another way of describing businesses that put purpose before profits. Social enterprises and B Corps may overlap depending on the specific mission, but social enterprises are not necessarily B Corps.
What do you think of social and environmental performance?
Do you think businesses with a social mission can be profitable? Why or why not? Would you invest in a company that is trying to make the world a better place as well as make their shareholders money? What does success look like to you? These are questions that will need to be addressed as we move forward in creating a sustainable society on a global scale.
Caveats, disclaimers & benefit corporation legislation
At ESG | The Report, we believe that we can help make the world a more sustainable place through the power of education. We have covered many topics in this article and want to be clear that any reference to or mention of certified, b, certification, environmental performance, transparency, legal, advice, mission, annual, third party, global movement, status, healthier, force or small business in the context of this article is purely for informational purposes and not to be misconstrued as investment advice or an endorsement. Thank you for reading, and we hope that you found this article useful in your quest to understand ESG and sustainable business practices. Long live planet earth. Please also see our article outlining a related topic of CFA ESG investing certificate.
Author Bio
Research & Curation
Dean Emerick is a curator on sustainability issues with ESG The Report, an online resource for SME’s and Investment professionals focusing on ESG principles. Their primary goal is to help middle market companies automate Impact Reporting with ESG Software. Leveraging the power of AI, machine learning and AWS to transition to a sustainable business model. Serving clients in the United States, Canada, Uk, Europe and the global community. If you want to get started, don’t forget to Get the Checklist! ✅
