Why should you build or invest in a B Corp?
Gone are the days where we rely on charities and governmental agencies in driving positive change. In the world of impact, we believe in using your business as a force for good. There are many different economic models and certifications available to help businesses harness the power of innovation to maximize impact for their internal and external stakeholders. Today we take a look at B Corporations.
What is a B Corporation?
A certified B Corporation (B Corp) is a for-profit business that is “legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.” In other words, B Corps manifest the impact-way by conducting business through a holistic, accountable and transparent lense, acting in the interest of their stakeholders – not just in the interest of the financial shareholders. Today, there are over 4,000 B Corps across 77 countries in 153 industries. Well known examples include Patagonia and Ben & Jerry’s.
How does it work?
First a company must complete a B Impact Assessment, which was created and is assessed by B Lab, the non-profit organization behind the B Corporation certificate. The assessment contains 200 questions in total. There are over 40 versions of the assessment, depending on a company’s size, sector and location. If a company scores a minimum of 80 points, various background checks are conducted and additional supporting documentation must be provided. Once verified and completed, a company receives it’s certification.
As a startup, should you apply for B Corp status?
When it comes to performance, we can understand the appeal. It has been reported that B Corps have a growth rate of 49%, compared to a 15% rate among other companies in the same category. Leading B Corps have outlined that this growth is a result of consumers’ increasing demand for purpose-led brands. According to B Lab’s 2018 analysis, more than 66% of consumers reported that they are willing to spend more for goods and services that have a positive impact and have consequently attracted new audiences since getting their B Corp certification. This also includes talent, with 48% of B Corps reporting that prospective employees applied to jobs because they were specifically known as a B Corp.
Even though most companies apply to become a B Corp because they are sustainable, completing the B Impact Assessment could perhaps reveal areas to improve on. For example, your score may be high for the environment, but it may reveal it is low for workers. If you are particularly early stage, weaving these values into your company’s DNA is much easier than implementing them top-down at a later stage.
The financial and operational costs should too be considered. Once certified, you must pay an annual fee ranging from $1,000 to $50,000+ depending on the size of your business. You must also recertify every three years. This is positive, because it speaks to the consistent rigorous long-term objectives of the certification.
There is also a collaborative community amongst B Corps which is promising. 46% of B Corps have benefitted from forming partnerships with like-minded businesses. The sharing of best practices is also encouraged. We believe true impact should embody such behaviors in order to drive systemic change and tackle our pressing social and climate issues.
Should you invest in a B Corp?
The B Corp Assessment is different in that you do not have to meet specific criteria as you would in ESG ratings, for example setting targets to reduce CO2 emissions. Rather, the minimum score of 80 across the five categories of workers, community, environment, governance and customers, grants you certification. This means a company doesn’t have to score consistently high across all categories. A high score in a couple of the categories can get you over the line. Thus, as an investor, considering investing in a company with a B Corp certification should be aligned with what’s important to you. For instance, if environment and governance are important to you, ensure the B Corp has scored high in those categories. Detailed breakdowns of company scores in these categories can be found on the B Corp website. As an investor, you are able to ask for specific company impact assessments. This is particularly important given the myriad of ESG frameworks and assessments that make back-to-back sustainability comparison challenging to investors, sometimes leading to ESG-washing practices. The assessment helps combat these pitfalls through transparent, periodic public reports, holding B Corps more accountable.
Our concluding evaluation of the B Corp certification
Like any certification, B Corp isn’t perfect. At a consumer-level it has its advantages. It is evident more money is being spent on purpose-driven brands. The recent pandemic particularly brought company values to the forefront. Consumers are more conscious and will look for digestible information such as certifications to help them with their purchasing decisions. This trend will only increase over time. B Corps could be a step in the right direction towards impact, particularly in holding companies accountable and providing more transparency in how they run their business. However, the B Corp certification looks at balancing profit and purpose overall. For true impact, we believe much more than an average score is needed.
