Authors: Ryan Morasiewicz, Selena Chen
The growing B Corporation movement is making its mark worldwide and companies such as Patagonia – an American outdoor clothing company, and Intrepid Group – the world’s largest adventure travel company, are leading the charge for businesses, driving positive social transformation. These companies balance purpose and profit and operate in a way that benefits shareholder and stakeholder interests, and society as a whole. There are currently more than 3,200 B Corps in over 70 countries worldwide.
What is a B Corp?
“B Corp” is a private certification issued to for-profit companies by the nonprofit organization, B Lab. It signifies that the for-profit companies voluntarily meet the highest standards of social and environmental performance, public transparency, and legal accountability to balance both profit and societal purpose.
To be granted (and to maintain) B Corp certification, companies must receive a minimum score on B Lab’s online assessment of the company’s social and environmental performance, incorporate B Lab commitments into the company’s constituting documents, and pay an annual fee based on their sales. Unlike traditional companies (whose job is to maximize shareholder value), B Corps are judged on how they create value for non-shareholding stakeholders, such as their employees, their local community, and the environment.
According to B Lab, the five conditions that define a Certified B Corp are:
- Directors are mandated to consider the company’s impact on all “stakeholders”.
- Certified B Corps must publish and make public a report of their social and environmental performance (this report is assessed by a neutral, third party standard by B Lab).
- Corporations must achieve a minimum score on the B Impact Assessment test and re-certify every three years.
- Any business can become a Certified B Corp, regardless of corporate structure or country of incorporation.
- Certification fees vary and are based on revenues.
What are the Benefits of Becoming a B Corp?
Identifying as a B Corp is a way for companies to publicly define themselves as being interested in both shareholder and stakeholder benefit. It allows companies to brand themselves as different than the industry norm – as being committed to a broader set of environmental and social values that are more in-tune with certain contemporary views. This may be of particular interest for companies operating in the Outdoor/Adventure industry, whose customers and employees may be likely to share such values.
In a nutshell, B Corp certification may be a means to:
- Attract and engage employees;
- Earn positive press;
- Earn community trust and loyalty;
- Build industry connections; and
- Gain a competitive advantage in the marketplace.
Becoming a B Corp, however, does not confer any special tax or legal benefit. It is merely a third-party recognition of certain business practices.
How does a Company Become a B Corp?
The length of the certification process varies based on a company’s size and complexity. Completing the B Impact Assessment requires at least several hours; the subsequent verification process can take several weeks to several months.
Companies wanting to embark on the B Corp certification process should convene a group of employees (human resources, operations, finance, etc.), often referred to as a “B Team”, who can help to accurately answer questions on the B Corp assessment (described below).
Companies should also gather the necessary documents to help complete the process. Such documents include:
- employee roster;
- employee handbook;
- list of “significant suppliers” (if fewer than 10 employees, top five suppliers; if greater than 10 employees, top 80% of suppliers/vendors by dollar volume);
- breakdown of revenue from various products/services, profit and loss statement;
- any resource-use tracking (energy, greenhouse gas, water, waste, etc.); and
- all sustainability or corporate social responsibility-type goals, reports, progress, or tracking documents.
It is also recommended that companies also formalize any “unwritten” policies (for example paid family leave, a preference for using local suppliers, etc.), as the B Corp assessment prioritizes having positive practices that are codified in written company documents. Assessment scores can be increased by having organization-wide policies covering all employees.
Additionally, the company may consider amending its articles to satisfy one of the legal requirements of becoming a B Corp during the pre-assessment stage. Specific language pertaining to the consideration of stakeholders will need to be added to certain provisions in the company’s articles. Meeting the legal requirement of a B Corp early can assist companies in obtaining points in the B Impact Assessment (discussed below).
Once prepared, companies then take the B Impact Assessment (“BIA”). This is a free, comprehensive, industry-specific online tool designed by B Lab to measure the social and environmental impacts of a company. Companies are assessed in five broad categories: Governance, Workers, Community, Environment, and Customers.
As companies progress through the BIA, they are able to obtain an Improvement Report, which allows them to see where they can improve (i.e. if they do not earn full assessment credit for the questions answered) and provides an opportunity to revise practices before proceeding further with the assessment.
Once companies are 90% through the BIA, B Labs asks that they complete a Company Profile (which requests additional information relevant to the review of the assessment) and begin the Disclosure Questionnaire (which requires sensitive corporate information and may require a legal team and/or senior company executives to answer).
Data collection is a huge part of the assessment, and verification stages, as every affirmative BIA answer will need to be well supported by documentation evidencing its satisfaction. Therefore, it is vital to keep detailed, up-to-date records throughout the certification process and to establish policies regarding data generation and collection early on.
Verification Report and Review Call
Upon submission of the BIA, B Labs will randomly select six to 15 questions and applicants must upload documents supporting their answers to those questions. Ultimately, applicant companies will have a 60-90-minute phone call with a B Labs Standards Analyst to review both their BIA answers and all of their supporting documentation. This call is to make sure that the answers on the BIA capture the intention of the company.
After the review call, companies are required to upload further documentation pertaining to their Impact Business Model as well as any further follow-up documentation requests.
To become B Corp certified, companies must reach a total (and verified) score in the BIA of at least 80 points out of a possible 200. It is, however, beneficial to exceed the 80 points threshold by as many points as possible. B Lab indicates that companies typically see a 10-point change in score (either positive or negative) after engaging in a Review Call.
Companies that achieve this threshold following the Review Call will then sign the B Corp Agreement, and will be certified for a term of three years. Every three years, B Corps must update their BIA, provide additional documentation to verify their answers, and continue achieve at least 80 out of 200 available points to demonstrate their continued commitment to B Corp values. This recertification process allows companies to set improved goals and benchmark their performance.
Certified companies further agree to participate in a site review (each year, 10% of B Corps are randomly selected for site reviews) and must sign a Declaration on Interdependence as follows:
- “We envision a global economy that uses business as a force for good.
- This economy is comprised of a new type of corporation – the B Corporation –
- Which is purpose-driven and creates benefit for all stakeholders, not just shareholders.
- As B Corporations and leaders of this emerging economy, we believe:
- That we must be the change we seek in the world.
- That all business ought to be conducted as if people and place mattered.
- That, through their products, practices, and profits, businesses should aspire to do no harm and benefit all.
- To do so requires that we act with the understanding that we are each dependent upon another and thus responsible for each other and future generations.”
B Corp companies pay an Annual Certification Fee to B Lab, that ranges based on annual sales.
Certified B Corps are legally required to consider the impact of their decisions on all of their stakeholders, not just their shareholders. As such, companies must meet certain legal requirements alongside the BIA process.
Companies based in jurisdictions that have benefit corporation legislation or Social Purpose Corporation (“SPC”)-equivalent status must transition to such entities within two years after B Corp certification.
In Canada, there is no such concept of a “Benefit Company”, thus, companies must amend their articles of incorporation to add the following language regarding stakeholder interests:
- The Directors shall, acting fairly and responsibly, consider the short-term and the long-term interests of the corporation, including, but not limited to, the corporation’s shareholders, employees, suppliers, creditors and consumers, as well as the government and the environment (the “Stakeholders”), and the community and society in which the corporation operates, to inform their decisions.
- In discharging his or her duties, and in determining what is in the best interests of the corporation, each director may consider all of the Stakeholders (defined above) and shall not be required to regard the interests of any particular Stakeholder as determinative.
- Nothing in this Article express or implied, is intended to create or shall create or grant any right in or for any person other than a shareholder or any cause of action by or for any person other than a shareholder.
- Notwithstanding the foregoing, any Director is entitled to rely upon the definition of “best interests” as set forth above in enforcing his or her rights hereunder, and under province law and such reliance shall not, absent another breach, be construed as a breach of a Director’s fiduciary duty of care, even in the context of a Change in Control Transaction where, as a result of weighing other Stakeholders’ interests, a Director determines to accept an offer, between two competing offers, with a lower price per share.
Such amendments will likely need to be passed by special resolution of existing shareholders of the company. Usually, this means 75% of existing shareholders entitled to vote will need to vote for such an amendment.
Becoming a B Corp is a comprehensive and time-consuming process that should not be undertaken lightly and not without buy-in by a company’s senior leadership and majority ownership.
While environmental and social goals can certainly be achieved without the B Corp structure, having an independent, third party verification that a company creates value for their employees, their local community, and the environment is an excellent way for an organization to identify their adherence to these values and to connect with like-minded peers. In the absence of benefit corporation or SPC-enabling legislation, B Corp certification is a high profile means for companies in the local Outdoor/Adventure industry to signify such commitment to social and environmental values. B Corp certification helps a company stand out in a noisy marketplace and appeal to customers, employees, and investors who increasingly demand higher standard from the companies they engage with.
Note: This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.