By CJ Clouse
October 6, 2021
Reprinted from GreenFin Weekly, a free newsletter. Subscribe here.
Today, a one-question pop quiz:
In one of the many hit films of beloved Hollywood icon Tom Hanks’ 40-year career, a character he played says: “It’s supposed to be hard. If it were easy, everyone would do it.”
What is this character referring to?
It’s a toughie, right? Hanks really chooses the high-stakes roles!
While you ponder the correct answer, I’ll give you a little hint: It’s not E. Although why he has yet to star as an affable founder fighting the myopic forces of traditional capitalism is a mystery.
The point is: Becoming a certified B Corp is hard.
I thought it would be worthwhile to dig into what it takes to achieve B Corp status; the difference between a certified B Corp and benefit corporation; and how the B Corp certification compares to the growing list of ESG ratings and reporting standards.
People often refer to certified B Corps and benefit corporations interchangeably, but they’re not exactly the same.
A benefit corporation (or public benefit corporation (PBC) in some U.S. states) is a for-profit entity whose legally defined goals include having a positive impact on society and the environment. If a company incorporates as a benefit corporation, its management must — or may, depending on how the state law is written — consider the interests of all stakeholders when making decisions. Also called stakeholder capitalism, this business model puts the interests of workers, the community and the environment on par with those of shareholders (on par, not above, as the perennially skeptical tend to claim.) Traditional C corporations, by comparison, are legally accountable only to shareholders.
The benefit-corporate model was essentially created to provide legal cover to companies that want to become certified B Corps, or practice shareholder capitalism without the certification. Since Maryland became the first in 2010, roughly 40 states have enacted some form of benefit corporation legislation, and around 1,200 U.S. companies have incorporated as benefit corporations or PBCs.
The idea that a company might make a decision based on anything other than the short-term financial interests of its investors scares some shareholders. But it’s important to note that shareholders of benefit corporations do retain all the protections they have in a traditional corporate model, including their corporate governance rights, the election of directors and voting on major corporate transactions, and the ability to bring the same types of lawsuits they can bring against a traditional corporation. In fact, only shareholders (and not other stakeholders) may bring lawsuits challenging board decisions.
Both the benefit corporation model and the overall B Corp movement are built on the belief that a company creates long-term value by aligning all stakeholder interests, including those of shareholders. And the B Corp certification, which has been around since 2007, provides investors and consumers one way to measure companies’ social and environmental performance.
Designed and awarded by the nonprofit B Lab, this third-party certification differs from ESG ratings and reporting standards in its methodology. A company doesn’t have to meet any specific criteria (for example, setting and meeting targets to reduce greenhouse gas emissions) to become a B Corp. Instead, companies must score a minimum of 80 on the B Corp impact assessment, which comprises 200 questions about the company’s operations and business model over five categories — workers, community, environment, governance and customers.
To reach the 80-out-of-200 threshold, a company doesn’t have to be strong in all five categories, Jen Gorin, CEO and founder of B Corp consultancy Impact Growth Partners, explained to me. A solid score in two or three categories can put your company over the baseline. So, for investors, the extent to which a company’s B Corp certification matters depends on what’s important to them.
“The certification definitely can serve as a preliminary due diligence screen,” Gorin said. “You know the company was able to make it through this rigorous process, you know there are certain things they do that are socially and environmentally responsible, but the certification in and of itself doesn’t tell you what those things are.”
For example, Bronx, New York-based Cooperative Home Care Associates (CHCA), the largest employee-owned co-op in the United States, has an overall impact score of 140.2 and ranks as one of B Corps’ “Best for the World 2021” in the community and workers categories, where it scored 50.5 and 48.7, respectively. But CHCA has a score of only 9.8 in the environmental category.
Meanwhile, New Belgium Brewing, a brewer in Fort Collins, Colorado, with an overall impact score of 136.5, is ranked “Best for the World 2021” in the environmental category (47.6), and scored quite high in the workers category (58). But its governance score is a mere 10.7.
These more detailed breakdowns of each company’s score in each of the five categories can be found on the B Corp website, which has profiles of all 4,088 certified B Corps from around the globe. And of course, investors can ask to see the impact assessment itself.
After a B Corp wannabe completes the self-assessment, B Labs conducts an in-depth verification, where they look at financials, formal policies, supply chains, contractors — pretty much everything. Only about a third of the companies that complete the assessment make it through this process and end up certified, according to the B Corp website. And, due to high demand, verification currently takes anywhere from six to 10 months. And after certification, B Corps pay an annual fee that ranges from $1,000 to $50,000 or more, depending on the company’s size. They must re-certify every three years.
“Because it is a very rigorous certification, you can be assured that [certified] companies are doing what they say they’re doing,” Gorin said. “There are deliberate, long-term operational practices that need to be in place to achieve certification.”
This is really important given ESG’s recent greenwashing problem.
Consider what Paul Andrews, secretary-general of the International Organization of Securities Commissions, has said about all the unstandardized ESG standards. “It is precisely the available plethora of sustainability frameworks that provide companies leeway in their ESG risk reporting. This not only hinders comparability, but leaves the door open to green- and social-washing.”
B Corp certification may not provide an investor with all of the information they need to make investment decisions. Nor does it guarantee financial success. But the certification process does make it difficult for B Corps to BS.
You know who else doesn’t BS? Beloved Hollywood icon Tom Hanks. (See, you were so fascinated by B Corps, you’d forgotten all about Tom.) Hanks gives it to you straight. In real life and as Jimmy Dugan, manager of a professional women’s baseball team in 1992’s “A League of Their Own,” who said: “If it were easy, everyone would do it.”
Which makes the correct answer — well, B.
View the discussion thread.
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