How PBCs can help deliver on promises

As focus on sustainability continues to increase in the public and private spheres – and the risk of greenwashing along with it – the Public Benefit Corporation construct could provide a much-needed solution.

One key theme we reported on during the holiday break as we looked back on 2021 was what amount of progress the world has made on climate change. If you had a chance to read it, you may recall we pointed out some of the misalignment between what political and business leaders promise and what they actually deliver.

However, we recently spoke with Helen McNamee, a manager within QIC’s global infrastructure group, who walked us through the advantages of the Public Benefit Corporation. Though the name might seem very similar to that of a Benefit Corporation or B-corp, the two are significantly different. While a company that wishes to convert to B-corp status must undergo an assessment and comply with the requirements of B Lab, the certifying non-profit to which they pay a fee, there is no change in the company’s legal status.

A PBC on the other hand, “is a for-profit entity that is required to balance stakeholder needs and outcomes alongside financial considerations”, QIC stated in a paper co-authored by McNamee in December.

It is “this dual fiduciary duty [that] is the defining feature of the PBC that formalises non-financial corporate objectives and elevates them to the level of shareholder value maximization”, according to the paper.

Or, as McNamee described it in our recent interview: “Companies choosing to convert to the PBC corporate form is important for infrastructure investors such as ourselves and for our clients, because it really signifies an accelerating global trend of moving away from the shareholder primacy model towards a more stakeholder capitalism model, whereby businesses elevate the importance of sustainability objectives by incorporating them into their corporate charters.”

QIC has a specific example to point to – Generate, in which the Brisbane-based fund manager is lead investor, decided to convert its legal status to a PBC in November. The company, which has a portfolio of more than 2,000 operating projects in the distributed energy space valued in excess of $2 billion, is QIC’s largest US-based asset.

In addition to reinforcing its corporate mission and aligning it with its stated public benefit, converting to a PBC also benefits the company’s public profile and enhances its long-term value, McNamee said.

When McNamee was asked whether the process to convert is onerous, financially or otherwise, she said there was no indication that it is.

Could the PBC construct then be a way to significantly reduce, if not altogether eliminate, greenwashing? “Yes, we believe it could,” she said.

Unfortunately, however, that would only apply to US companies, as PBC is a US framework.

While some countries outside the US have comparable legislation in place – Italy and France being two European examples – there is no comparable framework on an EU level.

The only framework that comes close is the Sustainable Finance Disclosure Regulation, which came into effect last March and is part of the EU Sustainable Finance Action Plan. But the SFDR is more about disclosure and reporting. It would seem then that the EU is lagging in this respect.

There’s also the EU Taxonomy of course. But if the EU decides to classify natural gas and nuclear energy as green investments – something it is considering – then ‘lagging’ may prove to be an understatement. But that’s a topic for another day.