Broadly speaking, B Corp companies commit to balancing purpose and profit, and considering the impact of their decisions on workers, customers, suppliers, communities and the environment. Before being able to call themselves B Corps, these companies need to meet certain standards of verified environmental and social performance, public transparency and legal accountability.
At its core, the B Corp certification framework encourages companies to take a holistic view of how they operate and their impact on their environment and stakeholders. There are currently over 3,900 B Corp companies worldwide across a range of sectors, including fund managers and private equity houses such as Lombard Odier, Bridges Fund Management and TowerBrook.
Work in progress
On paper, certification and verification seem like simple processes. However, in order to provide robust answers for the impact assessment, companies need to gather a significant amount of verifiable data, which can take some time. In addition, the verification process itself may take longer than expected, particularly if B Lab is not satisfied with documentation supporting a particular answer. A typical timeframe for certification, from start to finish, can be between six and 12 months, but we have heard of recent processes taking much longer than this.
Maintaining certification requires a substantial time commitment and transparency on ESG matters, which could be a big learning curve for some businesses. This is why it is key, as B Lab strongly recommends, to have an appropriate staffed and skilled team to manage ongoing certification and ensure that the company is on the right track.
The team will also be able to push forward employee engagement on B Corp-linked initiatives. Inherent in the framework is a commitment to continuous improvement, so companies should also strive to improve on their existing ESG initiatives and policies year-on-year.
A key factor of the framework is its focus on continuous and sustainable improvement. Certification is just the first step – B Corps are required to redo their impact assessments and recertify every three years. They are also required to report publicly on their impact assessment scores, as well as any other information picked up by B Lab during the certification/re-certification process that warrants transparency with stakeholders.
To assist with the ongoing requirements, B Lab recommends that companies implement a B Corp team with a dedicated project manager and appropriate executive and legal support.
Benefits of B Corp
Becoming a B Corp is an achievement that companies can use to show off their ESG credentials. Given the recent spotlight on issues such as climate change, wage fairness, human rights and racial and gender inequality, having a label that essentially indicates to the market that a company is actively working towards managing and addressing these issues can be very powerful.
In addition, the framework is useful for those companies that have ESG aims but are unsure where to start. Materials and support offered by B Lab post-certification can be useful in setting up ESG initiatives and pushing companies towards continuous improvement in these areas.
‘Valuable tool’ for investors
For infrastructure investors that are looking for a way to embed sustainability within their investment policies and practices, B Corp certification can be an attractive prospect. B Corp certification provides a pathway for investors to engage with investee companies on their ESG initiatives and understand how they compare with others in their field. Investing in B Corp certified companies is a helpful indicator of ESG credentials.
It is worth noting that the certification process is rigorous, as are the ongoing commitments, so investors should take care to fully consider all facets before pressing ‘go’ on the certification process and establishing an open dialogue with B Lab on their investment aims.
In addition, investors should be careful not to focus on B Corp certification in isolation – the extent to which companies address environmental, social and governance factors will not be apparent from a company’s score and there is still no substitute for engaging directly with investee companies and diligencing their approaches and their claims.
With the recent B Lab-led initiative to amend the UK Companies Act, an update which requires B Corps to include a stakeholder purpose clause in their articles, it is clear that B Lab intends to have a lasting effect on the corporate landscape. As B Lab’s work gains greater traction throughout the industry, more investors and corporates are recognising the value it can bring to their business and business strategy, and are leveraging B Lab’s work to their advantage.
How to become a B Corp
Certification, carried out by non-profit B Lab, requires the following:
Impact assessment Companies must complete an impact assessment online, which evaluates how their operations and business model impact five areas: governance, workers, communities, the environment and customers. Companies need to score 80 out of 200 points to pass.
Verification Once the impact assessment is complete, B Lab will verify the company’s score to determine that it actually does meet the 80-point threshold for certification. Usually, B Lab will have a series of document exchanges and calls with the applicant to support this verification process.
Background checks B Lab will perform background checks on applicant entities, including reviewing public records, news sources and search engines for company names, brands, executives/founders and other relevant topics.
Prior to conducting the impact assessment, prospective companies will also have the chance to discuss their certification with B Lab and get informal advice on the best route to certification for them. Companies can provide information about their size, corporate structure, operations and sustainability goals to B Lab and work with it to determine whether certification is suitable for the business. This is particularly useful for larger companies and funds that may have relatively complicated corporate structures that do not neatly fall under the key categories identified by B Lab in its certification guidance. In fact, for large companies – defined as those with more than $100 million in annual revenue – this pre-impact assessment engagement is a mandatory step.
The time period varies for each jurisdiction – in the UK, articles should be changed within one year of certification.