11 November, 2021 / Comment
How do you get a B-Corp status?
By Iyesogie Igiehon, managing associate, Linklaters
And what are the pros and cons?
There are currently 4,000 B Corps worldwide across a range of industry sectors (including innocent Drinks, Danone, Ben and Jerry’s, Coutts and Patagonia) and the number continues to grow. In this article, we explain what B Corps are, how they are certified and key things to bear in mind.
What is a B corp?
A B corporation (i.e. “B Corp”) is a company that is certified on the basis of achieving certain environmental and social thresholds and demonstrating a commitment to balancing purpose and profit. This is often referred to as a “triple bottom line” approach to business, expanding on traditional financial considerations and encouraging a holistic approach to operations and impact.
Certification is provided by B Lab, a non-profit organisation. Their main activity is verification and certification of companies under the B Corp framework. There is also a B Lab Standard Advisory Council, an independent governing body which develops and oversees the application of B Corp standards.
Certification is voluntary involves the following:
- Engagement with B Lab – applicants are encouraged to discuss the best route to certification for the company/corporate group with B Lab. This is particularly useful for larger companies and funds which may have complicated corporate structures and is in fact a mandatory step for companies with over $100 million in annual revenue.
- Impact Assessment – Companies must review and fill out an Impact Assessment online, which evaluates how the company’s operations and business model impacts five areas – governance, workers, community, environment and customers. A score of 80 out of 200 points is needed to pass the assessment.
- Verification – once the Impact Assessment is complete, B Lab will verify the company’s score to make sure that the company actually meets the 80-point threshold for certification. Usually B Lab will have a series of document exchanges and calls with the applicant to support this process.
- Background checks – B Lab will perform background checks on applicants, including reviewing public records, news sources, and search engines for company names, brands, executives/founders, and other relevant topics.
- Corporate requirements – depending on the jurisdiction, companies will need to amend their corporate governing documents to reflect their B Corp purpose (which is the requirement in the UK) or adopt a corporate form that explicitly requires the consideration of all stakeholders, not just shareholders, in their decision making. Companies can choose to meet their corporate requirements during the certification process or post-certification however it is worth noting in some jurisdictions, extra points can be gained on the Impact Assessment if the corporate requirement has already been fulfilled.
What should companies be aware of when thinking about certification?
- In many ways, certification is just the first step. B Corps have to re-certify and pass the Impact Assessment every three years as well as report annually on their impact initiatives and on their Impact Assessment scores every time they re-certify.
- Many companies become B Corps in order to promote their ESG credentials. Given the recent surge in corporate and investor interest on climate change, wage fairness, human rights and racial and gender inequality, having a label which demonstrates that a company is actively considers all of these issues can be quite powerful.
- However, while the framework is a useful tool for assessing ESG credentials, B Corp certification should not be viewed in isolation as the extent to which companies address environmental, social and governance factors equally will not be apparent from a company’s B Corp score.
- In order to provide robust answers for the Impact Assessment, companies need to gather a significant amount of consistent and verifiable data. Many companies find that the process takes longer than expected. The typical timeframe for certification, from start to finish, can be between six to 12 months but we have heard of recent processes taking much longer than this. Maintaining certification is also a substantial time commitment and for some businesses this is a steep learning curve. Therefore, building an appropriately staffed and skilled team will be key to managing ongoing certification and associated requirements and ensuring that the company is on the right track.
Part of the Bonhill Group.