What is B Corporation Certification?
The distinction of Benefit Corporation, B Corporation or B Corp, is granted to companies who demonstrate that they value not only profits but also giving back to the community. This can be done through direct financial contributions in the form of gifts or donations to a given cause, but can also involve using corporate influence to affect policy addressing environmental change, income inequality, and other social causes.
When a Company obtains Benefit Corporation status it signals to the public that the company takes its commitment to the public seriously. The B Corp certification can improve your credibility as a business. It serves as a tangible symbol of your commitment to sustainable principles, as well as a binding agreement to both legal accountability and public transparency.
Your business may benefit from obtaining B Corporation certification. However, it’s not suitable for everyone; here we’ll discuss what exactly a B Corporation is, what certification entails, things to consider before you apply, and what you need to qualify.
What Exactly Is a B Corporation?
A certified B Corporation is a business that has met a high standard of verified social and environmental performance, public transparency, and legal accountability to achieve a balance between profit and purpose. The goal of a B Corporation is to accelerate and contribute to a growing global culture shift to “redefine success in business and build a more sustainable economy,” according to B Lab, the nonprofit organization that certifies B Corps.
California is one of the newest states to legally recognize B Corporations as a new type of corporation. According to the law, a B Corporation must 1) have a material positive material positive impact on both society and the environment; 2) has an expanded fiduciary duty that requires them to consider non-financial as well as financial answers; and 3) reports on its overall social and environmental performance, which is to be assessed according to a third-party standard.
To create the material positive impact on society and the environment required by the statute, a benefit corporation must pursue the “general public benefit,” and may name a specific public benefit to pursue additionally. These additional public benefits may include:
- Providing low-income or underserved communities or individuals with beneficial goods or services
- Promoting economic opportunity for communities or individuals or communities (beyond the creation of jobs through the ordinary course of business
- Preserving the environment
- Improving human health
- Promoting the arts, sciences, or other efforts for the advancement of knowledge
- Increasing the flow of capital towards entities with a public benefit purpose
- Accomplishing any other particular benefit for society or the environment (this is an intentionally open-ended option that allows you to choose a very specific cause if you wish)
Legal Obligations of B Corporations
First, a B Corp must meet the Public Purpose Requirement under the law, meaning it must prove that it creates a benefit to the public good as judged against a third-party standard. This broad definition is intended to encourage innovation by providing corporations the flexibility to apply for B Corp status without excluding companies through a narrowly prescribed definition of who is eligible.
Secondly, a B Corp’s leadership must consider the non-financial interests of each of the following groups, or stakeholders (not shareholders, though they are a type of stakeholder under this definition), in the company:
- The shareholders of the B Corporation
- The B Corporations employees and workforce, along with its subsidiaries and suppliers
- The customer interests as they relate to the general or specific public benefit purpose of the B Corp
- Community and societal consideration. This includes the communities housing the offices or facilities of the B Corp, its subsidiaries, and/or its suppliers
- The local and global environment
- Both the short- and long-term interests of the corporation, including potential benefits from its long-term planning and the possibility that these interests may be best served by retaining control of the corporation rather than transferring control through sale of the corporation or other transaction
- The ability of the B Corp to accomplish its general public benefit purposes, as well as any specific purposes it has taken on
Finally, a B Corp must comply with Transparency Procedures. These include an annual report based on a third-party standard. The report must include a description of the methodology of selecting the third-party standard used, how the corporation pursued the general (and any specific) public benefit, and any circumstances that hampered the creation of the public benefit. There are several additional requirements that these reports must meet in order to meet the legal standard. These reports must be delivered to shareholders within 120 days of the end of the fiscal year, and must also be posted on the corporation’s website, if they have one.
The Pros and Cons of B Corporation Status
As with any business decision, there are positive and negative aspects of obtaining B Corp status. For one thing, it reduces the legal liability for leadership when considering the non-financial interests of the company, the environment, and the community. The social impact and increased accountability of a B Corp can also attract more investors, marketing opportunities, and the ability to distinguish the company as one committed to environmental and social good. The status can also increase the customer base as a result of the positive impact of the business.
However, there are also potential drawbacks, so it’s important to make your decision carefully. B Corp organization opens up potential legal liability for failure to adequately pursue a general or specific public benefit. As B Corporation status is not recognized at the federal level, there are uncertainties about how the law will be applied until it is interpreted by the courts. Therefore, it is possible that issues may arise from carrying out business in states that do not have B Corp legislation. There are increased reporting requirements to comply with, and there is no tax benefit compared to a traditional nonprofit organization.
While receiving B Corp status won’t help you save on your taxes and may be tricky to navigate for businesses that do a lot of work in states where B Corp status is not recognized, but if you’re looking to make a tangible commitment to high standards you already uphold, it may be worth the extra analysis and reporting.
How Do I Assess My B Corporation Readiness?
B Lab, a nonprofit third-party entity that supports and assesses B Corporations, offers a free assessment tool for corporations called the B Impact Assessment. Corporations are scored in individual categories such as Transparency, Governance, the Environment, and Workers, in addition to an overall score. The assessment asks questions pertaining to each category, ranging from greenhouse gas emissions to employee health benefits.
The Global Reporting Initiative also offers an assessment tool for prospective B Corporations. Utilize these tools to determine your readiness for B Corporation status, along with ideas on how to improve your practices.
The most challenging problems we face are larger than what government and nonprofits can address alone. The B Corp community is committed to principles such as reducing income inequality, lowing poverty levels, supporting a healthier environment, building stronger communities, and creating high quality jobs with purpose and dignity.
The power of business is uniquely able to address all these problems facing our society. B Corporations have agreed to harness that power for a greater end: to use their profits and growth to create positive, sustainable solutions for their employees, communities, and the environment. If this sounds like your business, and your state recognizes B Corporations, consider applying for the distinction.
