Over the last decade, businesses have become increasingly aware of their impact on the world around them. The growth of the ESG (environment, social, governance) movement has encouraged companies to consider more than just profits. One of the tools of the trend has been B-Corp certification. This certification can demonstrate to consumers a corporation's commitment to acknowledging its impact on the environment, community, and individuals.

What is a B-Corp?

According to the U.S. Small Business Administration, a B-Corp is a for-profit corporation driven by a corporate mission. Shareholders hold the company accountable for producing a certain public benefit in addition to the usual aim for shareholder pecuniary gain. B-Corps are about social responsibility and making sure that companies hold true to their obligations, not only financially, but to the world around them. Examples of missions include the promotion of environmental sustainability or a push toward diversity and equitable outcomes for employees.

What Corporations Qualify as a B-Corp?

A B-Corp generally refers to a corporation that has received third-party certification based on analysis of its mission and adherence to the mission. The most predominant B-Corp certification entity is B-Lab, a nonprofit that started in 2006 and certifies companies that meet high social and environmental performance, accountability, and transparency standards.

 To be eligible for B-Corp status through B-Lab, a company must:

1) Be a for-profit business; and

2) Have been in operation for over 12 months.

A company cannot achieve B-Corp certification for a particular brand or division; only an independently operating business or a complete and distinct subsidiary can qualify. Additionally, the pathway to certification will change depending on the corporation's size or factors such as sector, industry, and ownership structure.

This chart below demonstrates how B-Lab distinguishes corporations by size:

*Source: Pathway to Certification

How to Qualify as a B-Corp

According to B-Lab, to achieve certification, a company must follow these steps:

1. First, the company must receive a score of 80 or more on the B Impact Assessment, which shows the company has a high social and environmental performance.
2. Next, the company must pass B-Lab's risk review.
3. The company must change its corporate governance structure, showing its legal commitment to be accountable to all stakeholders. This means that the company must not just be held accountable by shareholders.
4. The company can only achieve benefit corporation status if available in their jurisdiction.
5. Finally, the company must demonstrate transparency by permitting performance information measured against the standards of B-Lab to be publicly available on their B Corp profile on B Lab's website. 

What is the B Impact Assessment?

The B Impact Assessment is an online tool with a series of questions intended to measure a company's positive impact performance. If the company receives a score of 80 or more, it has met the first requirement for achieving B-Corp status. The assessment will ask questions about your company's practices across five categories:

1) Governance,

2) Workers,

3) Community,

4) The environment, and

5) Customers.

An example of a community question is: "What % of management is from underrepresented populations? (This includes women, minority/previously excluded populations, people with disabilities, and/or people living in low-income communities.)."

While the B Impact Assessment is required to become a B-Corp, it is also useful for measuring your company's impact. You can compare your assessment to those of other corporations and use your score to indicate how the business should grow in the future.

Shareholder Primacy to Stakeholder Governance

The legal commitment by B-Lab means shifting a company from the doctrine of shareholder primacy to stakeholder governance or benefit governance. Shareholder primacy is when companies prioritize profits. On the contrary, stakeholder governance ensures that companies consider other stakeholders in decision-making including social inequality, environmental damage, and social fragmentation. As a result, companies can be accountable not only to shareholders for profits but also to employees, investors, the environment, and the broader community.

Historically, the legal system has pressured businesses to operate under shareholder primacy. If the goal of a company is to generate profit for the shareholder, then the use of corporate resources for other purposes may have been considered a betrayal of the corporate purpose. That is why one of the best ways to promote stakeholder governance is to integrate it into the corporate structure. This may require explicitly changing the company's incorporation documents to provide for stakeholder governance. In doing so, the company would be closer to satisfying B-Lab's legal commitment. For more guidance, B-Lab provides a "legal requirement tool," which helps clarify the necessary changes depending on the jurisdiction.

What are the B-Lab standards?

The final requirement pertains to meeting and maintaining B-Lab standards and providing the organization with the information to be made available on its website. B-Lab Standards include the company's impact assessment, risk standards, and multinational company standards and baseline requirements. The standards are frequently under review and change based on the input of a Standards Advisory Council.

The Standards Advisory Council comprises members with expertise in business, government, academia, and the nonprofit sector appointed by the Board of Directors to consider the overall certification requirements and the specific standards applied to companies. An objective of B-Lab is to consistently update its standards to do better at promoting inclusivity, equitability, and economic growth.

Is it Hard to Qualify as a B-Corp?

B-Lab has certified over 6,500 companies in 89 countries worldwide. However, there are several requirements companies must satisfy to reach B-Corp certification. As a result, it may be difficult for a small corporation to meet these qualifications. B-Lab offers a "Pending B-Corp Status," which "is designed to give start-ups and smaller companies time to prepare for the rigorous process of full B-Corp certification." To receive Pending B-Corp designation, a company must meet the legal commitment, complete and submit a prospective impact assessment, and sign a Pending B-Corp Agreement. This intermediary step may ease a company's transition into B-Corp status.

Cost of B-Corp Registration

B-Lab charges companies an annual certification fee, which is based on the corporation's annual revenue. For instance, a company with annual sales between $0 - $4.9M will have a fee of $2,000; a company with annual sales between $30M - $49.9M will have a fee of $16,000; and a company with annual sales between $750M - $999.9M will have a fee of $50,000. Any company generating over $1B in annual sales will have its fee determined on a case-by-case basis.

Why Choose a B-Corp?

The Harvard Business Review suggests that there are several reasons businesses are choosing to operate as a B-Corp. Identifying as a B-Corp allows a company to demonstrate to its consumers that they are interested in stakeholder success. Potential investors, customers, or partners use identifiers such as B-Corp status to distinguish firms from each other.

This makes it easier for the interested parties to choose companies that align with their values. Additionally, many companies are beginning to market themselves as promoters of positive social change, but not all of those claims may be substantiated. B-Corp certification from B-Lab is one way a company can demonstrate that they are the "real deal." Finally, becoming a B-Corp can push your company to promote social good. Therefore, if you want to create a more positive impact for stakeholders, B-Corp certification is one way to meet that objective.

How are B-Corps Taxed?

As for-profit entities, B-Corps are taxed no differently from traditional corporations. Therefore, the corporation and its shareholders must pay taxes on their income.

Benefit Corporation v. B-Corp

Benefit Corporations and B-Corps are different and often need clarification. B-Corp refers to the certification that can be received from B-Lab. Receiving the certification depends on meetings B-Lab's qualification standards. A Benefit Corporation is a distinct type of corporation available in some jurisdictions. A Benefit Corporation is similar to a B-Corp in that it must have transparency, purpose, and accountability outside of generating profit for shareholders. However, B-Corp certification is voluntary and can be discarded at any time. In contrast, a Benefit Corporation is legally obligated to pursue its mission to promote a public good.

Examples of B-Corps

There are over 6,500 B-Corps located throughout 89 countries in the world. Some B-Corps are very popular household names, including:

1. Ben & Jerry’s, certified since 2012, has long supported nonviolent initiatives that seek to achieve peace and eliminate injustice.
2. Patagonia, certified since 2011, is best known for promoting environmental sustainability, limiting negative ecological impacts, and protecting nature.
3. Nestlé Health Sciences, certified since 2022, promotes environmental sustainability and good nutrition by reducing greenhouse gas emissions, reducing plastic use, and sourcing ingredients with significant nutritional value with limited environmental impact.
4. Nespresso Global, certified since 2022, works with NGO Rainforest Alliance to ensure a sustainable supply of high-quality coffee while improving the livelihoods of farmers and their communities.
5. Athleta, certified since 2018, promotes inclusivity and the power of women through partnerships with predominantly female organizations and supports the environment by making 40% of their apparel from recycled and sustainable material.

Questions about B-Corps?

If you are interested in B-Corp certification, contact our experienced lawyers today to learn how we can help you.