This article originally appeared on GreenBlue's In the Loop blog.
There's been a lot of talk around the office lately about what the next decade has in store for the sustainability movement. One trend we've discussed is the development of new corporate structures that make it easier for businesses to pursue social and environmental good.
There's been a lot of media focus recently on Benefit Corporations (or B Corps), especially as Patagonia recently became the first company in California to elect this new corporate status. B Corps are required by law to create a positive social impact, in addition to profits for their shareholders, by taking into consideration how all their business decisions impact their employees, the community, and the environment.
Less discussed is another similar social enterprise structure emerging in the United States: the low-profit limited liability company, also known as the L3C. Could this new corporate model help advance more businesses toward sustainability in the coming years?
Similar to B Corp designation, the L3C framework is a new way of for businesses to be more socially and environmentally responsible without sacrificing their immediate bottom line. The L3C is a hybrid between the nonprofit and for-profit models in that it is essentially a profit-generating entity with a socially beneficial mission.
Like an LLC corporation, L3Cs have the same liability protection and are not tax-exempt; however L3Cs have access to forms of capital that traditional corporations don't qualify for, all in order to further social and environmental goals. Americans for Community Development describe the L3C as a company that "combines the best features of a for-profit LLC with the socially beneficial aspects of a nonprofit… the for-profit with a nonprofit soul."
More specifically, philanthropic sources of funding, such as foundations, have the ability to invest in L3Cs through "Program Related Investments" (or PRI funds) and reap small returns (unlike with traditional grants) while still ensuring their tax-exempt status. Because foundations can invest in L3Cs and are willing to take on more financial risk in exchange for social returns (especially during the early stages of these ventures), the risk/return profile becomes much more attractive for traditional market-driven investors.