B Corporations: Verified Sustainability

By Anne Moore Odell, SocialFunds.com
Published: March 24, 2008

Companies that pride themselves on being sustainable have a new badge they can present to show their commitment to the environment, society, and corporate governance. B Labs, a non-profit based in Berwyn, Penn., has created a third-party certification for "B Corporations." More than just supplying a sustainable product or service, B Corporations "create a public benefit" as an integral core of their business plan.

Corporations dedicated to the good of the people aren't a new idea. In fact, in the country's first decades, the newly created United States granted corporations charters to operate only if the corporations were considered for the public good; for example, helping create infrastructure such as bridges and roads. Corporations are still granted charters by state governments, giving them special rights and privileges. However, the modern consolidation of corporate wealth and power has overshadowed the public role for corporations originally envisioned by the U.S. founding fathers.

Started in June 2007, B Labs has already certified more than 80 corporations spanning over 20 different industries from coffee to clothing to media marketing. The "B" stands for the public benefit that B Corporations create through their products, practices, and profits. According to B Labs, over 700 companies have been through the B Ratings System.

B Corporations include Dansko, King Arthur Flour Company, Seventh Generation, and method. Although all of the B corporations are privately owned, they represent a $650 million marketplace. The 80 B Corporations are relatively evenly distributed along the spectrum from near-term public market businesses with $100 million or more in revenues to medium-size growth companies with $10-100 million in revenues to small businesses, local businesses, and sole proprietorships with less than $5 million in revenues.

"More and more investors want to go beyond screening bad companies out of their portfolios, focusing instead on investing in the highest-impact businesses, whether in the U.S. private equity and public markets or through microfinance and SME investment in the developing world," said Andrew Kassoy, co-founder of B Lab. "The B Corporation brand gives investors comparable standards by which to measure the social and environmental net impact of their investments. This transparent data is the critical first step in driving larger pools of institutional and retail investment capital to high impact businesses."

To become a B Corporation, companies must meet comprehensive and transparent social and environmental performance standards. Companies also have to think beyond serving just their shareholders, to changing their corporate articles to consider all stakeholders in the business. Businesses, lastly, have to agree to be part of the collective voice of the B corporation brand. B Labs' Standards Advisory Council oversees the B Rating System.

Companies that sign a licensing agreement with B Labs are agreeing to abide by its legal standards. The legal standards were created with the help of lawyers from four national law firms, including Linklaters and Jones Day. B Labs and their lawyers have engaged in an 18 month state-by-state research and analysis process, documenting the corporate legal statutes and judicial precedent in all fifty states.

In February 2008, the Rockefeller Foundation the awarded B Labs a grant though the Rockefeller Impact Investing Collaborative, which works to create infrastructure for social capital markets.

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