With Certifications Soaring, B Corps Look Ahead

With Certifications Soaring, B Corps Look Ahead

The number of companies to become certified B Corporations climbed toward 400 in 2010, a year in which momentum grew for legislation making it legal for companies to consider sustainability in business decisions, rather than focus solely on shareholder value.

At the same time, B Lab, the nonprofit behind the sustainable business certification, is gearing up to take its vision to the next level with a rating system aimed at scaling up investment in companies that not only do good, but exist to make a social and environmental impact.

These are among the successes and aspirations detailed by B Lab in dual reports released this week, more than a year after its inaugural progress report. B Corporations saved more than $1 million in service partnerships last year, while an ad campaign boosts their exposure to sustainability-minded consumeres. The community of B Corporations now spans 60 industries, 40 states, and has even gone international, with certified companies in Canada and Western Europe.

"We're delighted about the breadth and depth of the community. The diversity is something we're trying to highlight in the report," said B Lab Co-Founder Bart Houlahan, noting that B Corporations -- the "B" stands for benefit -- are both large and small, ranging from banks and manufacturers to insurance companies and law firms. Well-known B Corporations include Method, Seventh Generation, Numi Tea and New Resource Bank.

"Some are deeply green," Houlahan said in a phone interview. "Others are trying to alleviate poverty or rebuild a community. Others are exceptional employers trying to distribute wealth amongst their employees through innovative ownership structures."

All are manifestations of the same goal, he said: Trying to use business to address specific social or environmental needs.

"That is the commonality of the community of certified B corporations," Houlahan said. "They're trying to do something other than just create private wealth. They're trying also to solve a particular social or environmental problem with the power of capitalism."

Introducing the B Corp Index

For the first time, B Lab has been able to benchmark the performance of both B Corporations and the companies that complete the B Impact Rating System, which is free and available for any organization to use as a tool to measure and track their social and environmental performance. Some 1,300 companies have completed the B Impact Rating System and provided the data to B Lab.

The nonprofit compared the scores of B Corporations with firms that have completed the B Impact Rating System, which it dubbed "other sustainable businesses" because they voluntarily completed the Rating System, "indicating interest in sustainable business." B Corporations outperformed other sustainable businesses by 25 percent.

B Lab wants to also compare performance to mainstream businesses but there isn't much available data.

"We hope this is the beginning of a larger movement" where consumers and investors will demand companies complete the rating system and report the results, Houlahan said.

Scaling Up Impact Investment

B Lab's second report released this week detailed the run-up of the Global Impact Investing Rating System (GIIRS) that officially launches in July. The standard is meant to help impact investors evaluate companies across industries and geographies. It also aims to assist companies making a social or environmental impact raise capital through a set of niche investment funds.

"This is B Lab's effort to launch a rating system that focuses not on the financial performance of companies and funds, but instead, their social and environmental impact," Houlahan said, "creating a global, comparable system that allows investors and institutions to unlock a huge amount of capital to flow into impact investing."

GIIRS will launch with 25 pioneer funds, along with 200 companies in their portfolios that have agreed to be rated. Thirteen of the funds invest in emerging markets, while 12 invest in North America. Some of the funds focus on specific impact themes, such as renewable energy or sustainable agriculture. Others zero in on investment stages, such as companies at the seed or mezzanine financing stages.

"We hope it will create momentum for adoption of the rating system both in development market and the emerging markets," Houlahan said.

Support for New Corporate Structure Grows

B Corporations are unique because their business model allows them to factor sustainability into their business decisions rather than only focusing on profits, by law, for the sake of investors. 

Last April, Maryland became the first state to pass a law creating a new class of corporations that turns the definition of fiduciary duty on its head. These companies must now consider non-financial interests in business decisions, eliminating the possibility of being sued for failing to maximize profits. Eleven companies registered on the first effective date.

Vermont followed suit a month later, but the law doesn't take effect until July. Last week, New Jersey Gov. Chris Christie signed a similar bill passed unanimously by the state Senate and Assembly.

"The idea of opt-in legislation creating a new corporate form that doesn't impact budget, doesn't increase regulation, is a market-driven structure that allows sustainable business and social enterprises to use sustainability as a competitive advantage is something that everybody can get behind," Houlahan said.

The scenarios behind each piece of legislation varied, but each possessed three crucial elements.

"We realized there needs to be policymakers and legislators that embrace the vision, a business community who supports the new corporate form, and attorneys who have vetted the legislation," Houlahan said. "All three need to be engaged for successful passage of the legislation."

Benefit corporation legislation is pending in Colorado, Hawaii, New York, North Carolina, Pennsylvania, Virginia, California, Michigan

"We're introduced in eight states," Houlihan said. "We would like to see all eight states pass and line up our next set of states to join this movement."