2,200+ Reasons for Hope | Benefit Corporations are Changing The Business World (for the better)8/31/2017 The news cycle feels overwhelming at times. We get barraged with negative stories about violence, corruption, greed, injustice, hate, and massive weather damage. As sustainability professional, I get questions all the time about whether our collective goose is cooked. Is catastrophic climate change irreversible? What can I as an individual do to combat it? How can I do better as a business leader? Do my actions and decisions really make a difference? While my responses may vary depending on the news cycle influences, I’m always able to consistently share hope by highlighting a new type of company and a burgeoning movement of “B Corps”—the better companies that often go by the designation “benefit corporations” and/or “certified B corporations™.” B Lab, the non-profit that started the “global movement of people using business as a force for good™,” has a vision that one day all companies compete not only to be the best in the world, but the “Best for the World®.” I’m old enough to remember when more companies acted with some semblance of a conscience. When they earned a good profit for the owner(s), when they paid their workers a fair wage, when they built lasting relationships with their customers, and when they built enduring products. When they took some effort to minimize externalities and do the ‘right thing’ even if the law strictly allowed them to do otherwise. All before Milton Friedman’s principle of profit maximization at all costs became the prime directive for American business owners and investors. Those old-school businesses weren’t perfect nor always the most efficient, but the most successful took some measure to act ethically and legally—to engage in some level of social responsibility—for the mutual betterment of the owner(s) and society. Don’t get me wrong. I love me some profit. It’s an elemental factor in business motivation and success. But, it doesn’t happen in a vacuum. And, a high profit today, may lead to a business failure tomorrow. To succeed, businesses also require good employees and customers and sufficient natural resources (i.e., raw materials for product-based companies, in the way of energy, buildings, computers, phones for service-oriented companies). Some companies are bringing corporate America back to the future—where the power of business is used to benefit both shareholders and society. Some of these companies are successfully managing to the triple bottom line (factoring people, planet, profit). Some are designing their products to minimize their environmental and other social impacts (e.g., EPEAT electronics, Fair Trade coffee or chocolate, sustainably harvested forest products). Increasingly, some are using more comprehensive reporting frameworks such as the Global Reporting Initiative (GRI), ISO 26000, or the CDP (formerly the Carbon Disclosure Project) that measure corporate-wide practices and impacts. There is also a smaller sub-set of for-profit companies that were launched to advance general or specific public benefits. Some of these do-good, for-profit companies may be called many things—social enterprises, conscious capitalism, benefit corporations, B corps. Some have been around for decades (e.g., Patagonia, Ben & Jerry’s, Stonyfield Farm, Eileen Fisher, Sokol Blosser Winery, Hog Island Oyster Company); others were launched more recently (e.g., Etsy, Warby Parker). If an individual or business is looking to support these trends to redefine business success, how do they go about distinguishing between all these so-called good companies? Many, myself included, think that the Certified B Corporations™ set themselves from the rest of the pack because of the comprehensive, independent assessment and rating process they go through to become and remain certified. I am working, with some collaborative partners, on a series of blog posts about some of these new breed companies. We’ll start by focusing on the benefit and certified B corporation designations. This first article is a basic primer about the “what” (What is a Certified B Corp, What is a Benefit Corporation) and provides a brief history about the movement that introduces the who, why, where, and how Certified B Corps came to be. Subsequent articles will focus even more specifically and deeply on the B Lab Certified B Corporations, including:
Please travel with us as we explore these back-to-the-future companies and discover a movement that may just disrupt capitalism, our planet, and our communities—for the better. Along the way, we’ll feature some data about and conversations with Oregon-based B corporations. Thanks, in advance, for indulging some home-state pride! We come honestly to featuring Oregon B Corps as Oregon is home to a significant percentage of the certified B corporation community. The Basics | What is a Certified B Corporation versus a Benefit Corporation? Some of the phrasing for this new breed of company has caused some confusion. There are basically two terms to understand and distinguish: “certified B corporations” and “benefit corporations.” Part of the confusion is that the shorthand phrases “B Corp” or a “B” company are being informally used to describe either type of company. My preference is to use the “B Corp” term just for the B Lab Certified B Corporations. Certified B corporations and benefit corporations have a lot in common. A company can even be both. But, the two types can be distinguished by a few key differences. ![]() In brief, Certified B Corporations™ are companies that have gone through a third-party assessment process (conducted by the non-profit B Labs®) that certifies their social and environmental performance, legal accountability, and public transparency. B Lab frequently uses the following analogy: a Certified B Corp is to business what Fair Trade certification is to coffee, USDA Organic certification is to milk, or USGBC LEED certification is to green buildings. The B Lab assessment process is iterative and evolves to adapt to emerging best practices and standards. The assessment covers the company’s entire operation and measures the company’s impacts across four areas:
The applicability and weightings in each category are tailored to the company’s industry, geographic location, and number of employees. Under the current scoring system, companies can score a potential 200 points. A company must earn at least 80 points to earn the Certified B Corporation label. They must also re-certify and meet the scoring minimum every two years. Today, more than 2,200 companies are B Lab Certified B Corps. These companies come from more than 140 industries and are from 50 countries. Tens of thousands of other companies have also used the B Lab assessment framework to measure themselves and provide a roadmap to improve. Benefit corporations, on the other hand, are a new type of incorporation category that have a social, environmental, or some other identified public benefit as an integral part of their business purpose and meet the legal requirements established by state laws (where the company is incorporated and/or registered). Similar to S or C corporations, wholly owned subsidiaries, or limited liability corporations, benefit corporations are a legislatively recognized category of company. More than 30 states have enacted some form of benefit corporation laws; many other states are actively considering benefit corporation legislation. Typically, these states require their benefit corporations have a stated public benefit and meet higher transparency and accountability standards than the other types of corporations. For example, many states with the benefit corporation designation require such companies to submit to periodic independent third-party assessments and publicly release the assessment results. Unlike other types of incorporated businesses, benefit corporations are legally obligated to consider impacts beyond profit or maximizing shareholder value. They must also consider the impact of their decisions on their workers, consumers, their communities, and the environment. This legal structure enables business owners to support the company’s business and mission while growing over the long-term. New companies can initially file as benefit corporations. Existing companies may also amend their governing documents to change to the benefit corporation structure and re-file with the state to change their legal status. Here is a brief summary from B Labs that outlines some of the intersections and differences between legislatively recognized benefit corporations and B Lab Certified B Corporations. A Little History | How the B’s Began About 10 years ago, B Lab was launched to accelerate the growth and amplify the voice of the socially and environmentally responsible business sector. The founders—Jay Coen Gilbert, Bart Houlahand, and Andrew Kassoy—identified three key elements needed to foment this movement:
The first foundational component of their strategy was to create a comprehensive set of best practices performance standards and legal requirements to distinguish and provide credibility to companies portraying themselves as a “good” company. In addition to measuring what matters, and benchmarking the impact against similar companies, the standards provide a framework for companies to improve their performance. The founders worked with many leading businesses, investors, and attorneys to develop this initial set of standards. What has now become the “B Impact Assessment” started with a spreadsheet to measure some of the best practices in socially responsible businesses. The first 19 companies were certified as B Corps in June 2007. While most of the certified companies are American companies, companies in many other countries have been certified. Canada has the second most B Corps with more than 150 certified companies to date. By 2011, more than 500 companies had been certified. While companies must pay a fee to be audited and certified, any company can use the B Impact Assessment rating tool for free. The standards for the B Corp certification evolved over the years and will continue to evolve. Moving forward, B Lab will update the B Impact Assessment about every three years. B Lab now uses an independent advisory council to maintain and advance the standards. It always welcomes public comments on the standards. Passing legislation to create a new type of corporation was the B Lab founders’ second piece of infrastructure to spur a more massive and durable movement. B Lab (with pro bono attorneys from Drinker Biddle & Reath) developed model legislation to create a statutorily recognized class of social enterprise companies—the benefit corporations. B Lab, in partnership with many, worked (and continues to work) with states to enact benefit corporation laws. In April 2010, Maryland became the first state to pass a benefit corporation statute. In June 2017 Texas became the 33rd state to create a benefit corporation class. The Texas law is effective September 1, 2017. Six other states are actively exploring benefit corporation legislation: Alaska, Georgia, Iowa, Mississippi New Mexico, and Oklahoma. These social innovators were motivated to create this new type of corporation, in large part, to counter the strong perception and several legal decisions—framed by Milton Friedman’s 1970 business social responsibility article—that protect shareholder profit maximization over all other business and societal interests. These battles over a company’s pursuing its mission versus shareholder’s rights to maximum profit typically arose in the context of potential corporate takeovers or other sales or after leadership changes. The benefit corporation pioneers felt this type of legal structure was needed to ensure “long term mission alignment and value creation.” To protect the mission “through capital raises and leadership changes,” to create “more flexibility when evaluating potential sale and liquidity options,” and to prepare businesses to “lead a mission-driven life post-IPO.” Since this type of corporate class is still relatively new, there are no known court cases ruling on the merits of these protections. One interesting corporate transaction that received some press and many have speculated about—whether Ben and Jerry would have fought the Unilever bid if they had the benefit corporation status protection. To Unilever’s and Ben & Jerry’s credit, Ben & Jerry’s became a Certified B Corporation in 2012, twelve years after Unilever acquired it. The B Lab founders also understood the need to create a brand and community to both unify and amplify the voice of these like-minded companies and their supporters. B Lab has worked to construct a vocabulary that reflects the shared values of those who believe that businesses can be a force for good. They’ve also implemented a series of campaigns such as “Measure What Matters”, “Best for the World”, and “B the Change”. B Lab is also nurturing and expanding the community through events and recognition such as the B Corp Champions retreats, B Corp Leadership Development, and the B Corp Ambassadors. Stay tuned for the next article in this series—a deeper dive about what it takes to become a Certified B Corporation and/or a benefit corporation and why companies are voluntarily choosing these routes. ####
Thank you for reading this blog post. Here at Corporate Sustainability Advisors LLC blog and on LinkedIn, I regularly write about organizational, community, and personal sustainability. If you would like to read my future posts then please subscribe via the adjacent link. Also, feel free to connect via Twitter and Facebook.
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Here’s a follow-up to our December 2016 blog on the Financial Stability Board’s (FSB’s) recommendations to facilitate wide-spread climate-related disclosures by organizations with public debt or equity to promote more informed investing, lending, and insurance underwriting decisions. In late June 2017, the FSB Task Force of the G20 nations released its final recommendations (the “report”) to encourage companies and financial-sector organizations (e.g., banks, asset owners and managers, insurance companies, lenders) in G20 countries to assess and incorporate climate risks and opportunities in their mainstream public financial reporting. At the time the report was released, more than 100 CEO’s expressed support for the recommendations (full list of pre-release signatories). To supplement the final recommendations, the FSB also provided accompanying documents including:
In finalizing its recommendations, the Task Force received more than 300 responses through its public consultation process. The FSB noted that, overall the commenters were supportive of the recommendations (summary of the public consultative process and comments). The Task Force used the specific and constructive feedback on the draft to refine the recommendations in its final report. Final Recommendations | Key Changes and Enhancements from the Draft The Task Force made only slight changes from the draft recommendations. The final report keeps the focus on the four thematic areas targeted in the draft recommendations: governance, strategy, risk management, and metrics and targets. O ne of the more notable refinements relates to the FSB’s recommended disclosures that organizations should make in their annual, public financial filings. The FSB provided clarifications in response to concerns about having potentially immaterial issues reported in public financial filings. The FSB also repeated its caution that organizations should not prematurely conclude that climate-related risks and opportunities are not material. As highlighted in the FSB’s Summary of Key Changes and Clarifications document (see highlighted table below), the FSB now recommends:
Two other key changes between the draft and final recommendations report, included:
The FSB also added emphasis and/or further explanation about several items addressed in the draft report:
The FSB highlighted four key benefits to the publicly-traded companies that implement these recommendations: The Task Force also re-emphasized the potential financial impacts of climate-related risks. The final report and the supplemental materials (e.g., Implementation Annex, Technical Supplement) provide additional explanation and examples of the potential climate-related financial impacts potentially facing many companies in the short, medium, or long term. For example, see Figure 1 (below) and Tables 1 and 2 from the final report. What to Expect Next Now that the FSB recommendations are final, we can expect continued action on these issues from a number of perspectives, including:
Our Suggested Action Items to Publicly Capitalized Companies The FSB’s recommendations provide a great reflection point for publicly capitalized companies to consider their climate-related risks and opportunities. For the many companies that have already begun this journey, it provides confirmation of the business case for doing so and additional guidance to improve the quality, efficiency, and consistency of the analysis and disclosures. It provides impetus for increased collaboration amongst a company’s board of directors and leaders from across the organization including: the Chief Financial Officer and other financial leaders, the Chief Investment Officer and other investor relations leaders, risk management leaders, and climate/sustainability leaders. For publicly capitalized companies that haven’t yet begun to assess which, if any, climate risks or opportunities may impact them, now is a good time to start. If you are a board member or senior leader at one of these companies, we recommend the following five initial steps:
If your next annual financial filing occurs before you’ve taken these steps and you choose to omit any of the recommended disclosures, you should consider providing a rationale for omitting the disclosures. This could include a statement that the company acknowledges the FSB’s recommendations, is assessing how it will implement them, and will reflect any such implementation in the next annual filing. Footnote: [1] The FSB recommends that certain companies (i.e., in the four non-financial groups with $1+ billion in annual revenue) should consider publicly disclosing the Strategy and Metrics and Targets information even if the information is not deemed material and not included in financial filings. Suitable public disclosure mechanisms would be “other official company reports” (i.e., defined as those issued at least annually, widely distributed, available to investors and others, and subject to internal governance processes substantially similar to those used for financial reporting).
#### Thank you for reading this blog post. Here at Corporate Sustainability Advisors LLC blog and on LinkedIn, I regularly write about organizational, community, and personal sustainability. If you would like to read my future posts then please subscribe via the adjacent link. Also, feel free to connect via Twitter and Facebook. Applicability You’ll want to read this if:
These issues are most relevant to a publicly capitalized company’s board of directors and its financial and risk executives and sustainability leaders (if any). Also, all employees might want to be aware of how climate risks and opportunities might impact their company. Summary A Financial Stability Board (FSB) task force of the G20 nations released recommendations that encourage companies and financial-sector organizations (e.g., banks, asset owners and managers, insurance companies, lenders) in G20 countries to assess and incorporate climate risks and opportunities in their mainstream public financial reporting. These recommendations send a strong market signal that climate-related risks are financial risks. The guidance is designed to “elicit decision-useful, forward-looking information” on climate-related financial impacts to help “investors, lenders and insurance underwriters to appropriately assess and price climate-related risks and opportunities.” The Recommendations | Companies are Encouraged to Address 4 Areas The recommendations focus on four thematic areas that the FSB feels reflect how many organizations operate. These include: governance, strategy, risk management, and metrics and targets. The FSB recommends specific disclosures that organizations should include in financial filings. See the report’s Figure 3 below. For example, the task force recommends companies conduct and publish a 2 degree scenario business plan, Scope 1 and 2 greenhouse gas (GHG) emissions, and any ‘appropriate’ Scope 3 emissions. The FSB provided supplemental guidance for sectors it judges are most affected by climate change. The FSB states that the recommendations are applicable to organizations across sectors and jurisdictions. It also recognizes the key role that large asset owners and asset managers play “in influencing the organizations in which they invest to provide better climate-related financial disclosures.” Climate Risks and Opportunities with Financial Implications The report provides context about the range of financial implications posed by climate change. It summarizes why some organizations haven’t yet factored climate change into their business strategy. “The large-scale and long-term nature of the problem makes it uniquely challenging, especially in the context of economic decision making. Accordingly, many organizations incorrectly perceive the implications of climate change to be long term and, therefore, not necessarily relevant to decisions made today.” It noted that climate-related risks and an anticipated transition to a lower-carbon economy will impact some industries (e.g., organizations dependent on extracting, producing, and using coal, oil, and natural gas) more significantly than others. It also remarked that these fossil fuel-centric organizations are not alone: “in fact, climate-related risks and the expected transition to a lower-carbon economy affect most economic sectors and industries.” In a similar vein, the FSB cautioned organizations not to prematurely assume that climate impacts—risks or opportunities—are not material to them. The Task Force believes “climate-related risks are material risks for many organizations, and this framework should be useful to organizations in complying more effectively with existing disclosure obligations.” It further found that while the risks presented are significant, so are the opportunities for organizations “focused on climate change mitigation and adaptation solutions.” As illustrated in the report’s Figure 1, “climate-related risks and opportunities can affect organizations’ revenues and expenditures, and possibly estimates of future cash flows, as well as their assets and liabilities in a number of ways.” Context
Although the recommendations are voluntary, each G20 nation will determine—after the FSB finalizes them in 2017—whether and how to incorporate them into legislation, regulations, or guidance. Many investors are calling for countries and exchanges to adopt them as mandatory as some countries have already done. Regulators or exchanges in many countries, including the US, already require companies to report on material risks—including climate-related risks—in their financial disclosures. Increasingly, more countries require specific disclosures such as quantitative metrics on energy usage and/or GHG emissions and at least qualitative reporting on climate impacts. France’s Energy Transition Law (Act 17), for example, requires France-domiciled listed companies and asset owners/managers to report climate factors and carbon emissions footprints by June 2017). The United Kingdom’s Companies Act 2006, Regulations 2013, requires listed companies to publish in its Directors’ Report annual GHG emissions data. For more details and other examples, check out the Principles for Responsible Investment’s Global Guide to Responsible Investment Regulation. The FSB’s directs its recommendations to asset owners/managers and publicly capitalized companies. It also encourages other companies to explore and disclose the financial implications of climate risks and opportunities because it believes “climate-related risks and opportunities are relevant for organizations across all sectors.” The FSB further acknowledged that climate-related financial reporting is at an early stage. The guidance it offers should advance the quality and consistency of mainstream financial disclosures related to the potential climate change effects on organizations. What Next? Our Suggested Actions for Publicly Capitalized Companies The FSB’s recommendations provide a great reflection point for publicly capitalized companies to consider their climate-related risks and opportunities. For the many companies that have already begun this journey, it provides confirmation of the business case for doing so and additional guidance to improve the quality and consistency of the analysis and disclosures. It provides impetus for increased collaboration amongst a company’s board of directors and leaders from across the organization including: the Chief Financial Officer and other financial leaders, the Chief Investment Officer and other investor relations leaders, risk management leaders, and climate/sustainability leaders. For publicly capitalized companies that haven’t yet begun to assess which, if any, climate risks or opportunities may impact them, now is a good time to start. If you are a board member or senior leader at one of these companies, consider the following actions:
Whether your company has been addressing these issues or is just becoming aware of them, consider providing feedback on the FSB’s recommendations via the online consultation here. The public consultation process is open through mid February. Background About the FSB and the Task Force In response to the global economic crisis, the G20 nations established the Financial Stability Board (FSB) in 2009. The FSB serves as an international body that monitors and makes recommendations about the global financial system to promote international financial stability. In December 2015, the G20 nations asked the FSB to establish an industry-led task force to review how the financial sector can take account of climate-related issues. The FSB created and asked the Task Force on Climate-related Financial Disclosures (TCFD) to develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The FSB choose the TCFD’s 32 members to include both users and preparers of disclosures from across the G20 nations covering a broad range of economic sectors and financial markets. The members which include Unilever, Axa, PwC, Standard and Poor's, Blackrock and Barclays, represent $1.5 trillion in market capital, with $20 trillion in assets under management. See here for task force member statements supporting the report. Summary Federal agencies have amended the Federal Acquisition Regulations (FAR) to require certain contractors to indicate whether or not they publicly share information about their corporate greenhouse gas (GHG) emissions inventory or goals. Published in the Federal Register on November 18 (81 FR 83092), the new rule does not actually require contractors to calculate or reduce their GHG emissions, just that they indicate whether they publicly disclose either emissions or goals information. In the final rulemaking the government clarified the purpose and goals of the FAR modifications. The representations are intended to help the government better understand, not regulate, the GHG management practices of its industry partners. The rule is designed to be a low-burden, minimally intrusive effort to enable greater insight into the GHG management practices of the federal supply chain. Effective December 19, 2016, the final FAR rule establishes an annual representation requirement for contractors to indicate whether or not they publicly disclose GHG emissions data and/or emissions reduction goals. For companies that do publicly disclose such information, they must also indicate where it is publicly available on the Internet. The requirements are applicable to companies that had $7.5+ million in federal contract awards in the prior federal fiscal year. The final rule is almost identical to the proposed rule released in May 2016 (81 FR 33192). Some minor clarifications where made to address comments made to the draft rule. Representations Required New FAR provision 52.223-22 (and an equivalent at 52.212-3 for commercial/COTS items) representations:
Implications The new rule may be a target for repeal by the incoming administration because it is based on an Executive Order of President Obama (EO 13693). On the other hand, the EO and rule mirror the supply chain practices of many successful US-based and global corporations. Applying such practices to the US government’s $400 billion supply chain could well have bi-partisan appeal as they will likely result in cost savings to the companies and taxpayers alike. GHG management is closely connected with cost savings from energy use reduction, and serves as an indicator of operational efficiency and excellent management practices. Thus, organizations that purchase large volumes of goods and services (e.g., AT&T, Bank of America, Coca-Cola, Nike, Walmart) have started asking their supply chain (i.e., the companies they buy from) about these practices. Private and publicly-traded companies are enhancing their environmental, social and governance (ESG) practices, including disclosing details about their GHG management and other sustainability practices through tools such as the CDP and the GRI Sustainability Disclosure Database. For example, nearly 10,000 organizations have submitted more than 35,000 reports via the GRI database. Last year, companies representing more than 50% of the combined market capitalization of the G20 reported emissions data to CDP. These public disclosures, and the management efforts behind them, help the bottom line.
In response to these efficiency opportunities, supply chain management practices, and investor expectations, many federal contractors already have GHG and energy management programs. This is especially true of the largest contractors. The Council on Environmental Quality (CEQ) just released the 2016 Federal Supplier GHG Management Scorecard that reflects a survey of approximately 80 companies and represents $214+ billion in FY15 federal procurement spending (about half the annual contracted amount). Of those surveyed, about 57% (by count) or 73% (by contracted dollars) have public GHG emissions inventories in 2015 or 2016. Slightly fewer have public GHG reduction goals for 2016 or beyond—about 44% (by count) or 62% (by contracted dollars). Whether or not the new rule remains in effect throughout the next administration’s term, there are compelling business reasons for federal contractors and other companies to manage their GHG emissions and energy use.
With increasing regulator, investor, and customer interest, board members must pay more attention to their company’s sustainability practices, impacts, and disclosures. The days when boards can view these as “soft issues” that they can ignore are quickly passing. Focusing on quantitative sustainability metrics and linking to innovation initiatives are ways that board members can help drive long-term corporate performance and value.
If you have 10 minutes or so, watch this @BoardResources interview with Evan Harvey (@EvanHarvey99, Nasdaq’s Director of Corporate Responsibility) for a great overview about why and how boards of directors should be more involved in their company’s environmental, social, and governance (ESG) programs. I concur with Mr. Harvey’s three recommendations to boards about how they can begin to monitor sustainability more responsibly:
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AuthorHi. I'm Colleen, Corporate Sustainability Advisor's founder and owner. Blogging about corporate sustainability trends, benefits, and best practices. Archives
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