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:

• Who | Who can become a Certified B Corporation? Who are these B Corps?
• Why | Why are companies choosing to be (or not to be) Certified B Corporations? Why are stakeholders engaging and supporting these B Corps?
• Where | Where are the Certified B Corps doing business? Where can I find these B Corps?
• How | How does a company become a Certified B Corp? How are Certified B Corps being a force for good and creating benefit for all stakeholders, not just shareholders?

 
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:

1. how a company is governed,
2. how it treats its workers,
3. how it respects the environment, and
4. how a business supports its community.

 
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:

• a set of standards that business leaders, consumers, and investors could use to identify “good” companies
• a legal framework that would enable companies to consider all stakeholder interests, rather than just maximizing shareholder value
• a brand and community to unite the various corporate sustainability/social responsibility monikers

 
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.

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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.

​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:

• Implementing the Recommendations of the Task Force on Climate-Related Financial Disclosures (the “annex”).
• The Use of Scenario Analysis in Disclosure of Climate-Related Risks and Opportunities (the
  “technical supplement”).

 
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:

• Disclosures on climate-related Governance and Risk Management should be made even if a company views climate as a non-material issue. 
  • The FSB distinguished these types of disclosures because many investors want insight into the governance and risk management context in which organizations’ financial and operating results are achieved, regardless of perceived materiality.
  • Acknowledging current differences in sophistication, the Task Force provides flexibility for some companies to begin by incorporating these disclosures in other publicly available reports.  
• Disclosures on climate-related Strategy and Metrics and Targets, on the other hand, should be made only if such information is material.
  
  • The FSB further recommends that certain types of companies disclose their climate-related Strategy, Metrics, and Targets (even if they deem climate is immaterial) through other public reporting. [1]

 
Two other key changes between the draft and final recommendations report, included:

• Expanding the guidance on disclosures about remuneration to cover all organizations that have identified climate-related risks as material (the draft had this applicable only to organizations in the energy sector).
  • This falls under recommended disclosure (a) for Metrics and Targets and states: Where climate-related issues are material, organizations should consider describing whether and how related performance metrics are incorporated into remuneration policies.
• Simplification of the disclosure related to the scenarios analysis (recommended Strategy disclosure (c)) and clarification to focus on resiliency of an organization’s strategy to climate risks and opportunities.

The FSB also added emphasis and/or further explanation about several items addressed in the draft report:

• Clear linkage of climate-related risks and opportunities and associated financial impacts are widely applicable to all organizations, regardless of sector or location.
• Increasing demand and need for more public disclosure of climate-related financial implications by companies with public equity or debt and for more consistency (and further encouraging both publicly capitalized companies and asset owners/managers to quickly implement the recommendations).
• Refined the recommended disclosures and streamlined the supplemental materials for disclosures from two key groups: the financial sector and the four non-financial sectors (e.g., energy, transportation, materials and buildings, and agriculture, food, and forest products) with the highest proportion of greenhouse gas (GHG) emissions, energy usage, and water usage.
• Benefits of the disclosures being made in annual financial filings (and subject to internal governance processes substantially similar to those used for financial reporting).

• Acknowledgement of existing national reporting requirements (e.g., the U.S. SEC requires disclosure of material issues affecting the company’s financial condition) and clarification that any of recommendations that are incompatible with national requirements should be disclosed in other official company reports.
• Consideration existing voluntary and mandatory climate-related reporting frameworks (e.g., CDP, GRI, IIRC) and encouraged those frameworks to further align with the recommendations.
• Understanding that reporting of climate-related information will continue to evolve.

 
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:

• Increasing adoption of mandatory and voluntary disclosure requirements from trading exchanges and asset owners/managers (plus regulators of publicly traded companies).

• More shareholder proxy action on climate and associated risks.
• Growing action and coalition efforts from the largest companies and investors to incentivize and strengthen commitments to science-based reduction targets and renewable energy (e.g., the RE100)
• Evolution and streamlining of analyst research tools and reporting schemes (e.g., CDP, CDSB, IIRC, SASB, DJSI, MSCI), including more media and public access to climate-related disclosures.

 
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:

1. Review and share the final FSB recommendations with the company’s senior leadership, including board members. Chief Financial Officers, in particular, should be in the loop to assess and implement the recommendations.
2. Consider whether and how positioned your company is to make the recommended, voluntary disclosures.
3. Research whether your trading exchange (and/or its regulatory body) is exploring specific climate-related disclosures in addition to those already required.
4. Assess your key analysts’ and major shareholder’s climate-risk management and disclosure expectations.
5. Initiate development of: (i) a GHG emissions and energy use inventory (and water, if relevant) and (ii) a plan to explore how your company might be impacted by climatic changes and shifts to a lower carbon economy.
   • Both activities will require access to the requisite subject matter experts who can develop GHG/energy/water inventories, build climate-knowledge capacity among your senior leadership, and facilitate adequate board oversight.
   • While the FSB final recommendations clarify that GHG emissions and energy usage metrics do not need to be publicly disclosed in the annual financial filings if deemed immaterial, companies will need the data to assess the materiality, governance, and risk management practices in light of potential climate-related financial impacts.

 
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.

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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.