In recent years, the concept of a B Corporation (B Corp) certification has gained traction among some businesses to demonstrate their commitment to balancing profit and purpose.
In this alert, we explain what a B Corp is, how to become a B Corp and some of the benefits and challenges of obtaining this certification.
What is a B Corp?
B Corps are companies that are independently certified for going beyond business as usual to proactively meet high standards of social and environmental performance, accountability and transparency.
These certifications are issued by B Lab, a not-for-profit network.
The very first B Corps were certified in June 2007. By the end of that year, B Lab had certified 81 Founding B Corps.
Today, the B Corp movement spans across over 100 countries, over 160 industries and employs nearly 1 million people. Across Australia and New Zealand, there are now approximately 750 certified B Corps (over 570 of which are based in Australia and about 13 of which are listed on either the Australian Securities Exchange (ASX) or New Zealand Exchange (NZX).
Some examples of B Corps in Australia include Patagonia, Beyond Bank Australia, R.M. Williams and Aesop.
How to become a B Corp?
The specific process to become a B Corp will vary between companies and jurisdictions. However, broadly speaking, to become a B Corp, a company must:
- satisfy the eligibility requirements to achieve B Corp status;
- complete and submit a B Impact Assessment which evaluates the company’s performance across a broad range of topics, spanning from human rights to environmental stewardship and circularity;
- sign the B Corp agreement and pay the associated fees; and
- meet the purpose and stakeholder governance requirement by amending the company’s constitution.
This process can be time-consuming and costly. Companies are required to pay certain fees upon submitting a B Impact Assessment and to enter a queue to have their B Impact Assessment verified. Verification takes six months from submission, on average, but timing for the total process also depends on how long it takes the company to prepare their submission.
To maintain B Corp status, companies need to also update their B Impact Assessment and have their B Impact score verified by a B Lab analyst every three years, as well as when a change of control or ownership occurs. B Corp companies must also pay an ongoing annual certification fee.
Potential benefits of becoming a B Corp
Companies may choose to become a B Corp for many reasons, including:
- reputation: many companies consider B Corp certification to be a recognised symbol of a company’s commitment to going beyond business as usual. The certification can be used to build trust with key stakeholders and improve the company’s reputation in the market. B Corp certification may provide a competitive advantage to help differentiate a company from its competitors;
“Certification signals to your stakeholders that you are committed to creating long-term value for people and planet, alongside profit. It demonstrates a dedication to considering all stakeholders, not just shareholders, in your decision-making. This strengthens the entire business, guiding boards and future owners to act with future generations and the planet in mind.” – Andrew Davies, CEO of B Lab Australia & Aotearoa New Zealand
- employee benefits: becoming a certified B Corp may enhance a business’ ability to attract and retain employees. It can also increase employee engagement and satisfaction;
- increased access to capital: a B Corp certification may assist your company in securing capital and funding from investors and lenders who are focused on social and environmental issues. We have discussed this further elsewhere; and
- operational improvement: the detailed assessment process may help your company understand the wide range of impacts it has, and identify areas for improvement in its operations.
Key issues to navigate in becoming a B Corp
In addition to the time and cost involved as part of the assessment process, amending a company’s constitution to insert the B Lab-approved purpose and stakeholder governance wording may not be a straightforward matter. There are a number of potential risks in adopting the B Lab-wording, particularly in the absence of broad adoption of that wording amongst Australian companies.
Those risks may be mitigated by amendments to the standard wording and the adoption of some practical processes to demonstrate compliance with the stakeholder governance requirement, but the amendment to the constitution will still need to be approved by a special resolution of shareholders.
Further assistance from KWM
For legal advice in relation to becoming a B Corp and navigating the potential risks for the company and its directors, please contact a member of the King & Wood Mallesons team.
