NEW YORK, United States — According to dominant corporate thinking, a company’s fundamental purpose is the single-minded pursuit of financial profit. But in recent years, a range of for-profit companies with wider social missions have registered themselves as 'B Corporations,' a designation which requires directors to consider not only shareholders, but also a broader set of stakeholders — society or the environment, for example — when making decisions. Importantly, the certification also insulates a company from investors who may question socially-minded decisions that eat into profitability.
To become a B Corp, a company must undergo a rigorous assessment, administered by Pennsylvania-based non-profit B Lab. There are now more than a thousand B Corps in the world, including fashion companies like Warby Parker (the carbon-neutral eyewear brand which donates glasses and eye exams to people in need) and Patagonia (the outdoor apparel maker long committed to environmental activism), which have both embraced B Corp certification as a means of enshrining their social missions.
But can being a B Corp also have business benefits?
“[B Corp certification] puts the company’s social or environmental mission into the DNA of the company, so as it grows, or if new investors or leadership come on board, these values are embedded in the company and don’t disappear,” explains B Lab’s director of communications, Katie Kerr.
“The main benefit for Patagonia was that we could ensure that if the status of Patagonia’s ownership ever changed, then these values that had always been a big part of Patagonia would stay at Patagonia,” agrees Elissa Loughman, manager of product responsibility at the company, which was founded in 1973 by the rock climber and environmentalist Yvon Chouinard and, in January 2012, became the first B Corp in California. Those values include the company’s commitment to using environmentally friendly materials and its pledge to donate at least one percent of sales to environmental groups. “It increases the likelihood [that these values] would survive unforeseen succession events in the very long-term. It was important for a company that wants to be around for 100 years — and wants to be around with its core values intact.”
When the online marketplace Etsy became a B Corp in May 2012, the company — which has over 600 employees and runs six offices across North America and Europe — scored 80.1/200 on B Labs’ B Impact test; the minimum score to be eligible for B Corp certification is 80. “What the certification allowed us to do was identify various areas in the company that we wanted to improve upon,” says Chad Dickerson, Etsy’s chief executive. “We became much better at dealing with our solid waste footprint. We’ve also increased minority representation in management.”
Etsy’s B Impact score has since climbed to 105 and the company received B Lab’s ‘Race to the Top’ award for the largest improvement in a B Corp’s score. “I think it’s been really good for morale and steering the company. It’s also helped with recruiting,” continues Dickerson. In fact, surveys show that young people (especially millennials) prefer to work for socially conscious or mission-driven companies and would consider leaving an employer if its social values no longer matched their own.
"It’s also helped with brand," added Dickerson. "Being B Corp-certified underscores our commitment to running a values-based business." Indeed, being a B Corp can be a powerful branding tool, reassuring consumers that they are buying into, not just a good product, but a good company. Crucially, for Etsy, this helps to create the trust factor that is essential to the functioning of a profitable marketplace business. “The feedback from our employees is that it’s one of the things that increases a sense of trust in Etsy if you’re a customer of the business — that you’re going to have a good experience, that Etsy is doing the right thing and that Etsy will be here for the long term,” explains Dickerson.
Becoming a B Corp can also help businesses to connect with likeminded companies, making it easier to keep values consistent along the supply chain. “[Patagonia does] purchase products from outside vendors and so that can help us to decide who we want to partner with in terms of other businesses and other products,” says Loughman. “If a company has B Corp status, we definitely notice it and that adds value.”
“We do business with other B Corps and we try to prioritise doing business with them,” adds Dickerson, who says that the companies which administer Etsy’s employee retirement plan and clean its offices are both certified B Corps.
But if becoming a B Corp has genuine business benefits, why aren’t more socially-conscious companies signing up?
In the apparel industry, the complex, global nature of the supply chain makes becoming a B Corp very hard. Unsurprisingly, the majority of fashion B Corps are small-scale businesses, producing goods in limited quantities. “Our certification looks at the entire company, not just the product. It looks at how you treat your workers, your community and the environment,” says Kerr. “The larger you are, the harder it is to get through the assessment, as there are so many more moving parts.”
For socially-minded clothing companies, like Fairtrade fashion brand People Tree, which would likely pass the test, B Corp status could be appealing. But for People Tree's founder, Safia Minney, credibility remains a question. “It seems to me that at the moment, it’s a very positive initiative, but it looks like a system that is mostly based on self-evaluation,” she says.
To be clear, B Corp certification, which is available to businesses in any country, is distinct from ‘benefit corporation,’ an American corporate status, recognised by 26 states and the District of Columbia, that requires a company’s directors to consider the wider social impact of their decisions, but, unlike B Corp, does not mandate third party certification. B Lab says that B Corps must back up their B Impact tests — which are self-assessed — with documentation that validate their claims. B Lab also randomly audits 10 percent of the B Corp community each year, sending a team to inspect their operations first hand.
But the system is less robust than Fairtrade certification, which requires that every part of a company’s supply chain be monitored by third parties. Adds Minney: “It would be great to see, in practice, what the monitoring system is that’s in place.”