Evaluating B-Corp certification
A new era of sustainability is rising, and it is rapidly influencing the way in which consumers utilise their spending power. Convenience and price are no longer the sole drivers of consumption and corporations are under increased scrutiny to balance financial performance with positive social and environmental impact.
The positive implications of such a cultural shift are clear. Social pressure drives ethical progress as firms are forced to consider the impact of their decisions on a wider range of stakeholders. Examples of this includes industry leaders such as Nike promoting better working conditions in factories and Starbucks shifting to the use of ‘Fair Trade’ coffee.
Despite the growth in information technology and sustainability reporting, information asymmetry remains an issue. How can consumers make the distinction between businesses merely promoting impact as a marketing tool and those actually incorporating practices that serve a social purpose?
This is where the B-Corporation certification comes in, a measurement and verification of this desired balance between purpose and profit.
A B-Corporation Certification is a designation that is awarded by the private organisation B-Lab along with Sistema B for for-profit corporations that achieve a minimum standard for social and environmental performance. This is not to be confused with a benefit corporation, which is an official designation authorised by the United States government.
The aim of which is to determine which firms are best considering the wider impact of their decisions and creating an identifiable certification to maintain accountability and acknowledge the best performers.
In order to be a B-Corp, a company must undergo a rigorous process that weighs its impact across 5 areas: its governance, workers, community, customers, and environment. They must also amend their legal governing documents to balance profit and purpose as well as making their reporting to B-Lab publicly available.
Passing the process involves achieving a minimum score (80/200) based on selection criteria using the 5 aforementioned impact areas. Questions are based on the core operations and business model, with additional credit awarded for notable social and environmental impact. The average business scores just 50.9. An example of a B-Corp is Patagonia, an outdoor apparel firm that focuses on sustainable fashion and scores 151.5, with particularly impressive scores with respect to environment (44.8) and community (58.7).
Speaking to the significance of B-Corps, Rose Marcario, CEO of Patagonia Works says:
“The B-Corp movement is one of the most important of our lifetime, built on the simple fact that business impacts and serves more than just shareholders - it has an equal responsibility to the community and to the planet.”
If you’d like to learn more about sustainable fashion, make sure to read the piece by Nina Lo in this edition of the Impact Update.
As previously mentioned, consumers are looking to buy from companies that prioritise social and environmental impact. However, the majority of us have neither the expertise nor the patience to read through information heavy 'sustainability reports' and initiate comprehensive independent investigation. B-lab essentially conducts this research on behalf of consumers, allowing us to simplify purchasing decisions without exhausting extensive effort.
As a third party evaluator, B-lab offers a high quality, rigorous and customer focused analysis which considers multiple stakeholders from an objective standpoint. This validation builds trust and creates transparency between consumers and companies. Consumers are thereby able to feel confident that when they deal with a B Corp, it truly is a high performing firm that has adopted the triple bottom line framework.
Accessibility and convenience is another key benefit that the B-Corp Certification offers. Consumers can simply check product packaging for an easy to identify logo or visit the B corporation website that clearly displays B-Corps and their respective individual scores in each of the 5 areas. This website provides a platform for the best-performing firms to promote their impact-oriented, socially conscious business practices to both present and future investors, customers and employees.
In addition to assisting consumers in their decision making, the verification process also allows companies to identify areas of strength and those of improvement. B Lab aggregates learnings, shares case studies and provides professional development opportunities for firms. The presence of clear and independent comparisons allows these firms to converge upon best practice.
The differential pricing model takes into account business structure, annual revenue and legal structure etc, thus allowing for a wide range of different types and sizes to be reviewed. Additional considerations are offered for certain businesses such as subsidiaries, startups and large multinational companies.
B-Lab is also constantly evolving their The Impact Assessment Model to ensure they provide the best-in-class measurement and management tool. Testing of version 6 of the B-Impact Assessment has commenced with B-Lab looking to update individual metrics and make important improvements to ensure the model is more understandable, consistent, and outcomes aligned.
However, B-Corp certification is not without fault, with a number of methodological and conceptual issues to consider.
In providing a final number with which to evaluate the impact of a business, a number of arbitrary assumptions are necessarily made about the desirability and magnitude of intangible impacts.
Drawing back to the Patagonia example, how does one quantify the value of “Job flexibility/corporate culture”? How does one determine its significance relative to “transparency” or relative to different stakeholders such as the community, customers, or the environment?
The answer is that certain assumptions need to be made about the numeric value of certain impacts and different people may have different assumptions, contexts, experiences, or ethical values that would affect their respective perspective. Someone might suggest that in light of a deepening ecological crisis, environmental impact should take precedence, others may feel treating workers well is more important than community engagement or that the end customer is the most important stakeholder. These inherent subjectivities are difficult to overcome when your model becomes less holistic and more quantitative.
It is also increasingly difficult to evaluate large multinational corporations, as supply chains and organisational structures become increasingly complex, making it hard to track and evaluate impact. This is especially true of conglomerates, which operate in a variety of different sectors, thus having differing impacts, making it complicated to assess the “quality” of a conglomerates social impact.
As such, the majority of B-Corps are small businesses, although individual subsidiaries of conglomerates (such as Ben and Jerry’s with Unilever) have achieved B-Corp status and there are a number of certified publicly traded companies.
There are also some methodological concerns to consider. The use of a threshold model (needing to score 80/200) allows for some firms to potentially perform horrifically with certain stakeholders by performing highly with others. For example, it would technically be possible for Patagonia to score 0 on workers, governance, and customers because their scores for environment (44.8) and community (58.7) already place them over the threshold to be considered a B-Corp. This model could allow for a firm that creates tremendous environmental destruction to be registered as a B-Corp if it delivers a large positive impact with other stakeholders.
This would be solved by having minimum score requirements for each of the 5 impact areas so that a genuine B-Corp doesn’t neglect a particular impact area, as well as including disqualifying criterion in order to reduce the potential for loopholes or individual egregious business practices. This may already be occurring informally, but if it is, it isn’t articulated formally.
Some of these criticisms are illustrated by Natura, a cosmetics firm that is publicly listed and a prominently advertised B-Corp. Natura is a direct-selling/Multi-Level Marketing (MLM) firm that has recently acquired another prominent MLM (Avon). MLM’s are commonly accused of being pyramid schemes due to their organisational structure and the tendency for their sellers to make money by convincing others to join as opposed to selling the product itself. As such, many people have ethical objections to the MLM business structure itself even if they are not legally designated pyramid schemes. The apparent lack of disqualifying criterion and the rigidity of creating quantifiable metrics has potentially led to this particular case. This also speaks to the personal subjectivity when evaluating the social impact of a particular firm or business practice.
B-Corp certification is a competent heuristic that generally allows market participants to evaluate the most beneficial corporations, creating a benchmark that enhances overall impact and considers a multiplicity of stakeholders.
However, this isn’t a guarantee, with methodological concerns and personal ethical quandaries meaning that companies you may find unethical in certain respects receive certification. This means that it is still worthwhile for consumers and other market participants to conduct their own research.
Authors:
Anita Jiang | Sponsorship and Partnership Director
Ben Griffiths | Vice President of Operations