B Corp and Benefit Corporations
By Marco Imperiale
Preamble
Among the innovative ways to impact the world, Benefit Corporations and B Corps have emerged as a promising method.
Benefit Corporations and B Corps are similar (yet different, see below) ways to define corporations and entities who decide to underline their commitment regarding ESG values (mainly in relation to environment, social impact, and governance strategies).
Basically, the idea is shifting from a shareholders’ perspective to a stakeholders’ one, believing that a different approach to the business and the world will bring prosperity to both the company and our planet. By mandating that companies consider the public benefit alongside profits, Benefit Corporations and B Corps are creating a new standard for corporate responsibility.
The differences
Despite the fact that we tend to mix the concept of Benefit Corporations and B Corps, there are several differences.
A Benefit Corporation is a legal entity that is recognized in more than 30 countries (including Italy, United States, France, and Colombia). To become a Benefit Corporation, a company must amend its articles of incorporation to include a social and environmental purpose, and commit to considering the impact of its decisions on stakeholders other than shareholders. The public benefit generally refers to a positive impact on society or the environment, and it can include anything from reducing greenhouse gas emissions to supporting community development programs. A Benefit Corporation must also publish an annual benefit report that details its social and environmental performance.
A B Corp is not a specific form of company, but an entity that has been assessed by an external no profit organization (B Lab) [1] to meet rigorous standards of social and environmental performance, accountability, and transparency. The assessment and the supported documentation cover a wide range of topics, from employee benefits and diversity to supply chain management and environmental impact, taking into account mainly five areas: governance, workers, community, environment, and customers. In order to be recognized as a B Corp, the company should reach at least 80 points on 200. The certification has to be renewed periodically.
Currently, there are over 6,000 certified B Corps worldwide, operating in various sectors and in many countries. Among them Patagonia, Ben & Jerry's, and Seventh Generation. These companies have long been leaders in the sustainability movement and have demonstrated that businesses can be profitable while also making a positive impact on the world.
It is worth stressing that Benefit Corporations and B Corps are not just large, established companies. Startups and small businesses can also benefit from becoming a Benefit Corporation or obtaining B Corp certification. In fact, there are even incubators and accelerators that specialize in supporting social and environmentally responsible startups.
Why choosing to become a Benefit Corporation and/or a B Corp?
The reason to choose to start/become a benefit corporation or a B Corp are various.
A) Long term benefits. Companies that commit to social and environmental good can create long-term value for shareholders and react better in times of crisis and recession. Research has shown that companies that have obtained a B Corp certification have outperformed non-certified companies in terms of long-term revenue growth and profitability. For example, a study by the Harvard Business Review found that companies with a strong sense of purpose outperformed their peers in terms of revenue and profit growth [2]. Another study by the University of Oxford found that companies with high social and environmental performance were more likely to outperform their peers in terms of long-term financial returns [3];
B) Talent attraction and retention. Being a benefit-oriented company can help attract and retain talent seeking meaningful work and who want to work for a company with similar values. It is very interesting to notice that Gen Z and Millennials are very attracted by Benefit Corporations and B Corps, and prefer to work in companies that take into account ESG values and put them at the core of their activity [4]. Moreover, sharing and promoting ESG values can be positive in terms of employees morale and engagement in company’s activities;
C) Self-awareness. Obtaining a B Corp certification is not an easy process. It requires companies to rethink their purpose and business model and to make significant changes to their operations. They must meet rigorous standards of social and environmental performance, accountability, and transparency. This long process is very useful in terms of understanding what works and what doesn’t both from an internal and external perspective;
D) Redefining the relationship with investors, stakeholders and providers. Deciding to become a Benefit Corporation or a B Corp means highlighting a specific way of conducting business. This means sometimes redefine and searching relationships with providers/investors, and/or search for entities and institutions that share the same values;
E) Company reputation and customer relationships. Consumers are increasingly mindful of sustainable and socially responsible business practices and are more likely to choose a company that demonstrates that it takes these aspects seriously. Becoming a Benefit Corporation or a B Corp can be a strategic way to differentiate from the competitors;
F) Network. Becoming a Benefit Corporation or obtaining B Corp means becoming part of a global community of like-minded businesses committed to creating a better world.
The risk of impact washing and greenwashing
Undeniably, being a Benefit Corporation and/or a B Corp has many advantages. But there are also considerable risks. The main ones are impact washing and greenwashing.
Impact washing is a term used to describe the practice of overstating or exaggerating a company's positive social or environmental impact in order to appear more socially responsible than it actually is. This can involve misleading claims about a company's sustainability practices, community engagement efforts, or other socially responsible initiatives. Impact washing can be especially problematic when it is used to distract from harmful practices or negative impacts on communities or the environment.
Greenwashing specifically refers to the practice of making misleading or exaggerated claims about a company's environmental impact or sustainability practices. This can include using vague or undefined terms like "green" or "eco-friendly" without providing specific information on what those terms mean or how they are being implemented.
Both impact washing and greenwashing can not only ruin the reputation of a company, but they can also undermine the credibility of the Benefit Corporation and B Corp field. Indeed, they make it difficult for consumers, investors, and other stakeholders to trust that companies are truly committed to social and environmental responsibility. As such, it is important for companies in this space to be transparent about their practices and impact, and to avoid making claims that cannot be backed up with evidence.
How about Benefit Corporations and B Corps in the legal field?
Despite the interest from the legal profession there are very few examples of Benefit Corporations and B Corps in the legal field.
The main examples are, probably, Marque Lawyers in Australia, Hanson Bridgett in California, and Sustainable Law Group in California. Another law firm worth mentioning is Impactiv Lab in Poland. In Italy several firms (including Deloitte Italy) certified as Benefit Corporations, but no one – at the moment – as B Corp. It is worth mentioning, however, that several law firms (including LCA) decided to release social or integrated reports, to underline their work in the ESG fields and the values behind their activity.
The reasons behind the lack of Benefit Corporations and B Corps in the legal field are various.
Firstly, despite the similarities between a company and a firm, it is very difficult for a law firm to adopt all the standards required in terms of environment, social, and governance structure. B Lab standards tend to be very company-oriented, while law firms tend to need ad hoc assessments.
Secondly, law firms and lawyers are related to specific codes of values. If a company can decide not to have a specific provider or shareholder (e.g. a tobacco company or a producer of weapons), the scenario for a law firm is different. Can a law firm decide not to deal with a client or a providers only on the basis of their activity?
Last but not least, the legal entity is most of the cases different from a typical corporation. In Italy, for example, most of structured law firms are associations of lawyers, while just a small amount of them being a corporation.
Conclusions
I believe that - of all the trends of innovation which are coming from the post-pandemic scenario, both inside and outside of the legal field, this is one of the most intriguing.
The world is increasingly becoming aware of the need to prioritize social and environmental values - Benefit Corporations and B Corps are leading the way in this regard. Becoming a Benefit Corporation or a B Corp is a strategic move for businesses that want to achieve long-term benefits, attract and retain talent, promote self-awareness, redefine relationships, and enhance reputation. Benefit Corporations and B Corps should be viewed as part of a global movement of businesses committed to creating a better world, and their impact can be far-reaching.
We tend to consider innovation in the legal field from a technological point of view, but if we look at the etymology of the word, we notice that it comes from the Latin en and novare (mainly, looking at things from a new perspective). And there is nothing more innovative than reshaping our own thoughts and process in order to being more committed in terms of welfare, environment, and good governance.
Notes
[1] For further information, visit the website https://www.bcorporation.net
[2] Harvard Business Review. The Business Case for Purpose. (2016). Available at https://hbr.org/sponsored/2016/04/the-business-case-for-purpose
[3] Clark, G. L., Feiner, A., & Viehs, M. (2015). From the stockholder to the stakeholder: How sustainability can drive financial outperformance. Oxford: University of Oxford, Smith School of Enterprise and the Environment.
[4] For further information, see the following report https://www2.deloitte.com/content/dam/Deloitte/at/Documents/human-capital/at-gen-z-millennial-survey-2022.pdf
About the Author
Marco is Head of Innovation at LCA, a leading Italian law firm, and visiting researcher at Harvard Law School. He has extensive experience in legal design, legal tech, and in the interplay of copyright law and the entertainment industry. Whenever he finds time, he also works as mediator, teaching fellow, and mindfulness trainer. He is a frequent public speaker and the author, together with Barbara de Muro, of the first Italian book on legal design.
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