Corporate sustainability: Pursuing B Corp Certification
As consumers increasingly adopt more sustainable behaviours, many businesses have embarked on a path to achieve B Corp Certification. B Corp Certification has become the gold standard for businesses that meet the highest benchmarks of verified social and environmental performance, while also taking on an obligation to balance profit with purpose. If you are considering B Corp Certification for your business, you need to understand the steps involved, your legal obligations, the pros and cons, and how a lawyer can help you throughout the process.
An Overview of B Corp Certification
Certified B Corporations, also known as Beneficial Corporations, are businesses that operate as part of a global community with the aligned goal of building an inclusive, equitable and regenerative economic system for people worldwide. Founded in 2006, the U.S. non-profit organization B Lab creates the standards, policies, tools and programs that allow businesses to become B Corp Certified by meeting the standards of social and environmental performance, accountability, and transparency that are required. Currently, over 7,000 companies across 161 industries and 92 countries represent the B Lab movement. In Manitoba, companies including the Assiniboine Credit Union, Manoverboard, Mondetta, UpHouse and the Bank for Canadian Entrepreneurs have achieved this status.
B Corp Certification is available for any size of for-profit entity that has been in operation for at least 12 months. Company divisions, departments, brands and government-owned businesses are not eligible, and subsidiaries can only certify if they can successfully demonstrate they are operationally independent of the parent and/or sister companies. The main requirements in achieving B Corp Certification are social and environmental performance with a score of over 80 in the B Impact Assessment.
The B Impact Assessment
The B Impact Assessment evaluates a business based on its size, sector, and location. It then surveys the following five categories of a company’s practices and outputs: Governance, Workers, Community, Environment and Customers. Questions are split across two types: Operations, which scrutinize a business’s day-to-day activities, and Impact Business Models, which confer additional points for business models designed to create additional positive societal impact. The B Impact Assessment compares your company’s performance with thousands of other firms, providing insights into areas of excellence and opportunities for improvement.
In order to certify your business, you need a score of at least 80 points out of the possible 140 points, but B Lab recommends that you submit a score of at least 85 in case your score fluctuates throughout the process. The questions asked are weighted depending on the type of question, how difficult the practice is to incorporate and the directness of a positive impact on people in the business, customers, communities and the environment. The total points that are available in a given impact topic are then distributed across questions based on their weighting in that specific section. A business earns points for every affirmative response to a question, producing disclosure to back up any claims they are making.
For example, one of the difficult questions asked in the Governance section is what your business, separate from a mission statement, has done to legally ensure that its social or environmental performance is a part of its decision-making over time, regardless of the current ownership of the company. If you check off the box stating that the documents on corporate governance have been amended to require consideration of all stakeholders in its decision-making or has adopted a legal entity that will do so, you will receive a full 10 points. The Environmental section, for instance, asks in what systems your business has used energy conservation or efficiency measures for a majority of your corporate facilities (by square feet) in the past year. By checking off all of the boxes listing equipment, lighting and HVAC, your business will receive a full 0.59 points. If you have only used the above measures when it comes to lighting, you will receive partial points for your efforts.
Take Business X for example. They operate a winery, and are seeking B Corp Certification. They appoint a someone to lead their B Corp Certification team, who along with the other members of the company and their lawyer, complete the questionnaire, and find out they are deficient in points when it comes to age and gender diversity in the workplace, having mainly male identifying employees between 25 and 40 years of age. After realizing this deficiency, they were able to adjust their hiring practices to ensure more diversity which resulted in an expansion to their customer base and provided a better environment for both employees and customers.
Choosing which of the five sectors your business falls into is an important part of the B Impact Assessment. The sectors are as follows:
- Businesses that have services with minor environmental footprint.
- Example: Office buildings
- Businesses that have services with a significant environmental footprint
- Example: Salons
- Wholesale and retail businesses that provide a service, but do not produce products themselves.
- Example: Grocery stores
- Businesses that manufacture a percentage of products sold.
- Example: Livestock or handmade products
- Businesses relating to agriculture or growers where there are raw materials or the majority of products are being sourced from soil-based farmers.
- Example: Farmers, wineries and some coffee roasters
- Example: Farmers, wineries and some coffee roasters
It is important to note that the decision on sector is based on where the majority of your business’s employees are based using a full-time equivalent calculation, not headcount. Because of this requirement, the result may not be where the company’s headquarters are located, nor where the company is incorporated legally.
Legal Requirements and How to Satisfy Them
Another important facet of the B Corp Certification process is that your company satisfies specific legal requirements. First, a company must adopt a legal structure that considers the result of their decisions on all stakeholders, otherwise known as stakeholder governance. Part of this requirement is that companies protect their mission, ensuring that stakeholder governance is a priority no matter what changes occur at leadership or ownership levels. For companies with less than 50 employees, this requirement must be met during or before the B Corp Certification review process is complete. For companies with 50+ employees, there is a grace period of 90 days for LLC’s and two years for corporations to satisfy this requirement.
In Manitoba, businesses seeking certification may need to amend their articles of incorporation to explicitly integrate language on the imperative nature of stakeholder interests to their business. This is considered a fundamental change and therefore requires a special resolution by shareholders with not less than two-thirds (2/3) of the votes cast being in favour of the resolution. The special resolution can be in writing as long as all shareholders who are entitled to vote sign the resolution.
Pursuing B Corp Certification and How Can a Lawyer Help?
Although the B Corp Certification process is rigorous, there are some potential positives to achieving this certification. Successfully attaining B Corp Certification demonstrates to the entire world that your company stands for the legal obligation of balancing profit and purpose with the goal of driving positive environmental and societal change. This in turn has the potential to attract better quality employees, investors who desire to back the B Lab mission, and a loyal customer base that prioritizes buying from companies that operate in an ethical and forward-thinking way.
Achieving B Corp Certification is a process that can take up to 12 months, and significant effort from your business, to achieve. Your business will need to demonstrate genuine belief in what B Corp Certification stands for and a desire to prioritize and incorporate those qualities throughout the entire organization. B Lab recommends that a business appoint a designated person to lead the B Corp Certification process, handling the necessary deadlines, to increase the likelihood of success in the process.
Around 45% of businesses that submit an application do not end up achieving B Corp Certification. According to B Lab, B Corp Certification shortcomings often include failing to designate an individual to lead the process, which creates poor communication and responsiveness; selecting the wrong track in the B Impact Assessment; choosing the incorrect Impact Business Model, not providing documents to back up your business’ claims; or not understanding and/or meeting the legal requirements.
A lawyer can assist you with deciding whether B Corp Certification is right for your business. If you decide to proceed with pursuing it, a lawyer can help with the B Corp Certification process from start to finish, enhancing your likelihood of reaching B Corp Certification, from choosing the right kind of corporate structure to facilitate B Corp Certification before you even start your business, steps that will help your company achieve a better score on the B Impact Assessment, and review of agreements your business already has in place before changes are made to your business’s governance structure.
Fillmore Riley LLP's Business Law Practice
We offer business law advice to individuals and businesses, guiding you through the legal requirements at every stage of your business’ life cycle, from establishing and organizing your corporation, raising capital for growth, buying businesses, preparing shareholder or partnership agreements and to selling your business, all while navigating provincial and federal business regulatory requirements. For more information, or if you have any questions, please contact a member of the Fillmore Riley Business Law practice.