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The Joy of Enterprise Management Incentives
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The B Corp trend: what startups need to do to become a B Corp

The B Corp trend: what startups need to do to become a B Corp

Table of Contents

Meeting environmental, social, and governance (ESG) goals is no longer a box-ticking exercise. Studies show that high ESG-rated businesses often outpace competitors in terms of value and growth. 

However, there is much debate surrounding what ESG even is, and who or what judges the ESG credibility of a business.

Who defines environmental and social responsibility, and how can we ensure businesses are genuine in their ESG practices? How can we separate authenticity from greenwashing? 

B Lab is attempting to resolve these issues. Founded in 2006, B Lab is a non-profit organisation and movement that provides “B Corp Certification” to businesses demonstrating their social and environmental performance. 

So, what does becoming a B Corp mean? And what's the benefit?

What are B Corps?

B Corps are for-profit companies certified by the non-profit organisation B Lab. 

B Lab authenticates businesses for meeting various social and environmental performance, transparency, and accountability targets. B Lab has global influence and partnered with the UN to help facilitate the Sustainable Development Goals (SDGs).

As of mid-2022, there are around 4,600 B Corps in 78 countries across 155 industries, including 700 in the UK, which has the second-highest number of B Corps after the USA.

The vast majority are small-to-medium-sized businesses. 

The B Corp trend

Public demand for business accountability has fuelled interest in B Corps. Today, there are many recognisable business brands and names with B Corp status, including:

  • Patagonia clothing
  • Teapigs
  • Aesop skincare
  • BrewDog
  • Innocent Drinks
  • Coutts & Co bank
  • Coursera
  • Gousto
  • Crowdcube
  • Novamont

As we can see, there are B Corps in almost every sector ranging from banking and financial services (Coutts & Co) to clothing (Patagonia), food and drink (BrewDog), chemical engineering (Novamont) and digital services (Crowdcube).

What are the benefits of being a B Corp?

We’re deep into the era of ESG, and evidence consistently shows that high ESG-rated businesses often outperform competitors across several KPIs, such as growth, talent acquisition, retention, and investment performance.

Investing in social and environmental responsibility improves company culture, which boosts employee engagement and cuts recruitment costs.

In addition, evidence suggests that investors, customers and clients are actively engaging with those who take ESG seriously.

B Corp Certification offers a means to demonstrate ESG credibility in a meaningful way. 

B Lab has produced its own research on the benefits of being certified - their 2021 study of UK SMEs found that B Corp status delivered the following benefits: 

Faster growth

B Corps saw an average growth of 26% between 2017 and 2020 vs the average for all UK companies of 5%. They also have higher expectations for future growth compared to non-B Corps.

Attracting and retaining talent

B Corp status helps businesses win the ‘talent war’ by exhibiting their social and environmental responsibility. Annual headcount growth between 2018 and 2021 was 14% for B Corps vs just 1% for all companies.

This also applies to employee attrition, as just 8% of employees were lost for B Corps in 2021 compared to a general average of 16 to 20%.

Employee equality and equity

84% of B Corp leadership teams included at least one woman compared to 55% generally, and the average gender pay gap was also less at 4% vs 15%.

Innovation and access to tax credits

43% of B Corps applied for or received R&D tax credits between 2018 and 2021 vs a general average of 6%.

Securing funds

70% of B Corps seeking equity financing in 2021 secured their target finance vs 56% of all SMEs.

Governance and stability

74% of B Corps had a formal business plan, compared to 41% generally. In addition, 84% had formal processes to track business performance vs 52% generally.

Businesses unlock many of these benefits by altering their structure and relationships with suppliers, clients, workers, employees, stakeholders, etc.

B Corp Certification is about the process as well as the result. Most of the benefits of becoming a B Corp are discovered in the assessment process, which prompts businesses to be introspective and question, “are we really doing the best job we can?” 

In essence, the path to B Corp status provokes a fact-finding mission that helps futureproof the business. So, what does the process involve? 

The process

The exact process depends on how large the business is, which is why it's worth checking the eligibility requirements before doing anything else.

But the backbone of the certification process is the B Impact Assessment (BIA).

It's a free and confidential online tool that anyone can use to measure their company's impact on the world around them.

Among other things, companies will need to prove that the business has been trading for at least 12 months.

Note: businesses that haven't been trading for that long but want to start incorporating B Corp practices can apply for pending B Corp status.

The BIA

The BIA contains about 200 questions and covers five key areas:

1) Governance

Business governance must become less focused on shareholder primacy and profit maximisation at all costs. This involves increased transparency and financial information disclosure.

2) Workers

B Corps deliver greater opportunities for career development, workplace wellness and ownership.

Employee ownership and empowerment play a major role in B Corp Certification, with emphasis on the benefits of share options and shared ownership. 

3) Community

B Corps must take on greater civic/community engagement, emphasising diversity and inclusion, charitable giving, supply chain risk management, poverty alleviation, and locally focused economic development.

4) Environment

Businesses are evaluated on their environmental management plans and policies, e.g. recycling, water, waste and energy usage.

Use of renewable energy, providing environmental education, engaging with environmental groups, etc, are all considered.

5) Customers

Providing quality products, aftercare, communication, transparent customer data usage and delivering social impact for customer groups are addressed. 

The BIA is by no means a quick task! However, if a business scores 80 points or more, whoever completed it can then start the B Corp review process.

80/200 may not sound challenging, but few companies achieve this score on the first attempt. But this isn't the end of the world, if anything, it's seen as part of the process.

As businesses must renew their B Corp certification every year, they ought to keep an eye on all five areas.

The legal requirements

While B Corp status has no legal ramifications unto itself, it does require businesses to make certain amendments to their constitutional structure. 

In the UK, B Corps must copy text into their Articles of Association to transfer emphasis from shareholder primacy to more holistic, all-encompassing stakeholder governance that benefits customers, workers, suppliers, communities, investors, and the environment.

Amendments to the Articles of Association include:

  • The business’s objects must indicate that it exists to promote the success of the business for the benefit of members as a whole.

  • Wording to the effect that, through business activities, the business must have a material positive impact on society and the environment.

  • Directors must not consider the benefit of any particular stakeholder interest as more important than another - articles must contain wording in relation to the section 172 Companies Act 2006 duty for directors to this effect.

  • The articles make provision for creating impact reports alongside accounts to ensure directors have performed the above section 172 duty.

Obtaining B Corp Certification has been described as “the highest standard for socially responsible businesses”, and although the process may seem rather laborious, the benefits are hard to refute. 

The role of ownership

One of the defining roles of a B Corp is delivering impact and inclusion through innovative ownership structures. Ideally, B Lab would like 40% of the business to be owned by non-executive employees.

B Lab highlights some of the following pathways to diversified ownership: 

  • Shares or share options
  • Employee stock ownership plans (ESOPs)
  • Employee stock purchase plans (ESPPs)
  • Worker cooperatives
  • Employee ownership trusts

Offering equity in the form of an employee share scheme is a superb way of incentivising employees while investing in the future of a business and benefitting from its success.

Share schemes provide many benefits of their own. For example, 95% of Vestd customers said that their share scheme actively helped them improve employee loyalty.

But they’re also a vital piece of the puzzle for any business seeking B Corp Certification. 

Whether or not you decide to go down the B Corp route, a company share scheme is certainly worth exploring. Download our free guide or book a free consultation today to get started.

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