As a business owner, you know it’s important to understand what investors are looking for when they are searching for investments to make. The last few years have seen a rise in investor searches for profitable but also socially conscious businesses. This has resulted in a growth of publicised metrics and information that try to demonstrate to the market which businesses are excelling at addressing their corporate responsibility and sustainability targets. One such value-based tool that can be used by your company is to become a certified B Corporation, often referred to as a ‘B Corp’.
- What is a Certified B Corporation (B Corp)?
- Why become a certified B Corp?
- B Corp Community
- Corporate Social Responsibility (CSR)
- Becoming a certified B Corp – legal requirements
- Becoming a certified B Corp – process of certification
- B Impact Assessment (BIA)
- Declaration of Interdependence
- Maintaining your B Corp certification
What is a Certified B Corporation (B Corp)?
A certified B Corp is a status that your company can voluntarily apply for that shows that your company and business meets a recognised level of corporate social and environmental accountability and public transparency. B Corps are endorsed by the B Lab which is a nonprofit organisation whose purpose is to create a community of certified B Corp companies that work towards ‘reduced inequality, lower levels of poverty, a healthier environment, stronger communities, and the creation of more high quality jobs with dignity and purpose’. The idea of becoming a certified B Corp is to obtain recognition that your company is meeting these standards and is actively pursuing these values. B Corp certification is administered by Standards Analysts in B Lab and the standards for B Corp certification are appraised by B Lab's independent Standards Advisory Council.
In the UK, obtaining certified B Corp status has been available since 2015 and a small but growing number of companies are participating. This article focuses on B Corp registrations for small to medium-sized private companies limited by shares.
Why become a certified B Corp?
Increasingly investors are looking into more aspects of the companies they invest in than just the level of return or financial profitability. Obviously, these things are still key drivers for attracting investors, but companies are also being required to demonstrate a balance between their financial gain and their corporate, social and environmental impact. The benefits of becoming a certified B Corp include:
- Reputable recognition of your company’s environmental, social and governance initiatives, and this is likely to have a positive effect on your business’ brand
- Positioning the company to potential employees as a progressive and socially conscious place to work, and this could have the effect of attracting a more diverse and possibly wider pool of talent
- Investors often have their own policies, targets and initiatives that they need to meet, so if your company is well known for having values with synergies this may be perceived to increase its competitiveness and even the saleability of your company
B Corp Community
There are a number of well known private and public companies (or subsidiaries of) in the B Corp community such as Laureate, Ben & Jerry's and Growth Engineering. Currently, you can apply for a full B Corp certification if you are a company with more than one year of operations, there is no minimum size that your company has to be to join the B Corp community. If your company has less than one year of operations, you can apply for pending B Corp status which is a step on the road to full certification.
Corporate Social Responsibility (CSR)
CSR, which stands for corporate social responsibility, refers to the types of initiatives, targets, behaviours and values that your company promotes to carry out its social responsibilities in both the local community and wider global market. More recently this term has been seceded in popular discourse by the concept of ‘EGS’, which are behaviours that investors can examine to see how companies and businesses react to environmental, social and governance matters. EGS measures are increasingly prioritised by companies to show how their businesses plan to operate in the future to limit environmental, social and governance risks (such as climate change and pollution (including risk assessment and prevention reporting), equal pay, non-discrimination, human rights and anti-bribery and anti-corruption practices) and to assess effective ways to respond to and be a part of positive social change and discourse.
Becoming a certified B Corp – legal requirements
As a business in the UK, you are likely to be eligible to apply for B Corp certification if you:
- generate the majority of your revenue from trading;
- compete in a competitive marketplace;
- are not a charity; and
- are not a public body or a majority state-owned company.
As part of the certification process, all prospective B Corps regardless of their legal structure or form will need to make constitutional adjustments to incorporate certain B Lab ‘Legal Test’ language. As a private company limited by shares you will need to either amend your constitutional documents (namely to amend or add an objects statement to your articles of association), to include prescribed Legal Test language (formulated on behalf of B Lab) that states that in addition to promoting the interests and benefits of the shareholder body as a whole, the purpose of your company includes a commitment to having a material positive impact on society and the environment, taken as a whole. Your company must acknowledge an intention to promote a range of specified stakeholder interests equally, not just the value interests of the shareholders. Alternatively, your company can sign up to a B Corp Term Sheet that sets out the same principles. B Lab refers to this principle as ‘legal accountability’ and the B impact assessment gives a higher score to companies that amend their constitutional documents as opposed to just signing up to the Term Sheet.
The Legal Test wording will need to be approved by your directors and any other internal stakeholders, which may take some time and coordination. By putting this statement into your constitutional documents, your directors and your company are obliged to ensure that these principles are followed, and they will have to do so while still effectively running your company’s business and operations in accordance with their statutory duties under the Companies Act 2006 legislative framework. B Lab suggests that medium and large sized companies appoint a ‘B Corp Champion’ as a point of contact to lead and coordinate the internal stakeholder management education and approval process.
You should check your articles of association and other constitutional documents (such as shareholder agreements) to make sure there are no restrictions or additional consents that you need to get to make such an amendment. It is essential to have this process written into the minutes of a board meeting or in written resolutions where your company’s board approves the amendment and the wording of the Legal Test language that your company proposes to use. Importantly, B Lab expects the standard Legal Test language that they suggest will be adopted as drafted, with only necessary consequential amendments being accepted. B Lab will first want to confirm any minor variations to the Legal Test language before it is approved at a board meeting by your directors.
Amending your articles of association will also require that a special resolution in favour of the amendment is passed by your company’s shareholders, either at a meeting or if your articles of association permit, by way of written resolution.
If you choose to amend your articles of association, you must submit the relevant form, the amended articles of association and a copy of the special resolution with the Registrar of Companies at Companies House within 15 days of passing the special resolution to amend the articles of association.
For companies with less than 50 employees, these legal requirements must be met before finishing the B Corp certification process, whereas for companies with 50 or more employees extra time is available for completing these legal requirements after the certification process has been finalised. The timeline available to your company will depend on the circumstances, size and structure of your company. If you do not meet these legal requirements within the allotted time frame, B Lab can revoke or decline your accreditation.
If your company undergoes a change of control or changes its legal form within the three-year term, you must let B Lab know and there may be additional requirements and verifications that B Lab asks you to complete due to the change.
Your company must also sign a B Corp Agreement, which is a legally binding agreement that commits your company to meeting the legal requirements above if they have not been completed before the certification process has been finalised.
Becoming a certified B Corp – process of certification
The process of becoming a B Corp is as follows:
- You will need to be eligible for, and to complete, an online impact assessment which can take several hours and includes a disclosure questionnaire which will ask your company to confidentially disclose to B Lab (largely without having any impact on your overall score) any sensitive practices, fines, and sanctions related to the company or its affiliates. If B Lab thinks that material issues are disclosed, it can ask your company to put in place remedies so that you will be eligible for the B Corp certification, or in B Lab’s discretion it can refuse to grant certification or ask for certain information to be made public. B Lab has indicated that it is important to answer the impact assessment to reflect the practical reality of what happens in your company as at the date that the impact assessment is completed rather than stating aspirational goals that you company has not yet implemented.
- B Lab will check your score and your substantive responses meets its certification standards and this can involve interviews with B Lab and the submission of various additional documents, some of which may be confidential. You will need a score of at least 80 out of 200 across 5 areas: Governance, Community, Workers, Environment and Customers. The verification process can take several weeks or sometimes months, depending on how large and complicated the corporate structure and operations of the company applying for B Corp status are and the number of resources that B Lab has to review the submissions. B Lab will also run a background check on your company including a review of public records, news sources and search engines.
- There is a chance that your company may also be randomly selected by B Lab to undergo a site review – either remotely or in person. Certified B Corps that are wholly owned subsidiaries or public companies have to have a mandatory on-site site review at least once during each three-year certification term.
- You will receive a report that lets you know what your company does well and what it could improve on as well as providing a more general overview of how your company has scored within an overall topic. There are various tools provided by B Lab that you can use to enhance your scoring, such as best practice documents to create an improvement plan for your business. As a private company, you will have to share your final B Impact Report (including the overall scores and category scores of your B impact assessment) publicly on official B Corp website once approved for certification. Public companies and their subsidiaries will have to make their B impact assessment public, with certain commercially sensitive or confidential information redacted. This is what B Lab refers to as ‘public transparency’.
- To complete the certification process, your company must fulfil the legal requirements and sign a B Corp Agreement, which is a legally binding agreement that your company signs that commits you to meeting the legal requirements if they have not been completed before the certification process has been finalised.
- Your company must also sign a standard B Corp declaration of interdependence.
- Your company must pay an annual fee which is determined based on your company’s total revenue for the preceding 12 months.
B Impact Assessment (BIA)
The B Impact Assessment (BIA) is a confidential assessment that your company must complete as the first stage in the accreditation process. The BIA will look at things like your:
- governance structure
- supply chain
- input materials
- charitable giving
- employee benefits
- aspects of your company’s day-to-day operations
- values toward the community, environment and customers
Your company’s business model will also be analysed and points are available for models that are designed to create a clear positive impact. You will need to provide details about your company structure and any related entities, the total revenue figure of your last full fiscal year (without deducting any costs or taxes) as well as general corporate identification details. The questions in the BIA will differ depending on your company’s size, sector, and the market your company operates in. A one-time non-refundable submission fee (at the time of writing it is £250 plus VAT) is payable when you submit your BIA for review for certification.
Once you have a score you can compare it to the scores of other companies that are part of the B Corp community or that have previously completed a BIA.
Declaration of Interdependence
The B Corp Declaration of Interdependence is a mission statement that your company will need to sign up to complete the certification process.
Maintaining your B Corp certification
Once you have been certified, you will need to renew your company’s certification every three years. This will include undertaking a reverification and update of your initial BIA including a reappraisal of your score by B Lab, providing additional documents if requested and continuing to meet the legal requirements. You will also have to make sure that you continue to pay your annual fees.