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What is a B Corp?
A ‘B Corporation’ is a for-profit business that publicly certifies it meets a certain standard of social and environmental accountability, performance and transparency. The certification process is controlled by B Lab Company, a not-for-profit organisation.
This is an external accreditation and does not change the legal form or status of the company but will lead to some changes to the company’s constitution, decision-making processes and structure.
How to register as a B Corp
To become a B Corporation, the company would be assessed on the extent of its positive impact on its workers, community, environment and customers, in addition to its governance structure and accountability.
For a business to achieve B Corporation status, it needs to have operated for the previous 12 months and satisfy the following conditions:
(a) generate the majority of its revenue from trading;
(b) compete in a competitive marketplace; and
(c) not be a charity, public body or otherwise majority owned by the state.
Once these conditions are satisfied, the business can seek to obtain B Corp certification.
How do you obtain a B Corp certification?
To obtain B Corp certification, there are generally three steps that need to be taken:
Impact assessment
The business must complete and achieve the requisite verified score of 80 out of 200 in the ‘B Impact Assessment’, which measures in five areas:
Governance, workers, environment, community and customers.
The company will also need to submit a disclosure questionnaire that contains details of any sensitive practices, fines or sanctions to which the company has been subject. Whilst responses to the disclosure questionnaire do not affect a company’s numerical score on the impact assessment; they can ultimately affect its overall eligibility for certification. If B Lab identifies a disclosed issue that it considers to be material, the company may be required to provide additional disclosure and potentially implement remedies to obtain or maintain its B Corp certification.
Once completed, the B Impact Assessment score is reviewed and verified by B Lab Company, which evaluates the positive impact of the Target’s business model and operations. A one-off subscription fee of £250 plus VAT is payable on submission of the impact assessment.
Legal Requirements
If the business is a company, it must also adopt specified wording into its articles of association:
- Addition of an objects clause – the company’s objects clause must include a commitment to a “triple bottom line” approach to business (being a focus on social, environmental and financial performance or “people, planet and profit”.). The objects clause will typically state that the company exists to promote the success of the company for the benefit of its members as a whole and to have a material positive impact on society and the environment;
- Codification of section 172 directors’ duty. Section 172 imposes a general duty on every company director to act in the way they consider, in good faith, would be most likely to promote the success of the company for the benefit of its shareholders as a whole. This duty is owed to the company itself. B Corp company’s articles must codify this duty and contain wording that directors are required to consider a range of stakeholder interests when making decisions, and, most notably, they are not required to regard the benefit of any particular stakeholder interest or group of stakeholder interests as more important than any other. Practically directors must exercise their discretion in good faith to reconcile the interests of all relevant stakeholder groups and must not pursue strategies which positively impact one group at the expense of another; and
- Obligation to produce an Impact Report – the articles must require the company to produce an annual impact report to help assess how the directors have fulfilled their section 172 duty.
The required wording of the B Corp legal requirement has also been drafted for businesses that are not companies limited by shares, including companies limited by guarantee, community interest companies (either limited by shares or guarantee) and limited liability partnerships.
B Corp agreement and declaration of interdependence
The business would then enter into the B Corp agreement and declaration of interdependence which sets out:
- The terms on which B Lab UK certify the company as a B Corp.
- The circumstances under which B Lab will continue to certify the company as a B Corp, including the amount of any annual licence fee, which is determined based on the company’s revenue.
- The ongoing obligations on the company as a B Corp.
- The rights of the company to use certain intellectual property of B Lab, including the B Corp logo.
The declaration of interdependence, which is signed alongside the B Corp agreement, is a statement of belief that recognises the intention of business as a force for good, including a statement that each B Corp’s business should aspire to do no harm and benefit all through their products, practices and profits.
Ongoing obligations following certification
The annual certification fee is between £1,000 and £50,000 and is based on the company’s previous 12 months’ total revenue.
Certification has a term of 3 years. All B Corporations must update their B Impact Assessment and verify their updated score every 3 years to maintain their certification. As well as this, a B Corp must produce an Impact Report annually to describe the way in which the company has promoted its success for the benefit of its members as a whole and how it has sought to have a material positive impact on society and the environment, taken as a whole, through its business and operations. The Impact Reports are public, and a summary of these reports is made available on the B Lab website.
B Corp directors should not pursue strategies, whether in relation to M&A activity or any other strategic decision, that create a positive impact for one stakeholder group at significant expense to another. It will therefore be important in the context of M&A to assess a target’s practices in relation to its workers, the community, the environment, and its suppliers, as well as the impact that the proposed acquisition would have on the acquiring company’s own key stakeholders.