Business Law specialist Frank Scott-Ashe considers B Corp certification for businesses and whether it is worthwhile.Contact Frank on 01225 462871 or complete the Contact Form below. |
What is B Corp certification?
The consumer landscape is changing rapidly, and it is more important than ever for businesses to demonstrate their positive social and environmental impact. Earning B Corporation (B Corp) accreditation helps businesses achieve this by emphasising commitments beyond just profit. In fact, for many years, B Corp certification has been regarded as the gold standard among sustainability credentials.
Founded in 2006, any business using the “Certified B Corporation” trade mark has been recognised as meeting specific standards of social and environmental performance, transparency, and accountability by B Lab, a global non-profit organisation. There are currently around 2,500 B Corps in the UK, and the number is increasing rapidly. According to the Institute of Directors, this is the second-highest number globally.
Potential benefits of B Corp certification
B Lab UK research published in November 2021 suggests that B Corps:
- see faster annual growth in turnover: an average growth of 26% compared to an average of 5% for all UK companies;
- have higher expectations about future growth;
- see faster annual growth in employees: an average of 14% compared to an average of 1% for all UK companies;
- have greater levels of employee engagement, diversity, and retention;
- have more robust governance processes: 74% of B Corp SMEs report having a formal business plan, compared to 41% of the wider SME population. 84% of B Corp SME’s report having processes in place for formal tracking of their business performance, compared to 52% of all SMEs;
- see greater levels of innovation: In the last three years, 43% of B Corp SMEs have received or applied for R&D tax credits compared to 6% of all SMEs;
- have significantly increased emphasis on civic and community engagement; and
- are more successful at raising business finance.
How does a business qualify for B Corp certification?
A business must score at least 80 out of 200 points on B Lab’s ‘B Impact Assessment’ to qualify for B Corp certification. The assessment, which, according to some, can take a year to complete, evaluates a business’s impact on:
- its workforce;
- the environment;
- the community: and
- its customers.
Fees are payable upon application, and thereafter, the annual fee is determined by a business’s total revenue as stated in the most recent audited accounts.
Constitutional documents
A business applying for B Corp certification must also update its constitutional documents, by including statements to reflect its commitment to:
- use the business as a force for good; and
- protect the business’s values and mission.
Businesses must incorporate specific wording verbatim in their constitutional documents, establishing:
- a legal basis for directors to consider the interests of all stakeholders, not just shareholders, when making important decisions; and
- the business’s commitment to creating a material positive impact on the environment and society through its operations.
But is the B Corp label simply greenwashing?
Yet, despite the high bar for certification and its undeniable benefits, there is a growing perception that, for many businesses, the label is merely greenwashing or just another buzzword, like “ESG” (Environmental, Social, and Governance).
In 2022, the scheme came under the spotlight in the UK when employees of B Corp-certified brewer, Brewdog, alleged a “culture of fear“, where workers were bullied and “treated like objects“. This was despite Brewdog achieving its highest scores in the worker-assessment areas of its B Corp assessment. The company subsequently lost its certification.
The Brewdog episode was the UK sequel to an international PR disaster when a group of B Corp-certified coffee companies wrote an open letter to B Lab, following the receipt of B Corp certification by Nestlé-owned Nespresso. Highlighting Nespresso’s “abysmal track record on human rights” and “extractive business model“, they called for stricter standards for accreditation.
What is generally viewed as a major part of the problem is that the information used for the accreditation process is self-reported by the business. Although B Lab emphasises that they randomly select a small number of B Corps each year for an on-site review, many argue that self-reporting makes it relatively easy to manipulate internal reporting procedures and/or to misrepresent findings. However, requiring a B Lab audit before initial certification and increasing the number of random annual reviews would significantly raise the cost of accreditation, acting as a barrier for many businesses.
Choice of sustainable goals
The scheme also faces criticism for allowing businesses to choose their sustainable goals. Clearly, there may be a tendency to prioritise easier targets over those offering greater social or environmental benefits. As a result, B Corp certification might influence consumers to purchase products that do not align with their personal ethical standards.
Despite these significant considerations, B Lab stands by its process, emphasising especially the lengthy application procedure and the requirement for businesses to re-certify from scratch every three years.
Comment
One way to view the relevance of B Corp accreditation is to see it as part of a bigger picture, serving as an initial step in a wider sustainability strategy. Some businesses are doing exactly that, building on their accreditation by changing ownership structures or corporate governance to ensure a long-term commitment to their mission and values.
However, reaching consensus on a certification system that works for everyone is, frankly, impossible. Given the climate emergency, this clearly highlights the need for a stronger government-supported regulatory framework to encourage industry to adopt significantly improved environmental standards.