(This is my second blog post on B Corporations, click here for the first post where I describe what it means to be a Certified B Corporation)
I started my research with the expectation that Certified B Corporations were a huge paradigm shift in how companies do business. Frankly, it makes life easier to have a little label that tells my conscious “Don’t worry, buying from this company is helping the planet.”
I very much want to believe that is true. What I’ve found is B Corporations have promise and are likely better than the status quo. However, without significant improvement, the movement probably falls short of what the world needs to solve our most pressing environmental challenges.
This one gets a little dense as this is a complicated subject, so I’ll put a busy-person summary below so you can get the gist up front:
- Studies have found companies pursue B Corporation status for a variety of reasons, including a desire to stand-out in the market (i.e., branding), genuine concern about global challenges such as climate change, and dissatisfaction with cut-throat capitalism.
- It is difficult to assess how much B Corporations are reducing their negative impact. B Corporation’s website does not publish the data associated with each company’s assessment and there is no requirement for a company to report its environmental or social impact results.
- B Corporation could improve the independence of its governance, though I didn’t find any evidence that lack of independence has resulted in weakened standards.
- B Corporation standards are different than other standards in that they do not clearly state a goal or requirement that must be met. They are more like areas of investigation. With more transparency, it would be clearer how their standards drive change.
WHY DO COMPANIES BECOME CERTIFIED B CORPORATIONS?
Is it because they are true, genuine tree huggers and care deeply about the planet? Probably in many cases, yes, that is true. Many of these companies seem to have deeply ingrained values that drive them to do business the right way. I believe that companies like Ethique, Preserve, Patagonia are inspired by their values to change how business is done. But there are likely other reasons too, foremost being the drive to stand out in the market.
Based on a study by Suntae Kim and Todd Schifeling, the rate of B Corporations forming by industry were driven by a few factors. First, companies are motivated by a desire to respond to major crises in society, like income inequality and climate change.
Secondly, greenwashing has become more prevalent in the market. Greenwashing helps assuage our guilty conscious without deterring us from buying things. With larger corporations co-opting environmentalism to sell more stuff and improve their image, becoming a B Corporation provides companies a fact-based way to “prove” that they were legitimately good companies and not just faking it.
Lastly, and somewhat surprisingly, there were more B Corporations in industries with a high rate of cutthroat capitalism tactics, like mass layoffs and high levels of disparity between the boardroom and the “worker bees.” So it could be independent-thinking leaders in that specific industry reacting in dissatisfaction with business-as-usual tactics.
All in all, these seem like reasonable catalysts for a company to want to change. And as long as the independent assessment is meaningful, then it reduces the risk you are being duped by a greenwashing effort.
ARE CERTIFIED B CORPORATIONS NECESSARY?
Well, first off, if you believe capitalism is fundamentally broken, then you might not think B Corporations are going to save the world. In his book “Winners Take All: The Elite Charade Of Changing The World” Anand Giridharadas argues that the belief that companies will help us dig out of the hole we are in without robust intervention from government is unlikely to work (disclaimer: I have not read the book, only some articles summarizing his points).
There is a legal argument about whether B Corps actually need to exist. In this paper from a legal journal at Notre Dame as well as a blog post by Nola Wilkens, an accounting consultant in Portland, they say B Corps are superfluous, or worse.
Cindy Woods from Notre Dame argues that the idea of creating a new type of legal entity is harmful to the movement for greater corporate responsibility. It propagates the view that corporate decisionmakers can be legally liable for considering the impact of actions on others, such as future residents of the planet, in addition to shareholders.
Ms. Woods says that this idea, which she refers to as shareholder wealth maximization, isn’t settled law and is open to debate. But the existence of B Corps suggests the case is closed.
Ms. Nolan makes a similar point that changing corporate charters is unnecessary since no company has ever been held legally accountable for considering non-shareholder issues, like the environmental impact of their operations.
Ms. Wilkens also says there are other ways to change your business model that doesn’t depend on a 3rd party certification, and the associated fees, such as a multi-stakeholder cooperative. An example of this type of company, which is owned by its members, is REI. REI is a co-op and serves its members, not shareholders. This is a alternative strategy for diversifying the stakeholders in a company, reducing the more negative side effects of a purely profit-driven company, and redefining what success means.
B CORPORATION STANDARDS LACK TRANSPARENCY
B Corporation’s governance board sets the standards companies are assessed against. They also allow the public to comment on proposed changes. You can explore all the standards on the Standards Navigator or anyone can create an account to walk through the assessment questions as well. But transparently showing the results and performance of B Corporations is where they fall short.
First, on B Corporation’s website you can explore all the companies by searching a directory of all Certified B Corporations. Search for a company and you will reach its landing page, called the Impact Report. Scores are provided for all the areas a company is assessed but are difficult to understand.
What does a score of 6.5 in the Environment section mean? It is not clear to the average person. I found a Patagonia case study on B Corporation’s website that provided the maximum score for a few assessment areas. This provided some sense of the scale companies are being rated on. But that is not provided on each landing page in the B Corporation directory so it is difficult to assess what the B Corporation scores mean in terms of actual results.
Also, I was surprised that B Corporation does not seem to require an annual report detailing companies’ performance and results. Again using Patagonia as an example, I had to scour the internet to find their reports. It was easy to find their 2015 through 2017 reports with a simple Google search, but I couldn’t find anything older (though they have been a B Corporation since 2012).
Company reports seem to vary widely in terms of format, even from year to year. I think B Corporations could make it easier for consumers, activists, and researchers to compare companies by standardizing how companies report their performance. For companies to be held accountable for the environmental and social impact, more transparency is necessary.
Compare what B Corporation is requiring for reporting with a similar effort called the Global Reporting Initiative (GRI). GRI sets standards for sustainability reporting across the globe. GRI reporting standards require companies to report very detailed data on environmental sustainability performance.
For instance, companies must report its total greenhouse gas emissions, the types of gases that make up those calculations, the global warming potential of those gases, among numerous other data points. They even recommend tying some of the calculations, specifically the global warming potential, to rates established by the UN’s Intergovernmental Panel on Climate Change (IPCC).
However, GRI doesn’t share it’s data either. Consumers are still stuck in the dark.
IT IS DIFFICULT TO ASSESS WHETHER B CORPORATIONS ARE MAKING A DIFFERENCE
Coming from a data transparency background in my day job, I was a little disappointed that the actual data from the impact assessments is not publicly available on the B Corporation website. To me, these scores are kind of like a 10K financial statement.
If you are unfamiliar with it, a 10K is an annual report which provides a comprehensive overview of a company’s business and financial condition for investors. It is required by law and enforced by the Security and Exchange Commission. So to carry the analogy forward, B Labs is like the Securities and Exchange Commission for environmental and social impact performance. With the exception that they do not make that performance public or accessible for consumers.
Right now you can’t look up the total carbon offsets all B Corps have purchased, the renewable energy purchased, the minority-owned businesses supported, etc., in one central location. How powerful would it be to centralize that data for researchers, journalists, engaged citizens? I really think that would give a major boost to the legitimacy of the effort. Why not trumpet all that great change-making their community is doing?
QUESTIONS ABOUT HOW B CORPORATION STANDARDS ARE GOVERNED
There are other models for setting standards in a way that gathers input from diverse stakeholders. One of the most popular is using a standard-setting body that is completely independent and plays the role of gathering and synthesizing stakeholder feedback.
An example of this model is the International Organization for Standardization, or ISO. ISO is a non-governmental international body that sets global standards in numerous areas, everything from how child car seats are made to the user interface of your computer.
I read an article talking about B Corporation standards as the new “ISO standard for the 21st century,” but if that is the case I think their governance model will need to evolve to be more independent and open.
In Nola Wilkens’ blog post about B Corporations, she also raises some issues with how B Labs, the entity that evaluates B Corporation applications, is governed. She points out that their governance boards have heavy representation from the investment and financial industry, which looks to be true. Though I am not sure this necessarily means they are untrustworthy, I do think she is on to something in terms of the degree of independence.
For instance, B Corporation is in the process of opening up the certification eligibility to multinational corporations. According to B Corp’s website, the current process presents difficulties for larger organizations with more complex structures.
The working group that developed the recommendations is made up almost exclusively of people who work in multinational corporations (also a few from a financial standards-setting body). Three of the twenty-three members are from academia.
On the one hand it makes sense to have most of the representation from corporations. On the other hand, I would like to see more representation from organizations that would push for more ambitious standards. Like maybe a nonprofit that advocates for corporate accountability, a representative from a part of the government that deals with regulating and penalizing corporate malfeasance (e.g., the EPA), or more members from universities. How about some representatives from the UN, especially the IPCC?
However, since the recommendations made from this body are non-binding and open for public comment there are other opportunities to protect against any incentives to weaken the standards.
In addition, I have read the recommendations as it pertains to the actual standards and it seems like the body is recommending more in-depth, expansive standards versus a weakening of the standards. For instance, they suggest adding measurements that assess the extent to which companies are participating in tax avoidance schemes and how they influence policy through lobbying. I think this is a very insightful point about how many multinational corporations use their power to the detriment to society. It is a good sign that this working group is not trying to undermine the “benefit” aspect of B Corporations.
Finally, another promising sign is that the working group recommends more transparency for multinational corporations certified by B Labs. Specifically, they recommend that answers to the top twenty-five highest earning questions for each unit or subsidiary are made public on the B Corp profile page. A good start but something that I think falls short of the full transparency I would expect.
SHOULD STANDARDS BE THE SAME AS CRITERIA?
The definition of the word standard at Merriam-Webster is: something established by authority… as a model or example. Or, its synonym, per Merriam-Webster, is criterion: a standard on which a judgment or decision may be based. It is unclear whether B Corporation has established actual standards that can be objectively quantified, at least in terms of what they make public.
As mentioned above, a model for standard setting is the ISO, a global leader in standard setting. When you look at standards they have produced, you can see a difference with B Corporation standards. Specifically, ISO standards are more like criteria that must be met. B Corporation standards are more like areas to investigate.
For instance, picking a totally random ISO standard, let’s look at the standard for machine-readable passports and IDs (which you can find here). The standards set out clear criteria that should be met, such as the specific dimensions of the rectangle being read by a scanner, the amount of humidity in which the document will be readable, among many other ridiculously detailed characteristics of a passport. (You can read more about the powerful role of standards in modern society in this recent NY Times Op-Ed).
On the other hand, B Corporation standards, at least what is public, are less specific and do not seem to set an actual bar or level of achievement to reach. For instance, to pull another example from their assessment, there is a question about greenhouse gas emissions – “How does your company manage its greenhouse gas emissions for at least Scope 1 and 2?” It is a multiple choice answer in the assessment and some answers are obviously better than others, such as “We have achieved carbon neutrality.” However, it is unclear how answers translate into actual scores.
Looking at Patagonia again, if you look at their B Corporation assessment score, it is relatively high at 151.5. It is unclear what that means but based on the scores across all B Corporations, it seems to put them in the top 5% best B Corporation certified companies. However, if you look at their 2017 sustainability report, their overall greenhouse gas emissions went up 10% from 2016.
I think most people would agree that climate change is the biggest environmental threat we face on the planet. I think we are in trouble if even the most eco-friendly companies are increasing their emissions year over year. Admittedly, this is a somewhat anecdotal data point since it is only one year and there could be good reasons for the increase. But it just strengthens my point about greater transparency. Publishing more comprehensive data about the positive impact of B Corporations could help extinguish any doubt among the public as to whether the B Corporation movement is less than what it seems.
Although I can see a number of benefits to the B Corporation model, to avoid the most negative consequences of climate change, income equality, poverty, and all of our current social ills, Corporate America is going to have to make an aggressive about face. Allowing them to assess themselves and receive a stamp of approval to entice eco-minded consumers is a process we must consider with a critical eye.
With that said and the analysis I’ve performed so far, I can say that compared to the status quo, I think Certified B Corporations are an important and valuable improvement. I’m hopeful that the B Corporation standards will make enough of an impact to help drive the transformation we need, with a little help from conscious consumers, and maybe a nudge from a progressive government agenda, to stave off some of the worst impacts we seem to be facing in the years, and decades to come.
I plan to continue to support and highlight Certified B Corporations on Recycled & Renewed. However, I will likely rely less on the B Corp certification and force myself to do a little extra research to ensure the company is really pushing itself versus using the certification as a branding strategy.
As the B Corporation page says: “You cast your vote every day with the choices you make…you have the power to make your voice heard beyond the ballot box. Every day is election day.” I intend to be an informed voter, and will continue to share what I learn so others can make better choices too!
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