The Rise of Benefit and Certified B-Corporations
A Journey Towards Sustainable Business
In recent years, the business world has seen a significant shift towards sustainability and social responsibility, with Benefit Corporations and Certified B-Corporations leading the charge. These entities stand out not just for their profitability but for their commitment to broader social and environmental goals. This article delves into the differences between Benefit Corporations and Certified B-Corps, discusses the history and unique characteristics of Certified B-Corporations, and examines why B-Corporation Certification has grown in popularity.
Benefit Corporations and Certified B-Corporations: Different Structures with Diverging Levels of Rigor
Benefit Corporations and Certified B-Corporations often get conflated, but they represent distinct concepts within the realm of socially responsible business. A Benefit Corporation is a legal status in the U.S. that allows for-profit companies to prioritize social and environmental goals. This legal framework changes how a company can be held accountable by shareholders, broadening the company’s fiduciary duty to include non-financial interests. Benefit Corporations publish an annual “Benefit Report” that assesses their social and environmental performance, but there are rarely consequences for noncompliance.
On the other hand, a Certified B-Corporation is a distinction granted by the nonprofit B Lab to companies that meet rigorous standards of social and environmental performance, accountability, and transparency. A company does not need to be incorporated as a Benefit Corporation to become a Certified B-Corporation. The B Lab Certification process is rigorous and must be renewed every three years. Companies are required to meet high standards relating to social and environmental performance and adhere to transparency and accountability expectations.
Since Benefit Corporations and Certified C-Corporations both represent a declaration and commitment to socially responsible business practices, they are often referred to collectively as “B-Corporations.” However, the intensive nature of receiving and maintaining the Certified B-Corporation distinction is generally more rigorous and what we will focus on with the rest of this discussion.
The Origins of Certified B-Corporations
The concept of B-Corporation Certification emerged in the mid-2000s as a response to growing concerns about environmental sustainability and social inequality. Three friends—Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy—founded B Lab, the organization behind B-Corp Certification, in 2006. They recognized a need for a certification that would not only identify companies striving for more than just profit but also help consumers, investors, and policymakers to support these businesses. The first group of 82 Certified B-Corporations was announced in 2007, marking the beginning of a global movement towards ethical business practices.
Characteristics of B-Corporations
B-Corporations are characterized by their commitment to creating public benefits in addition to shareholder value. This includes:
Environmental sustainability: Implementing practices that reduce waste, conserve energy, and decrease carbon footprints
Social equity: Ensuring fair wages, benefits, and working conditions for employees, and often engaging in community development and philanthropy
Transparency: Regularly reporting on their social and environmental impact with as much rigor as financial performance
The Growing Popularity of B-Corp Certification
The popularity of B-Corp Certification has surged for several reasons:
Consumer Demand
Today's consumers are more conscious of their purchasing decisions' social and environmental impacts. They increasingly prefer products and services from companies that demonstrate a commitment to positive change. B-Corp Certification helps consumers identify these companies more easily
Investor Interest
Investors are progressively recognizing the value of sustainable and responsible business practices. Many believe that companies focusing on social and environmental goals are better positioned for long-term success. As well, there has been an increasing number of declared “Impact Investors” who may specifically look to support businesses like Certified B-Corporations that align with their values and investment goals
Societal Impact
The challenges of climate change, social inequality, and environmental destruction have prompted a reevaluation of traditional business models. B-Corporations offer a framework for companies to contribute positively to society, encouraging a shift towards more sustainable and equitable economic systems
A Network of Support
Certified B-Corporations benefit from being part of a global community of like-minded businesses. This network provides opportunities for collaboration, sharing best practices, and mutual support, further encouraging companies to pursue or maintain certification
Examples of B-Corporations
Selected Private Companies
| Company | Industry | Certified Since |
|---|---|---|
|
Consumer Retail | December 2011 |
 |
Consumer Retail | December 2015 |
|
Distribution | November 2015 |
 |
Healthcare | June 2016 |
|
Farmer-owned Cooperative | October 2020 |
|
Food | March 2021 |
|
Fashion | October 2021 |
|
Services | October 2010 |
Selected Public Companies
| Company Name (Certified Subsidiary) | Industry | Ticker | Market Capitalization ($M) | Enterprise Value ($M) | NTM EV / Revenue (x) | NTM EV / EBITDA (x) | NTM P/E (x) |
|---|---|---|---|---|---|---|---|
| Nestle (Nespresso) | Consumer | NESN | $260,170 | $316,108 | 3.30x | 15.28x | 19.13x |
| Sanofi (Consumer Healthcare N. America) | Healthcare | SAN | $124,254 | $138,994 | 2.72x | 8.92x | 11.13x |
| Unilever (Ben & Jerry’s) | Consumer | ULVR | $122,054 | $151,405 | 2.24x | 11.33x | 16.19x |
| Estee Lauder Companies (Aveno) | Consumer | EL | $52,335 | $60,383 | 3.75x | 24.20x | 50.49x |
| Danone (many subsidiaries) | Consumer | BN | $41,561 | $54,016 | 1.76x | 10.37x | 16.63x |
| GAP (Athleta) | Consumer | GPS | $7,346 | $11,543 | 0.80x | 10.37x | 17.50x |
| Natura & Co | Consumer | NTCO | $4,807 | $5,138 | 0.77x | 6.86x | 64.77x |
| L’Occitane Group | Consumer | HK:973 | $4,204 | $4,992 | 1.74x | 9.28x | n/a |
| Lemonade Insurance | Financial | LMND | $928 | $11,543 | 1.91x | -5.65x | -5.66x |
| Vital Farms | Consumer | VITL | $614 | $533 | 1.09x | 12.19x | 32.02x |
| Groupe Bonduelle | Consumer | BON | $388 | $875 | 0.32x | 4.76x | 8.18x |
| Grove Collaborative | Consumer | GROV | $66 | $80 | 0.32x | 24.05x | -3.45x |
Source: Tikr, Bcorporation.net
Challenges and Criticisms
Despite their growing popularity, Certified B-Corporations face challenges and criticisms. Some argue that the certification process is too rigorous and costly for smaller businesses. Others question whether Certified companies always live up to their commitments. However, the ongoing evolution of the certification criteria and the transparent nature of B-Corporation assessments aim to address these concerns.
Conclusion
The rise of Certified B-Corporations reflects a broader trend towards sustainability and social responsibility in the business world. By prioritizing environmental stewardship, social equity, and transparency, B-Corporations are not only redefining success in business but also contributing to a more sustainable and equitable world. As more companies join this movement, B-Corporations will continue to play a crucial role in shaping the future of business.
Disclaimer: This commentary is intended for general informational purposes only. Keene Advisors does not render or offer to render personalized financial, investment, tax, legal or accounting advice through this report. The information provided herein is not directed at any investor or category of investors and is provided solely as general information. No information contained herein should be regarded as a suggestion to engage in or refrain from any investment-related course of action. Keene Advisors does not provide securities related services or recommendations to retail investors. Nothing in this report should be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product.