Emma Johnson is a lawyer in Cowell Clarke’s Financial Services team, providing advice and guidance to clients including AFSL’s, financial planners and fintech’s on regulatory and compliance matters.
There are a growing number of B Corps emerging across different sectors. Find out more about the benefits of becoming one and what to consider if your practice is looking to become B Corp certified.
What is a B Corp?
B Corporations (B Corps) are companies certified by an independent body (not-for-profit B Lab) as being driven by both profit and purpose, with an intention to create benefit for all stakeholders, not just shareholders. There are currently over 4,000 B Corps in 70 countries and 150 industries and these numbers are rising fast.
If you’re a business interested in ideals such as sustainability, environmental, social, governance (ESG), positive supply chains and employee wellbeing and want to integrate these with your governance structure then the B Corp approach is one to consider. B Corp certification is also an excellent way of marketing these ideals and announce to clients and prospects) that you’re committed to broader social and environmental issues and transparency in your business operations.
What’s the process?
During the application process for certification, your business is assessed against a set of social and environmental standards including impact on workers, community, environment and customers as well as governance arrangements. This is a rigorous process requiring businesses to reassess their operations and improve them to meet the standards as needed.
To be eligible for B Corp certification a business must be operating for at least 12 months and can be a company (small and large), partnership, sole trader, not-for-profit, trust, and cooperative. Certification standards apply across three key areas:
Performance – business operations must meet a required score in a business impact assessment.
Accountability – for a company this means meeting a legal requirement.
Transparency – once certified the score you receive for business impact is displayed, as is your certification.
A submission fee of $250 plus an annual fee (dependent on turnover) between $1,000 – $50,000 applies for all certified businesses.
The legal requirement – Accountability
Stakeholder governance is a fundamental requirement for becoming a B Corp. For Australian companies there has been difficulty achieving this as B Corps are not recognised under the Corporations Act 2001 as a separate type of company. As a way of navigating this lack of legal recognition, existing companies aspiring to become a B Corp will generally need to amend their constitution to include a ‘purpose’ statement and a stakeholder clause.
The purpose statement and stakeholder clauses are relatively broad and commit the company to stakeholder governance and protecting the company’s ‘mission’.
What does this mean for Director’s duties?
A director’s primary duty is to act in the best interests of the company. Including the purpose statement and additional stakeholder clauses requires a director to consider a broader range of stakeholders when fulfilling this duty and determining what is in the best interest of the company i.e. employees, the environment, the company purpose and social impact. It is still up to directors to determine how to balance each of these interests in making decisions.
This can introduce some uncertainty for directors. How they should consider a broader range of stakeholders within the confines of their directors’ duties is still being tested. On a positive note, directors are now generally expected to consider a broader range of stakeholder interests, and evidence suggests that a failure to take a business’ social impact and ESG factors into consideration is likely to have an adverse impact on stakeholder interests over time.
Is B Corp a good fit for financial advice?
Of course. They’re a natural fit – financial planners are in a profession that can influence positive change, through advice. During the process of exploring a client’s goals, needs and objectives they have a platform to discuss the potential of impact investing and environmental concerns and standards.
Although planners operate in a heavily regulated environment, a B Corp accreditation can enable advice businesses to stay ahead of growth in consumer demand for responsible and ethical investment options, by demonstrating a commitment to ESG from within their own ranks.
Business case and moral intent – to B or not to B
Enlightened self-interest is a broadly accepted way of outpacing bureaucracy and building momentum towards fundamental change. The idea of balancing profit with purpose will surely gain traction as we continue to address our environmental concerns, supply chain and modern slavery issues, inclusivity in the workforce and our desire to make better decisions.
Of course, B Corp certification isn’t the only way to achieve these aims, but it is a way of demonstrating and formalising your commitment to these broader issues and the stakeholders involved.
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