B Lab was founded in 2006 and they are most known for certifying B Corporations (previously known as Benefit Corporations).[i] B Lab states that,
“Certified B Corporations are leaders in the global movement for an inclusive, equitable, and regenerative economy. Unlike other certification for businesses, B Lab is unique in our ability to measure a company’s entire social and environmental impact.”[ii]
Any for-profit company that has existed for 12 months can become a B Corp. The process of certification starts by completing the online BIA (B Impact Assessment). The BIA is around 200 questions and is intended to analyse the company’s impact on its key stakeholders (workers, community, environment, and customers), and understand its governance- meaning its mission, engagement, ethics, and transparency. The workers component considers financial security, health, wellness and safety, career development, engagement, and satisfaction. Community focusses on diversity, equity, inclusion, economic impact, civic engagement and giving, and supply chain management. The environment aspect looks at air, climate, water, and land and life conservation efforts. Finally, the customer element is looking at customer stewardship. A company must score over 80 in order to certify. More often than not, a company won’t achieve 80+ points on their first attempt at the BIA. So, step 2 is improving your score. B Lab has a range of tips and tools to help with this. Step 3 is meeting the B Corp legal requirement. This process formalises the business’ alignment with the B Corp Movement by amending its legal structure and/or articles of association. Doing this will earn the company up to 10 points on the BIA. The company can then submit their assessment (with a one-off £250 submission fee) to B Lab who will begin reviewing it. Each year the company will need to write an annual impact report and pay a certification fee to maintain its certification. The annual certification fee is calculated based on the company’s revenue. Every three years, the company’s social and environmental impact will need to be verified.[iii]
Currently, 7,611 companies across 93 countries and 161 industries have B Corp status.[iv] However, over 50,000 companies have used the BIA to assess their social and environmental performance which shows how B Corp’s reach stretches beyond just those companies who are certified.[v]
Figure 1: Graph showing increasing numbers of global B Corps each year
The increasing number of certifications is testament to the benefits that B Corp status can bring to a company. According to the 2021 B Corps Community Survey, 98% of respondents felt that being a B Corp is likely to contribute to the future success of their company.[vii] B Corp certification is good PR. The Financial Times says that,
“data from B Lab UK — one part of the global network that sits under B Lab Global, which ultimately provides the certification — shows companies outperform on revenue growth, investment levels and employee retention rates compared with those outside of the community.”[viii]
However, there is mixed evidence as to whether B Corp certification helps a company achieve better financial performance. For example, Patel and Dahlin (2021) found that certification does not provide financial gains or financial stability. They found that certified companies have increased sales in the short-term, but this is associated with a 3-year and 5-year volatility increase. They also found no increase in return on assets growth or volatility. Furthermore, they found that equity ratio declines and becomes more volatile after certification.[ix]
The Financial Times article also mentions how younger potential employees are increasingly demanding that their prospective companies are B Corp certified.[x] ZCA will talk more about what Gen Z want from their employers in an upcoming report. So, keep your eyes on our Market Research & Reports page for when this goes live.
To achieve B Corp certification, a company just needs to score above 80 points on the BIA. The points gained can be from any of the five pillars being assessed (governance, workers, community, environment, and customers). This means that there’s no minimum threshold for each pillar, which allows trade-offs and poor practice to occur. Furthermore, the BIA does not consider industry-level sensitivities, so this means that companies can choose issues that are easy to address rather than the ones that are most material for their industry.[xi]
In May 2022, Nespresso, a subsidiary of Nestlé, was awarded B Corp status after scoring 84 points on the BIA.[xii] Their certification raised concerns. For example, Glen Lyon Coffee, a B Corp certified roastery in Scotland, expressed their concerns about Nespresso being certified when the company produces around 12,600 tonnes of aluminium waste every year.[xiii] There are concerns too about how Nespresso achieved the certification after Channel 4 released a Dispatches episode revealing child labour practices occurring on some of Nespresso’s coffee farms.[xiv] Questions have also been raised about what it means to certify a subsidiary when its larger parent company is not certified.
Ben & Jerrys, Aesop, Patagonia, and subsidiaries of Danone have also achieved certification.[xv]
Not all multinational companies maintain their certificates, however. BrewDog lost its B Corp status less than two years after joining the scheme after the BBC released a documentary examining BrewDog’s workplace culture and staff submitted complaints.[xvi]
The Financial Times says there are minimal numbers of companies choosing to relinquish their B Corp status.[xvii] Additionally, Bart Houlahan, B Lab’s Co-founder says that there is a backlog of 3,000 companies seeking B Corp Certification.[xviii]
B Lab announced a review of its B Corp Certification standards in December 2020. The purpose of the review was to see whether mandatory performance requirements would be useful in differentiating leading companies from the rest of the pack. In September 2022, a preliminary consultation period and detailed draft development began. In May 2023, the Preliminary Consultation Summary Report was published, highlighting ways that feedback could be addressed in the next draft of B Corp Certification standards which will begin in late 2023.[xix]
Back in 2015, Paul Polman, who was at the time CEO of Unilever, said “B Corp is a critical part of the shift to a more inclusive, purpose-driven economy, which is unquestionably needed”.[xx]
ZCA’s take is that B Corp certification should not be followed blindly as the key to a company’s financial and environmental success. Mixed evidence and a signal that perhaps the company profile of B Corps is shifting, suggests that this is a changing issue. This, however, does not detract from the BIA being a useful tool for businesses to examine their social and environmental impacts. Consumers should be aware that just because a company is a B Corp, that does not mean it is without ethical or environmental flaws.
Gemma recently graduated with a degree in International Development. She is currently studying for an MSc in Sustainable Urbanism, which examines urban planning and urban design through a sustainability lens. “I’m passionate about addressing sustainability challenges in a holistic and pragmatic way. Zero Carbon Academy's diverse range of services targets many of the areas that need support if we are to transition to a liveable future. I’m excited to see the impact that the Academy makes.”