ESG: Accountability, B-Corp Certification, and Benefit Companies
What do accountability, B-Corp Certification, and Benefit Companies have to do with environmental, social, and corporate governance (ESG)? As it turns out, plenty! The role of ESG metrics in publicly traded companies has taken center stage this year. With the Securities and Exchange Commission’s (SEC) proposals for ESG-related standardized disclosures and regulatory requirements in full force, companies and investors are actively integrating ESG considerations into their investment and disclosure practices.
From aspiration to accountability
While many companies have embraced the ESG mindset and value proposition and are demonstrating strong ESG performance, the stakeholder and regulatory pressure to disclose results and improve on the impact of ESG initiatives is advancing.
Companies have a great opportunity now to prepare for new regulations around sustainability reporting, and commit to transparency and accountability. For companies to remain competitive, their board should identify which metrics are most relevant to their stakeholders and focus on integrating them into the company’s ESG strategy and reporting. But how can a company communicate sustainability reports to build public and investor trust?
Public Benefit Corporation
The Public Benefit Corporation (PBC) was designed to enable socially conscious entrepreneurs to benefit society, the environment, and investors. In going beyond the traditional shareholder value focus, the PBC seeks to honor the financial interests of shareholders while pursuing the public benefit, meaning “a material positive impact on society and the environment, taken as a whole. . .from [its] business and operations,” identified by the PBC in its organizational documents. In other words, PBCs are legally obligated to pursue their ESG goals.
Most state PBC statutes are based on the Model Benefit Corporation Legislation, which has three principal tenets: general public benefit, accountability, and transparency. States often mandate PBCs to provide a benefit report to their stockholders and the public about how well the corporation provides the requisite general public benefit. To conform to the transparency and accountability requirements, PBCs incorporated in states with lenient PBC requirements can also include a charter provision that requires the annual provision of a benefit report to stockholders and the public.
Delaware, the state of choice for many public and private corporations, also allows a benefit corporation to use a third-party standard in connection with the corporation’s promotion of the public benefit(s) identified in the charter and/or the best interests of those materially affected by the corporation’s conduct. One way of doing this is by attaining a periodic third-party certification from B Lab, a non-profit organization, which produces a report that examines the company’s impact on its workers, community, environment, and customers.
B-Corporations balance profit, planet, and purpose, all while aligning with B Lab’s standards for social and environmental performance, public transparency, and legal accountability. Unlike a PBC, “B-Corp” is a certification mark, not a statutory corporate form. Think “USDA Organic” or “Fair Trade.”
In order to achieve certification, a company must demonstrate high social and environmental performance by achieving a B Impact Assessment (BIA) score of 80 or above. The BIA is a comprehensive questionnaire that determines a company’s social and environmental impact through a deep dive into its governance structure, operations, policies, partnerships and beyond. The BIA generates a score that is benchmarked against the average scores of other companies that have also taken the BIA.
In an era of “greenwashing” and a plethora of misleading labels, B Corps and PBCs provide third party recognition that a company is taking action to build an inclusive and sustainable economy. The B Corp certification process and the PBC’s annual reporting requirements hold companies to a high level of scrutiny and ensure accountability and transparency. What many companies with ESG goals quickly realize is that they are already operating as B Corps and PBCs. At Christopher & Panasci, we’re here to help you make sense of the ever-evolving ESG landscape and implement best practices and strategies for your business long term.
About Violaine Panasci
Violaine Panasci, LL.M., studied law at the University of Ottawa before completing an LL.M. in New York with an emphasis in food systems and sustainable supply chains. Her practice areas include agricultural technology, cannabis, copyrights, data privacy, food & beverage, regulation, sustainable supply chains, and trademarks. V currently serves as a board member and Vice-Chair of the Governance Committee for the National Social Enterprise Alliance, a board member for the Nashville Social Enterprise Alliance, and a board member for the French American Chamber of Commerce of Tennessee. Read more about Violaine, connect with her, and Calendly her.