The struggle for the soul of the B Corp movement

The struggle for the soul of the B Corp movement

By Anjli Raval, Financial Times

The ESG initiative pledges to turn companies into forces for good, but some are wary of its growing focus on multinational corporations

 

When Nestlé subsidiary Nespresso was awarded “B Corp” status in May 2022, the founders of tiny Glen Lyon Coffee Roasters could scarcely believe it.

Their initial reaction was “dismay”, the Scottish firm said in a post on its website last summer. It had only just attained the same certification, which demonstrates enhanced commitments to environmental and social goals, and felt there was a big difference between its own achievements in that field and those of the Nestlé-owned megabrand.

Nespresso, best known for its single-serve coffee pods endorsed by actor George Clooney, emphasizes it underwent a “comprehensive” assessment requiring “detailed evidence and supporting data”. But critics such as Glen Lyon point to allegations that some of its farmers are earning poverty incomes and that its capsules create huge amounts of waste.

Jamie Grant, a director at the company, says that while he acknowledges Nespresso is working to create biodegradable pods, “a line needs to be drawn somewhere to protect the reputation of the certification scheme” and businesses such as his, echoing the statement made last year.

The controversy is part of a wider debate about the future of the B Corp movement, which started in the US but now includes thousands of companies around the world who are certified as “a force for good”.

The movement came to prominence as environmental, social and governance issues rose to the top of boardroom agendas in recent years. Publicly listed corporations changed strategy and emphasized social responsibility and investors and the public demanded more on everything from executive pay to policies for tackling climate change.

Among a range of ESG benchmarks, frameworks and certifications, B Corps set out to be a widely recognized gold standard. To achieve the status, firms have to meet high levels of overall social and environmental performance, public transparency and legal accountability to balance profit and purpose.

But just as the ESG agenda and so-called stakeholder capitalism have begun to feel a backlash, the B Corp ecosystem is now under scrutiny. Many of the smaller companies who were early adopters of the standards are concerned about what they perceive as a focus on enlisting multinationals and trying to get them to be “less bad” rather than to be transformationally “good”.

They have also raised questions about the credibility of B Lab, the certifying authority, setting in motion a battle for the heart and soul of the movement.

“It’s incredibly accessible. Any company can become a B Corp,” says Erinch Sahan, former chief executive of the World Fair Trade Organization who now works at the Doughnut Economics Action Lab. “It is its biggest strength, but also its biggest weakness. It doesn’t require the big changes in business that we urgently need.”

“What they do really well is creating a community of business people who are passionate about sustainability,” adds Sahan. “When you tell everyone you’re now a B Corp…people expect that you really do prioritize people and planet. But that’s not necessarily the case.”

Staff at B Corp-certified Bamboo Sushi in California
Staff at B Corp-certified Bamboo Sushi in California. Companies gain B Corp status based on how they score on metrics across governance, treatment of workers and customers, community and the environment © Gado/Sipa USA/Alamy

The B list

B Lab was started almost 17 years ago in the US by university friends Bart Houlahan, Andrew Kassoy and Jay Coen Gilbert. It is a non-profit network with the lofty goals of revolutionizing capitalism and remaking the global economy to “benefit all people, communities, and the planet”.

B Corp co-founders - Mark Leibowitz - B Lab
B Corp co-founders Bart Houlahan, Jay Coen Gilbert, and Andrew Kassoy. Smaller companies are concerned about what they see as a focus on trying to get multinationals to be ‘less bad’ rather than transformationally ‘good’ © Mark Leibowitz/B Lab

Today, there are about 6,400 certified B Corps around the world across 158 industries from fashion brands to fintechs. Once largely made up of smaller businesses trying to change how business was done, the pool of B Corps now also includes major companies — from Ben & Jerry’s ice cream, which is owned by Unilever, subsidiaries of French food group Danone to outerwear brand Patagonia and Natura, the Brazilian cosmetics and fragrance maker that owns Body Shop and Aesop.

“The number of companies seeking certification ‘continues to accelerate’”, Houlahan tells the Financial Times. “We are incredibly excited about the proliferation of submissions and tremendous growth, but we want to be incredibly careful. How do we scale with integrity while keeping the rigor and credibility of the certification?”

Companies gain B Corp status based on how they score out of 200 on a variety of metrics across governance, treatment of workers and customers, community and the environment. The process can be long and expensive — anywhere between $500 and $50,000 each year — and this has to be reappraised every three years. Companies, which have to get at least 80 points, are also required to legally cement the B Corp commitment into the mission statement of their company.

In the US, one way to do that would be to reincorporate as a benefit corporation, a legal structure that formally embeds societal obligations into the company’s goals and gave the B Corp movement its name. Companies in the UK must rewrite their articles of association to include a commitment to social or environmental good. This, B Lab believes, is what makes the certification more than a tick-box exercise.

Growth in B Corp numbers chart 2023

The UK is one of the fastest-growing regions for B Lab with about 1,000 companies at the end of 2022, double the number the previous year and the highest relative to its population in the world. 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.

Achieving certification is also good PR — both for the business and the movement. Company advertisements at train stations and product packaging increasingly display the B Corp logo in the same way they might advertise organic or Fairtrade status.

UK supermarket chain Waitrose and online grocery retailer Ocado have created virtual aisles for B Corp-certified products on their websites. One UK executive tells the FT his company was pursuing B Corp status as younger potential employees increasingly seem to demand it.

There are limits to the certification. A company may commit to paying its own employees a fair wage but there is no requirement to extend this further down the supply chain. If a company makes increased profits, how it deploys those funds is not for B Lab to dictate. It could invest in growers or farms, increase staff wages, install solar panels — or just ramp up dividends or executive pay.

For these and other reasons, questions linger over whether B Corps are enacting truly meaningful change internally and whether the effects of that change is being felt more widely. Another UK executive says that while the certification helped show the company in a good light when pitching business to clients, beyond that he does not really think about the larger purpose of the movement.

“Companies are keen to say we have a social purpose, therefore we have a good company,” says Mark Goyder, a corporate governance expert and founder of business think-tank Tomorrow’s Company. “But they don’t emphasize the how. Here are the ways we underpin this, how do you ensure values are upheld and how do you govern things like culture?”

Even if a company does manage its internal processes relatively well, there is less focus on the real-world impacts of their products and services.

“Unless B Corp starts to focus on the deep design of business — how companies are owned, who’s represented on their board, where their profits go — it risks falling far short of its own marketing claims,” says Sahan.

Other standard-setters that might be better at actually overhauling how businesses operate include Social Enterprise World Forum, Employee Ownership Association and Co-operatives UK, he says.

“We need to be very clear about what B Corp is and isn’t. It’s not social enterprise. It’s not akin to co-operatives or employee ownership. It’s not fundamentally changing the deep design of businesses. But it is helpful for assessing if a company is trying to do better on sustainability.”

Critical friends

There is now a growing movement to encourage B Lab to go back to its roots. About 40 individuals, including people working for some of the founding B Corps in the UK and others in the wider sustainability industry, are part of an informal WhatsApp group that views itself as a “critical friend” of B Lab, according to people familiar with their discussions.

They want B Corp to thrive, but fear that awarding the status to large multinationals that have faced criticism in the past creates confusion in the minds of consumers. They say that Nespresso, for example, could now be viewed from outside as being equivalent to a company with far higher standards.

READ THE FULL STORY

 

Article by Anjli Raval, Management Editor, Financial Times. Anjli reports on boards, corporate governance, what’s going on inside the world’s biggest companies and the future of work. Previously she was Senior Energy Correspondent covering oil and gas companies, Opec energy policy and the global transition towards cleaner fuels. Before joining the natural resources team, she was an editor and reporter in New York writing about the US consumer economy. She has also worked in the New Delhi bureau and on the companies, markets, comment and analysis desks in London since starting at the FT in 2009.

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