What is driving VC and PE firms to certify as B Corps and publicly commit to using business as a force for good, journalist Christian Doherty finds out
The past decade has seen the emergence of a whole raft of initiatives, standards and guidelines aimed at improving ESG performance among businesses of all types. Some have gained more traction than others — one such is B Corp certification, which was started in the US back in 2006.
Since then it has grown considerably. As of September 2021 there were 4,088 certified B Corporations across 153 industries in 77 countries, including ice cream brand Ben & Jerry’s, outdoor clothing retailer Patagonia and the Body Shop.
The scheme covers five areas: governance, workers, community, environment and customers. Companies seeking a B Corp accreditation must show they are committed to meeting “the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose.” The ultimate aim is to mobilise the private sector to build an economy that uses business as a force for good.
The process of becoming a B Corp involves a rigorous examination of the candidate company’s operations and a significant amount of data submission. If the company reaches the required standard it can call itself a Certified B Corporation, with re-certification needed every three years.
While the certifying organisation, B Lab, has little bite other than to remove certification if a company falls short of standards, the high-profile nature of the scheme does create a degree of accountability. “One of the things I love about B Corps is if someone breaches their commitment to being a B Corp, public pressure can be brought to bear on their certification,” says Dama Sathianathan, Partner at impact investor Bethnal Green Ventures (BGV), one of the earlier UK B Corps. “It gives the B Corp status a lot more credibility.”
Accountability is likely to become an increasingly important theme, particularly on environmental performance as the focus shifts from making commitments to showing action on climate change. “B Corp verification provides much needed accountability in private markets, where information on a company’s social and environmental performance is usually hard to come by,” says Sathianathan.
Reasons to B
A growing number of venture capital (VC), private equity (PE) and fund management firms are now seeking B Corp status for themselves. They each have their own motivations for going through the process.
For True Co-founder Paul Cocker the impetus went beyond gaining accreditation as a marketing tool. Having become aware of the scheme three years ago, Cocker says much of the B Corp ethos resonated. “The way to think about B Corp is as a useful framework to challenge yourself against,” he says. “So it wasn’t a case of, ‘Let’s go and get B Corp because then I can stick it on the website from a marketing point of view.’ In fact, you’re constantly assessed as to whether you’re improving. “We scored really well in what we do for our people — we’re in the top 5% best of B Corp on that measure. But then you think, ‘Where didn’t we get that score and what else is there that we could improve on?’”
Victoria Ferguson, Partner and General Counsel at MMC, says that the process of certification was vital in helping the firm codify and measure a lot of its existing initiatives, systems and processes.
“We’re a small organisation, employing just over 20 people, so a lot of our processes don’t tend to be written down — we don’t have a massive HR or ESG department to do that,” she explains. “B Corp helped us bring it under one roof and formalise it. That has been a real benefit and it’ll stand us in good stead in the future.”
MMC was awarded Best in the World status for being in the top 5% of B Corps of its size for its efforts as an employer.
Filippo Cardini, Managing Director, Chief Operating Officer and Head of Investor Relations at TowerBrook, is another keen advocate. Indeed, TowerBrook was the first mainstream PE firm in the world to become a B Corp two years ago. He says adopting the B Corp process has allowed the firm to establish a high standard of conduct and a framework that considers the impact of its decisions on wider stakeholders. “We wanted a credible certification that signifies a sincere commitment to responsible ownership, and this is what B Corp certification provides.”
As one of the first impact funds, some observers may have felt Bridges Fund Management would have little to gain from B Corp status. However, Co-founder Michele Giddens says the process marked another step on the firm’s journey. “We did it first to learn, because we want to be mindful of the impact we have, not only in the investments we make, but also the way we operate as a company,” she says. “We want to reduce our negative impacts, and the B Corp process was a great way to benchmark ourselves against the best in class.”
Benchmarking has been a core benefit for Bridges: “B Corp is a good way for investors to compare managers to see whether they’re walking the walk or not on ESG. So we thought we should participate in an objective measurement process where you’re scored on your performance, and we’re really happy to be in the top 10%.”
Having spent the time and effort going through the process of getting certified, what happens then at an operational level? “It should come back to business as usual,” says Ferguson. “You’ve formalised the processes and policies to ensure you keep your B Corp status. For instance, we now get the board to periodically re-examine the ESG policy and practice. That’s a formal commitment we’ve made and it’s a tangible result of the B Corp process.”
Cocker has also seen the impact of B Corp on the internal workings of True. “It certainly manifests itself in terms of our own internal board meetings. In our monthly board meeting we’ll have statistics in there around diversity, environmentalism and other measures which I monitor against our team and for our portfolio companies. So I think what B Corp has done is raise our profile a little bit around this and elevated the conversation with the portfolio companies.”
The ripple effect
And that, for many investment firms, is where the next area of focus lies: creating a ripple effect, with funds and VCs using their B Corp status to inspire better practice in portfolio companies. As someone who sits on the board of five portfolio companies, Cocker says he has introduced a quarterly session in each of the board meetings specifically around ESG progress.
In addition, True holds a monthly sustainability call for its portfolio companies aimed at CEOs and CMOs, but also middle management. “What’s really great about it is that it goes down through the organisation to people that I wouldn’t necessarily interact with. It might be someone who’s head of e-commerce, for example: they can join the call and it allows ideas to disseminate.”
The calls enable companies operating in similar sectors to share crucial insight about managing sustainability.
Looking back on the process, Ferguson at MMC has a few pieces of advice for those considering getting certified: “First, make sure you get senior buy in. Your status as a B Corporation needs to be reflected in the Articles of Association. So this is a big ongoing commitment and it’s not something you hand off to the summer intern; it has to be a top down process, especially if it’ll require some substantial changes.”
Second, she says that because certification can be time consuming, the person running the process has to have authority to make sure things get done. “The project and its leader need clout,” she says.
“Lastly, enjoy it. While it’s hard, it shouldn’t be a slog. This isn’t something you get through because you need to, it’s something you choose to do.”
How to start your B Corp journey
Beginning the process is the easy part. “I’d recommend doing the B Impact Assessment (BIA) first,” says Victoria Ferguson, Partner and General Counsel at MMC.
“It’s a free, online questionnaire that covers the 200 questions that form the framework. If you know your business reasonably well, it might take you an hour to complete. And if you score more than the threshold — 80 — then it might be a good idea to take it forward.”
After completing the BIA and implementing the legal requirements, the company then undergoes a review and verification process with B Lab, which involves a series of information requests and telephone meetings to review and confirm the information submitted.
“Once you’ve submitted your info, after a while you are given an assessor,” Ferguson explains. “They will ask you for a more formal set of responses, many of which will be written and then you need to give some pro forma documents etc. That can be a bit time consuming, although they do help by batching up questions thematically. That might require a dedicated person.”
When an organisation has been certified the process should be baked in ready for re-certification, which keeps ESG at the top of boards’ agendas and allows companies to measure their progress.
In a nutshell
- B Corps are committed to creating benefit for all stakeholders.
- A growing number of VCs and PEs are going through the rigorous process of becoming a B Corp.
- From making a sincere commitment to responsible investment to benchmarking progress, there are many benefits to the process.
- It is not to be taken lightly and often requires a cultural change within organisations.
This article is from the BVCA Journal Autumn edition, published October 2021. BVCA members can access the full publication here.
In this autumn edition, we explore the role of PE in achieving net zero; the current momentum behind ESG initiatives across the VC space; the factors driving an ever-increasing number of firms to certify as B Corps; showcase a selection of BVCA members working on the most viable solutions to the many problems presented by climate change, and much more.