B Corps and Public Benefit Corporations: A Look at the Business World's Approach to Social Responsibility

Over the last decade, people have become increasingly aware of both the social benefits and negative impacts of the companies they support. They have witnessed individuals, communities, and the environment suffering because of companies that ignore social costs for the sake of profits. This has led more investors and consumers to support businesses that appear to maximize both social impact and profits. Companies that try to maximize both social impact and profits are called Benefit Corporations. There are two different ways for companies to be considered Benefit Corporations - one is by receiving a certification from the non-profit B Lab, and the other is by registering your business with a State government as a Benefit Corporation. Benefit Corporations certified by B Lab are most commonly called B Corps. Benefit Corporations registered with State governments can have different names depending on the state law, but here we’ll call them Public Benefit Corporations (PBCs), which is what the State of Delaware calls them. In this article we’ll introduce you to both B Corps and PBCs and review some of their similarities and differences.

What is a B Corp?

The B Corporation Certification aims to incentivize companies to be more conscious of how their actions affect people and the environment around them. B Lab, a nonprofit social impact organization, awards the certificates to for-profit companies that meet its social and environmental sustainability requirements. Since 2007, B Lab has certified over 4,500 companies in over 70 countries. This doesn’t come as a surprise because the B Corp symbol is an effective branding tool for companies marketing to investors and consumers alike. People like to support companies and ideas they feel are “good”, something that draws businesses to pursue a seal of approval that affirms their benefits to society.

What is a Public Benefit Corporation?

Public Benefit Corporations, or PBCs, are companies whose legally defined goals are to produce a public benefit, which can include a positive impact on society, their workers, the community, and the environment, in addition to the traditional goal to benefit shareholders through maximizing profits. PBCs are required by law to consider their impact on these groups, and in some states, to release benefit reports detailing their social and environmental impacts, often by using a credible and transparent third-party standard. Let’s imagine a farm that wants to use a promising but potentially dangerous new fertilizer becomes a PBC; that farm would then be legally required to consider the impact of the fertilizer on the community’s groundwater in addition to the potential increase in profits resulting from its use. In its benefit report, the farm would need to explain how its actions help the public.

B Corps vs PBCs: What’s the Difference?

The main difference between B corps and PBCs is that the latter confers legal status while the former does not. This distinction, however, does little to diminish the rigor of the B Corp accreditation process. Prospective B Corps must score highly on B Lab’s Impact Assessment and incorporate B Lab’s ESG principles into their bylaws. They must additionally re-certify every three years, and in some cases, publish annual impact reports to keep stakeholders up to date. This is similar to how PBCs incorporate a third-party social responsibility strategy into their bylaws and are required in most states to periodically publish a Benefit Report.

While the PBC structure can be seen as an improvement over the B Corp certification system, it remains important to remember the B Corp certification as a pioneer in ethical investing. The first 80 or so B Corps were launched in 2007, nearly three years before the PBC structure came to be. B Corps provided an avenue for employees, investors, customers, and stakeholders to consider other metrics of success beyond pure profits.

The True Way Forward, or Virtue-Signaling?

Still, the large number of businesses pursuing the B Corp certification has attracted scrutiny, with some critics accusing B Lab of greenwashing and of possibly substituting good governance for accreditation. B Lab charges B Corps an annual fee based on revenue, so it could be in their interest to overlook a B Corp not honoring its commitments, if it makes enough money doing so. B Lab took the criticisms to heart and enacted a myriad of reforms aimed at improving transparency and accountability. B Lab recently took another step towards ensuring all stakeholders’ rights by requiring corporations in states which recognize the PBC system to restructure as one, signaling that the PBC structure is the logical step for companies looking to enshrine social responsibility in their DNA.

Conclusion

Location is a large factor in many companies’ decision to become a B Corp or PBC. While some countries like Italy legally recognize benefit corporations nationwide, others like the United States only recognize the PBC structure in some states. This means that for some socially conscious companies, adopting B Corp’s private-sector framework is the best they can do while state laws catch up in granting these companies legal protection when balancing the interests of both shareholders and other stakeholders. But for companies registered in states that legally recognize a PBC structure, the choice to restructure as one should be a no-brainer. The legal protection granted by PBCs enables companies to realize their core values to their fullest extent without concern about considering their public benefit purpose alongside of their traditional corporate profit goals.

Published on May 6, 2022

References

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2. Shearman, Sarah. “Purpose over profit: are B-Corps the future of sustainable business?”. Reuters. 2020. Retrieved from https://www.reuters.com/article/us-global-business-social-idUSKCN20K2H1

3. Sunrise Banks. “Public Benefit Corporations vs B Corps: What’s the Difference?” 2021. Retrieved From https://sunrisebanks.com/stories/public-benefit-corporations-vs-b-corps-whats-the-difference/#:~:text=if%20it%20adopts%20the%20legal,a%20PBC%20legal%20structure%20available

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5. Taub, Jamie, ESQ. “Certified B Corporation, Public Benefit Corporations and the Impact to Corporate Governance” Schenk Price LLP. 2020. Retrieved from https://www.spsk.com/certified-b-corporation-public-benefit-corporations-and-the-impact-to-corporate-governance

6. Farkas, Lauren. “What is the difference between a Certified B Corporation and a Public Benefit Corporation (PBC)?”. The Alliance Center. Retrieved from https://www.thealliancecenter.org/wp-content/uploads/2019/11/Benefit-Corporation-101-Reduced.pdf

7. Lute, Adriana. De Giacomo, Maria Rosa. “The environmental performance of UK-based B Corp companies: An analysis based on the triple bottom line approach”. Business Strategy and the Environment, Vol 31, Issue 3. 2021. Retrieved from the Wiley Online Library. https://onlinelibrary.wiley.com/doi/full/10.1002/bse.2919

About the Author

Jesse joins the Humankind team from an expert network, where he first developed an interest in Business Operations. Jesse holds a B.A. in Global Affairs from Yale University. Jesse is an avid birdwatcher, with vultures being his favorite species.