Why Foundations Should Care About B Corps
B Corps—certified sustainable businesses—are contributing to the changing social sector landscape, and offering new prospects for foundations looking to effect social change. Although foundations themselves cannot become B Corps, the certification presents new impact investing and cross-sector partnership opportunities for donors.
B Corps are one of the projects powered by B Lab, a nonprofit whose mission is to use the power of business to solve social and environmental problems. Here at Arabella, we learned about B Corps ourselves when we joined their ranks last year by meeting the rigorous standards of social and environmental performance, accountability, and transparency. This was a no-brainer for us, as we are committed to considering the impact of our decisions on our employees, local communities, and the environment. The decision to reinforce our commitment to the greater good also led us to consider how B Corp certification may impact some of Arabella’s clients, including institutional, corporate, and family foundations.
As more foundations pursue impact investing—channeling funds to for-profit businesses that also advance a social mission—B Corp certification can serve as a useful starting point in identifying such businesses. Certification makes it easier for potential investors to recognize sustainable companies, because a company that has been certified as a B Corp will have passed a rigorous impact assessment, and changed its by-laws to reflect its commitment to creating benefits for all stakeholders, not just shareholders. The certification trend is growing fast and becoming increasingly high-profile: in October 2012, Ben & Jerry’s, the famously socially-responsible ice cream company, became a B Corp.
B Lab has also created a platform that provides institutional investors a rigorous assessment of the social and environmental impact of their investments. This platform, the Global Impact Investing Ratings System (GIIRS), provides both company and fund impact ratings (a rating of the social and environmental impact of an individual company or portfolio of companies), which allow foundations to conduct better due diligence before making an investment, and to track their social and environmental performance throughout the investment lifecycle. Many foundations—including the Annie E. Casey Foundation, the Rockefeller Foundation, and Skoll Foundation—are already using these ratings to inform their impact investing strategies. As its usage expands, GIIRS helps to address the concerns of those foundations and investors who worried that it would be impossible to assess social and environmental returns as rigorously as one can analyze financial returns.
B Lab is contributing in other ways to an environment of increased transparency for investors as well as consumers. The community of certified B Corps, which currently includes 671 businesses, played an integral role in advocating for and supporting the passage of legislation in several states that establishes a new type of corporation called the benefit corporation. A benefit corporation is one that is required by law to have a material positive impact on society and the environment as well as its shareholders.
In addition to impact investing opportunities, B Corps also present opportunities for cross-sector partnerships. Certification helps foundations identify sustainable businesses, understand whether they share a common mission or target audience, and be assured of the business’s commitment to social change. As part of a growing trend of socially responsible businesses that are helping to blur the lines between for-profits and nonprofits, certified B Corps offer advantages such as financial resources and access to unique audiences that can make them ideal partners for foundations with a similar mission. These cross-sector partnerships enable businesses and foundations alike to use their distinctive skills to work effectively toward shared goals and build a broader movement for social change.
Ginger Elsea is an associate director with an extensive background in international development and social impact consulting. She provides strategy, evaluation, and implementation consulting services to a variety of institutional and family clients.