Sandra Stewart | April 23, 2018
In the coming investment landscape, where every investor will screen for positive impact, every company seeking capital will have to be a B Corporation or B Corp-alike.
That’s not what the new report Just Good Business: An Investor’s Guide to B Corps says openly. But that’s what it means. Produced by the Yale Center for Business and the Environment, Patagonia and Caprock, the report is a beckoning call to the impact-curious. It defines Certified B Corps and benefit corporations, describes the investor opportunity and lays out the advantages of B Corps and benefit corporations: transparency, performance benchmarking, strong governance, appeal to top talent, connection with customer values and, for B2Bs, a network of like-minded businesses that are potential partners, clients, vendors, referrers and sounding boards.
It’s all carefully couched and grounded, acknowledging some research is lacking. The message that comes through, though, is that this is the future: get on board or get left behind.
‘We are witnessing a profound recalibration’
“As the economy continues to shift from manufacturing and resource extraction to technology and services, intangible assets are acquiring an increasingly important part of business valuation. It is the foolish executive who refuses to explore ways to optimize intangible asset values,” writes Caprock co-founder and managing director Matthew Weatherley-White in the report’s forward.
“And as the growth of impact investing pushes financial services firms to consider environmental and social return as a driver of overall portfolio performance, the idea of capturing non-financial return gains currency. Between these two dynamics—one financial and one responsible—we are witnessing a profound recalibration of how the capital markets value companies.”
A few standout data points from the report illustrate how B Corp practices have anticipated and enabled this recalibration.
A 2017 Ernst & Young survey of 340 institutional investors found that 60 percent of investors believe that companies do not disclose environmental, social and governance risks that could affect their business—and that they should disclose them more fully. Certified B Corps and benefit corporations are required to report data in those areas.
While about 2,500 companies are Certified B Corps (and 5,000 U.S. ventures are benefit corporations), more than 40,000 companies have used the free B Impact Assessment to benchmark their impact performance. This provides insight into a company’s performance over time or in comparison with others taking the assessment. For B Corps, the assessment is a publicly accessible benchmark that motivates improvements. (Thinkshift and most B Corps we know are zealous about raising our scores with every two-year recertification.)
Given the recent stream of ethically challenged corporations racking up billion-dollar fines and losses, a commitment to sound governance should matter more than ever to investors. And taking the impact assessment, the report notes, “is an indicator of management who likely exhibit greater self-reflection, openness to feedback, awareness of multiple forms of risk (e.g. operational, human capital, nonmarket, supply chain, sustainability), and the initiative to proactively manage those risks.”
Attracting and retaining talent
B Corps themselves consistently cite recruitment as a key benefit of certification. And the report notes a 2016 survey of 26,000 LinkedIn members in 40 countries that found 37 percent were “purpose-oriented employees.” This group is 54 percent more likely to stay at a company for 5-plus years, 30 percent more likely to be high performing, and 69 percent more likely to be brand promoters.
Connecting with customer values
The research on customer attitudes toward sustainability tends to reveal a disconnect between beliefs and actions, but the report’s authors believe that’s changing. One sign: Ben & Jerry’s internal research shows that consumers are 2.5 times more loyal to companies that integrate values-driven action throughout their supply chains.
All this reminds me of an old B Corp slogan: “Good companies, not just good marketing.” We may finally be at a tipping point where investors and everyone else expects companies to do as well as say the right thing—and they’ll move their money in that direction.
In the words of Yale University economics professor and 2013 Nobel Prize winner Robert Shiller, quoted in the report’s introduction:
“The B Corp movement is, to me, a product of a general improvement in our understanding of economic behavior. Through greater appreciation of the real motives that drive and excite people, B Corporations provide a significant new opportunity for investors. I think they could make more profits than any other types of companies, and this guide helps investors understand why.”