B Lab Advances Stakeholder Capitalism
I had the pleasure of attending B Lab’s National Leadership Gathering last week in Long Branch, New Jersey. B Lab is a non-profit organization dedicated to using the power of business to solve social and environmental problems. “B Corporations” explicitly seek to balance the needs of all stakeholders, and this requirement is written into their charter. Two States (Maryland and Vermont) have passed B Corp legislation, and many others are considering it, including New York.
It had been a while since I’d checked in with my friends at B Lab on their progress, and progress it has been! They now count over 300 “B Corporations,” representing $1.5 billion in revenues. This is hopeful progress and the energy in the room was palpable. There is no doubt that a wave of social entrepreneurs and purpose-driven businesses, many more than those who currently identify themselves as B Corporations, will play a vital role in building the “new economy” that is socially just and environmentally sustainable.
A wave of “impact investing,” in which investors align their capital with their values, will continue to fuel this movement as it accelerates into the mainstream. The newly launched Toniic, an inspiration of Charly and Lisa Kleisner which I'm pleased to have joined, is but a recent example. I’ve encountered many such “impact investors” in my own Level 3 Capital activity, many of whom have probably never heard the term! Legendary investors ranging from Vinod Khosla, to Tudor Jones and Boone Pickens are practicing "impact investing," most likely without considering it as a new asset class.
B Lab’s upcoming Global Impact Investing Rating System (GIIRS) will be a critical addition to the multitude of efforts seeking to integrate social and environmental impacts into a company’s performance reporting. Please see our recent Forum on Integrated Value Reporting as well as other Forum discussions under “Metrics.”
For more information on B Lab, I’ve excerpted a recent piece from B Lab co-founder Andrew Kassoy, which complements our prior coverage of B Lab in our Forum.
Andrew Kassoy writes:
Today, there is a critical mass of entrepreneurs, investors, consumers, workers, and policymakers seeking to create social and environmental impact through business. However, they face two systemic obstacles: 1) the absence of transparent standards which allow all of us to support “good companies” not just good marketing; and 2) the legal concept of shareholder primacy which makes it difficult for corporations to include employee, community, and environmental interests in decision making.
To address these problems, B Lab works on three inter-related initiatives:
- Building a community of Certified B Corporations that meet high performance and accountability standards
- Developing public policies that support for-profit social innovation
- Driving investment capital to this community of good businesses so that they can grow and increase their impact
Following is a little more info on each of these initiatives.
Certified B Corporations:
Progress requires that we educate the public and business community that there is more to business than just financial profit. B Corporations meet rigorous standards of social and environmental performance, legally expand their corporate responsibilities to include consideration of the interests of workers, community, and the environment, and build collective voice through the unifying B Corporation brand. As of July 2010, there are over 320 Certified B Corporations from over 50 industries working for positive change. Each of us, in all of our roles in life, have a responsibility to support this transformation in the way we view business. We must demand a more comprehensive approach to profit
B Lab has two policy initiatives: 1) create Benefit Corporations in all 50 states and 2) promote tax, procurement, and investment incentives for businesses that create benefit for society as well as shareholders. Unlike traditional corporations, Benefit Corporations must create a material positive impact on society and the environment; consider how decisions affect workers, community and the environment; and publicly report their social and environmental performance using established third- party standards. We have seen recent success in our policy efforts at the municipal, state, and federal level. In 2010, Maryland and Vermont passed legislation to recognize Benefit Corporations. By 2011, seven other states may follow. Last year we achieved the first tax break for certified sustainable businesses in the city of Philadelphia, which will accelerate the growth of sustainable business. It is our hope that this policy will spread to other cities and reach the federal level.
Finally, to create real change, we must drive capital to businesses that provide a return on a triple bottom line performance. We have developed the Global Impact Investing Rating System (GIIRS), which acts as an independent, third party assessment of the social and environmental impact of companies and funds. This ratings approach is similar to Morningstar investment rankings or S&P credit risk ratings. There are twenty-five private equity and venture capital funds, representing approximately $2 billion in assets, that have become GIIRS Pioneer Fund Managers and to have their funds and underlying portfolio companies rated in 2010. Using GIIRS, it will be possible to drive investment towards positive enterprise and strengthen this new sector of the economy.
A Call to Action
Despite these great accomplishments, there is a generation’s worth of work to be done. By harnessing the scale and talent of our business community and looking beyond short-term profit, we can rebuild local living economies, restore the environment, alleviate poverty, and create better working environments. Corporations that are purpose-driven and benefit all stakeholders, not just shareholders, are the key to a better, more sustainable future.