B Corp: Definition, Advantages, Disadvantages, and Examples (2024)

What Is a B Corp?

B corps are for-profit companies that have received certification from B Lab, a nonprofit organization that certifies businesses that meet certain social and environmental standards. According to B Lab, there are 6,856 certified B corporations in 161 industries and 90 countries worldwide as of late May 2023.

Key Takeaways

  • A B corp is a for-profit company that has received certification from B Lab, a nonprofit organization founded in 2006.
  • To be certified as a B corp, a company must meet certain social and environmental criteria.
  • A certified B corp is not the same as a benefit corporation, although the two may share many of the same goals.

How Does a Business Become a Certified B Corp?

To become a certified B corp, companies must apply to B Lab, providing documentation regarding their business practices.

To be approved, a company has to:

  1. Achieve a score of at least 80 on B Lab’s Impact Assessment, which measures social and environmental performance, and pass its risk review. There are baseline standards that multinational corporations must also meet.
  2. Be accountable to all stakeholders, not just shareholders, by making a legal commitment and changing its corporate governance structure. If available in its jurisdiction, a company must also have achieved benefit corporation status.
  3. Be transparent by agreeing to allow its performance on B Lab’s standards to be publicly available on its B corp profile on B Lab’s website.

In addition, companies must apply for recertification every three years or when there has been a change in ownership or they have made an initial public offering (IPO).

What Is B Lab?

B Lab, based in the United States, is an international organization founded in 2006. It describes itself as a “nonprofit network transforming the global economy to benefit all people, communities, and the planet.” B Lab certified its first 82 corporations in 2007.

B Lab is supported by a group of well-known foundations, corporations, and government agencies, including the Ford Foundation, the Robert Wood Johnson Foundation, The Kendeda Fund, and Prudential.

In addition to its U.S. offices in Philadelphia and New York City, B Lab works with regional affiliates in Amsterdam; London; Melbourne, Australia; and Sao Paulo. In Latin America, it partners with Sistema B, founded in 2011.

Advantages and Disadvantages of Becoming a B Corp

Companies go through the process of becoming B corps for a variety of reasons and can gain a number of advantages from doing so. At the same time, there may be a few potential drawbacks.

Advantages

According to B Lab, companies that receive B corp certification benefit because they:

  • Build trust with their consumers, communities, and suppliers
  • Are able to attract and retain employees
  • Tend to attract investors who back their mission

And because they must recertify every three years, their focus on improving over time can lead to long-term resiliency.

B Lab Europe puts it a little more simply: “For businesses, becoming a B Corp means attracting more employees, improving their company and finding power as a community.”

A 2016 Harvard Business Review article that examined companies’ motivations for becomingB corps found “at least two major underlying reasons,” according to its authors.

One was “the increasing efforts of more conventional profit-driven companies to be seen as ‘green’ and ‘good.’” This, in turn, motivated smaller competitors (which many B corps are) to seek certification as a way to stand out as genuinely committed to social and environmental responsibility.

The second, closely related reason was an apparently sincere desire to “‘join the movement of creating a new economy with a new set of rules’ and ‘redefine the way people perceive success in the business world.’”

In another Harvard Business Review article, Richard Stammer, former president and CEO of Cabot Creamery Cooperative, which became certified as a B corp in 2012, wrote that the process “delivered value beyond our expectations. B Corp certification encouraged more ‘whole-systems thinking’ around our social and environmental practices, which led Cabot to develop even more robust customer and consumer programs, cut operating costs, and strengthenour brand reputation as a sustainability-minded company.”

Disadvantages

A largely positive report on B corps prepared by the Yale Center for Business and the Environment and Patagonia (a well-known B corp) mentioned a few potential drawbacks for companies weighing whether, as it said, “to B or not to B.”

Those included a higher level of scrutiny, in part because companies that make environmental and other claims are often targeted by activists checking to be sure that they live up to those claims.

In addition, the certification process itself can be laborious. “It can take months—and in some cases years—to become a Certified B Corporation, and the amount of time hinges heavily on whether a company already had a system in place to measure its social and environmental impact,” the report noted, adding that, “It is important for a company to assess whether it has sufficient bandwidth to take on the additional work.”

Finally, the extra expenses associated with being a B corp (such as “paying your employees a living wage”) might result in higher costs to customers and reduced profits for shareholders, at least in the short term.

Which Companies Are Certified B Corps?

Many B corps are small and midsize companies not widely known outside of their countries or particular market niche. Among the larger and more famous U.S. brands on the list are Ben & Jerry’s (food products), Patagonia (apparel), and Seventh Generation (cleaning products).

B Corp Certification Categories

The assessment process used by B Lab looks at a company’s practices across five categories: governance, workers, community, environment, and customers. Its annual “Best for the World” lists recognize top performers in each category, grouped into classes by their number of employees.

Benefit Corporation vs. B Corp

A benefit corporation, sometimes referred to as a B corporation, is a type of company, officially recognized in most states of the U.S., that operates for the benefit of stakeholders such as employees and the larger community rather than simply for its shareholders. In that way, it is similar to a B corp certified by B Lab, and for obvious reasons, the two are often confused.

Although B corps and benefit corporations have similar accountability and transparency requirements, the performance of a benefit corporation is self-reported, whereas a B corp must “pass” the B Lab Impact Assessment and recertify regularly, as noted above. Filing fees for benefit corporations vary by state and province, but they tend to be lower than B Lab’s certification fees. And companies can only become benefit corporations in the U.S., the British Columbia province of Canada, and a few other countries, whereas any for-profit firm that has been in operation for a least a year can apply to be a B corp.

What Is a Stakeholder?

A stakeholder is an individual or a group with a stake or personal interest in a business enterprise. A company’s stakeholders can include its shareholders, employees, customers, suppliers, and the surrounding community, among others.

What Is Shareholder Primacy?

Shareholder primacy is a theory that corporations should act primarily, if not entirely, in the interests of their shareholders. It conflicts with the belief, exemplified by benefit corporations and B corps, that they should also consider the interests of other stakeholders, such as their employees and customers.

Do B Corps Pay Taxes?

Yes. While B corps and benefit corporations may have a different societal mission than some corporations, they are still subject to the same tax laws as any other for-profit company.

The Bottom Line

B corps are part of a growing movement toward greater social and environmental responsibility by businesses around the world. Their proponents maintain that paying attention to those concerns (and not simply the interests of shareholders) is also good business that pays off in other ways.

B Corp: Definition, Advantages, Disadvantages, and Examples (2024)

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