Can B Corps save the world?

THE “shareholder primacy” doctrine that promoted profit maximisation as the purpose of business is fading. The increasing wealth gap, widening social inequality and environmental degradation are a blemish on our report card.

We stand at the crossroads of this identity crisis, which offers extraordinary opportunities.

Businesses are now called to create value for employees, customers, communities, suppliers and investors – focusing on purpose over profit. This focus on long-term sustainability and ethical decision-making to impact corporate behaviour has resulted in new business and investment structures.

The changing tide

Among the genres of “stakeholder capitalism”, microfinancing, impact investing and social enterprises have emerged.

Microfinance institutions provide banking services to low-income individuals or groups who would otherwise have no other access to financial services, such as micro-scale entrepreneurs.

Impact investing is an investment strategy that seeks to generate financial returns while also creating a positive social or environmental impact. The aim is to help channel the impact of business activity on specific areas while generating profit.

Social enterprises provide business solutions to address unmet and emerging social needs, with profits being principally used to fund social programmes.

Purposeful profit

Then there are B Corps (or Benefit Corporations). These are for-profit organisations certified for social impact by B Lab, a global nonprofit network. To be granted and to maintain certification, companies must receive a minimum score of 80 from an assessment of their social and environmental performance, integrate B Corp commitments to stakeholders into company governing documents, and pay an annual fee based on annual sales. Companies must re-certify every three years to retain B Corp status.

While certifications for specific products exist – for example, Green Mark for buildings and Fairtrade for coffee – what sets the B Corp certification apart is that it evaluates an entire company on metrics that include worker engagement, community involvement, environmental footprint and governance structure, rather than a single product or aspect of a company.

This big-picture stakeholder evaluation and rigour is critical as it distinguishes between good companies and good marketing.

Shareholders can hold B Corps accountable for their profit as well as for how successful their business is at contributing to the greater good. The legal structure of B Corps protects directors, allowing them to prioritise social and environmental impact without facing legal repercussions for deviating from maximising profits.

Saving the world

Whilst B Corps have faced criticisms that range from allegations of greenwashing to how their assessment process is flawed, opaque and overly reliant on self-reporting, they nevertheless do offer a promising alternative to traditional corporate models, with the potential to drive meaningful change.

Presently, their numbers are small relative to traditional corporations, but the trend is promising.

Last year was a boom year for B Corps, with at least 1,800 companies certified globally, bringing the total to more than 9,300 companies, as at end October 2024.

Singapore has one of the highest numbers of B Corps in the region, according to the B Corp Asia website. With 53 companies certified by B Lab, Singapore has more B Corps than Taiwan (52), China (49), Hong Kong (29) or Malaysia (13).

In 2023, Olive Tree Estates became the first listed company in Singapore to be certified as a B Corp. A Singapore real estate company specialising in property development and investments, the company seeks to provide quality affordable housing for the masses in emerging markets, with its principal activities currently in Vietnam.

While B Corps alone may not save the world on a grand scale, they are a critical component of the larger movement towards a more ethical and sustainable economy. If their principles and practices gain widespread adoption, they can play a crucial role in transforming how business is done globally.

B the change

For a traditional company, there are many reasons to be a B Corp.

Becoming a B Corp is one way to build credibility and trust with consumers and stakeholders. Certification can provide access to newer sources of capital, including impact investment funds and venture capital firms targeting businesses with sustainable business practices. Some jurisdictions offer benefits to B Corps, such as tax incentives or easier access to certain types of funding.

In a crowded marketplace, B Corp certification can also help businesses stand out by highlighting their commitment to ethical practices. On balance, B Corp certification can enhance a company’s reputation, foster loyalty and drive business success while promoting positive social and environmental outcomes.

As a movement, B Corps are part of a global culture shift to redefine success in business and build a more inclusive and sustainable economy. The surge in stakeholder demand for sustainable products and ethical business practices has enabled many B Corps to shift from niche players to competing as mainstream contenders.

For many B Corps, the certification has helped secure global partnerships as it is considered an accepted and recognised standard for sustainable business, communicating the company’s commitment to sustainability and ethics.

In keeping with the times, boards need to be committed to embedding sustainable practices within their company’s culture and operations. In the race to attract informed consumers, employees, investors and the public, empty slogans and greenwashing campaigns are no longer viable options.

The writer is a former member of the Professional Development Committee of the Singapore Institute of Directors.