Investment Standards Next on B Lab’s Agenda
B Lab, a small nonprofit
group based outside Philadelphia, has gained nationwide attention for its certification program for socially
and environmentally responsible businesses and its push
to create a new legal form for
But the organization has
another goal as well: to increase the amount of capital
available to companies and
investment funds that seek to
create both social and financial return.
Since 2009, B Lab has been
working to create the Global
Impact Investment Ratings
System, a standard designed
to let investors measure and
compare the social and environmental performance of social-purpose companies and
“You can’t really invest for
impact unless you measure
impact,” says Jay Coen Gilbert, co-founder of B Lab.
The effort, which used
the organization’s B Ratings
system as a starting point,
has won $6.5-million in sup-
port from the Rockefeller
Foundation, the consulting
company Deloitte, Prudential
Financial, and the U.S. Agen-
cy for International Develop-
To meet the needs of differing kinds of investors, the ratings system needs to work on
different levels and be transparent, says Margot Brandenburg, an associate director at
the Rockefeller Foundation,
in New York.
She says that wealth advisers probably will only want
a rating to help them advise
their clients. But, she adds,
an investor for whom social
impact is most important,
like a foundation making a
will want to see the data that
led to the rating.
“They will want more than
just two stars,” says Ms.
Brandenburg. “They’re going
to want to know specifically
what the impact on women
is or what the environmental
B Lab used its B Ratings
system, which was designed
to help evaluate American
companies, as a starting
point. But in creating the new
system, it had to make sure
that the ratings would also
be relevant in assessing busi-
nesses and investment funds
that work in developing coun-
B Lab. “But what the paper mill
does with its gray water and
where it sources its pulp from
obviously has a much more significant environmental impact.”
To ensure the certification’s
rigor, B Lab has another requirement: Companies must
amend their charter to say that
they will consider the impact of
their business decisions not just
on shareholders but also on employees, suppliers, the environment, and their communities.
Deciding to change a company’s founding documents is
not something that a social-responsibility or marketing
manager can do, says Mr. Coen
Gilbert. It’s a decision that has
to be made at the chief executive level and requires shareholder approval.
“It’s a big deal,” says Mr. Coen
Gilbert. “We’re not asking people to pay some dues and join a
By asking companies to make
that difficult decision, the organization is tackling a problem
that has long dogged entrepreneurs.
Too many times, social-purpose companies started with
the best of intentions have
trouble holding on to their missions when they grow to a point
where they want to go public or
are large enough to be acquired,
says Timothy O’Shea, who for
many years was a consultant
advising socially responsible
The prevailing understanding
of fiduciary responsibility holds
that companies must make decisions based on what is in the
best financial interest of shareholders, and businesses end up
selling to the highest bidder.
About five years ago, Mr.
O’Shea co-founded CleanFish,
a San Francisco company that
buys and sells seafood that has
been raised or caught in environmentally responsible ways.
He says that incorporating the
company’s ecological values into
its charter was a relief.
“To have that out there just
reinforces the intention of why
we started the business,” says
Mr. O’Shea. “I didn’t start the
business to just be another commodities seafood dealer.”
But not everyone thinks new
legal entities are the best way
to encourage the growth of mission-driven businesses.
“The more you say we’re special and we’re different, the easier you make it for other people
to marginalize you,” says Jeff
Trexler, professor of social entrepreneurship at Pace University in New York.
Mr. Trexler worries that the
new corporate form has the potential to create enmity between
social enterprises and traditional companies without increasing the number of mission-driven businesses. He points to the
a similar corporate form introduced in Britain five years ago.
He says relatively few businesses have taken advantage of
the new designation, just a few
thousand, because there weren’t
any financial advantages to doing so.
It’s easy, inexpensive, and a
good public-relations move for
state legislatures to pass benefit corporation legislation, says
Mr. Trexler. But, he says, neither the states nor the federal
government are in a position financially or politically to offer
tax breaks or other incentives
to for-profit entities.
B Lab plans to seek tax benefits and procurement preferences for benefit corporations eventually. But for now, the most
important thing the new entity provides is clarity, says Mr.
Coen Gilbert, giving business
owners and overseers legal protection to run their businesses
in socially responsible ways.
Ultimately, B Lab wants to
change the business world as a
whole, says Mr. Coen Gilbert.
The group hopes that by increasing the number of companies that believe business has
the power to be a force for good
and helping them grow will, in
time, influence more traditional
“There is tremendous power
in what folks have called social
enterprises,” he says. “But there
is also tremendous power in addressing the 99 percent of the
economy that is producing the
run-of-the-mill products and
services that we all use every
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chairman of the U.N. Foundation, and Aneesh Chopra, U.S. Chief