Cementing your Impact through Better Governance: B Corps and PBCs

Corporate governance is a hot topic in the climate startup community, but founders often struggle with the various options available to them around formation, certification, etc.  What is a B Corp? Is it different from a Public Benefit Corporation (PBC)? Why should you pursue certification? Do investors care? When and how should you start the process?

We sat down with Kevin Christopher to get the tactical advice you need to understand B Corp certification and the value it can provide for your startup. Kevin has long studied how to make businesses both profitable and impactful and regularly helps entrepreneurs figure out how to incorporate mission into corporate DNA. He’s also the founder of a B Corp “Best For The World” law firm (top 5% of B Corps), and award-winning biotech PBC.

B Corp vs PBC

A PBC is a legal designation (defined during corporate formation) while the B Corp seal is a business certification (think LEED or Fair Trade), i.e. a stamp of approval indicating that you meet strict environmental, social and governance criteria. Both resulted from a cultural and societal shift which started in the early 2000s, when people began pushing back against the primacy of shareholders in public corporations (basically the US standard of corporate law which says that companies exist solely to produce maximum ROI to their shareholders).

Remember this if nothing else: PBC = legal, B Corp = business.

The PBC framework emerged from this movement to create a corporate structure that would enable corporations to provide social and environmental benefits, not just profits. However, corporate structure was not enough for stakeholders who wanted to assess benefits more rigorously.  A growing recognition of the need for independent third party verification led to the formation of B Lab which then formed the B Corp certification.

Note: while forming your company as a PBC is worth pursuing and can signal some commitment to sustainability, requirements are state-specific — what PBC means in California (rigorous) is not the same thing it means in Kentucky (flimsy). The B Corp certification, on the other hand, has a single comprehensive standard and ensures an extensive audit to meet rigorous community, governance and environmental guidelines. Keep in mind that B Corp is about how you run your business, not what product you sell. Just because you build solar panels does not mean you will automatically receive certification — how you treat your workforce and the contributions you make to your community are just as important.

B Corp will set your brand apart

B Corp certification is a powerful tool for diverse stakeholders:

• For product-based companies, B Corp certification can help you appeal to socially and environmentally conscious consumers. The B Corp seal will help you stand out on a shelf next to 20 other products.
• The certification can also help you attract top talent– this is especially true for the Millenial or Gen Z workforce, who increasingly want to apply their skills and knowledge to careers that have a meaningful positive impact on the planet (or have Duke MBA’s, where working for a B Corp earns loan forgiveness).
• Certification can also position you to be a supplier in exclusive supply chains (e.g. selling to companies like Patagonia that observe strict sourcing standards).

Impact investors care about B Corp

While traditional VCs (despite their official line) care less about B Corp certifications than strict dollars and cents, impact and climate-focused funds will likely find B Corp certification appealing. Not only does it provide independent validation of the public benefits you provide, it also signals that you are likely to perform better long-term, attract top talent, and stay committed to impact as you grow.

Invest in certification from the start

If you are considering B Corp at all, start the process as soon as you launch your business. To be certified, you need at least a year’s worth of operational and financial data. While you obviously won’t have this when you begin the process, getting started sets you up to understand the requirements and criteria, what operational frameworks you need in place to meet B Corp standards and what you will need to measure and how. You can also receive a “Pending” status while you prepare to undertake the more rigorous full certification process.

Focus your efforts on what you have control over

B Corp status is based on a comprehensive assessment and you need to get 80 points to be certified (of the available 100+). You will have more control over some criteria than others. For example, while you may be located in a co-working space with no influence over energy consumption (and therefore will score low on your environmental impacts), you can make up for this in other areas. The single most heavily-weighted criteria, referred to as the “mission lock question”, is your corporate status. If you are a corporation, you are required to convert to a PBC either prior to or soon after certification based on the size of your company. (If you are a sole proprietor or LLC, this is accomplished in other ways involving amendment to your governing docs or converting to a Benefit LLC.)

There are many questions in the assessment related to your workforce:

• the governance participation you offer (for example, giving employees access to corporate financial reporting);
• How wages compare to cost of living;
• Distribution of workforce, i.e. number of employees vs contractors
• Your benefits offering to full time employees

Some of these might be difficult to tackle if you are a small, lean startup. If you have two employees and twenty contractors, you may fail the governance section of the assessment and will have to make the points up elsewhere.

The section dedicated to your community impact is the most open-ended one — think about how your company can creatively engage with different stakeholders and what gaps you can fill. For example, B Lab recently highlighted a manufacturer that set up a program with a local credit union to provide employees no-questions-asked loans (and unsurprisingly, have seen that employees take less sick days as a result given greater financial security). Keep in mind that  the community does not have to be local — it can be a community of people or a cause that is related to your business. This provides an opportunity for climate startups to demonstrate that they will go beyond their core business to create impact.

Also keep in mind that there are many ways to create impact by B Lab standards. For example, where you spend your operating $$ matters– local is better than supporting major multinational corporations.  So, instead of paying for an ad campaign on Google or Meta directly (public companies that are not local and have limited social or environmental commitments) you can hire a local consultant to do it for you.  This will result in a higher score in your B Lab certification review.

Yes, hire a consultant

B Corp certification is a LONG process which will likely take multiple weeks of heavy effort, followed by 6-8 months of back and forth with B Lab.  It may be tempting to try to apply by yourself but consultants are worth their weight in gold because of how much time they will save you — they will speed up the process and make sure you track the right things and submit the right information.

Here is a list of consultants with expertise in the certification process you may want to consider contacting…

Profitable Purpose Consulting (Georgia)

Everoot Consulting (California)

Impact Growth Partners (Connecticut)

Green Buoy Consulting (New York)

NC State B Corp Clinic (North Carolina)

You can also check the B Corp directory to find additional consultants throughout the world.

Kevin Christopher is the founder of Rockridge Venture Law®, and more recently, co-founder of Calliope Bio, a Yale launched synthetic biology startup and recent participant in the Nucleate Activator and Berkeley Skydeck accelerators. Kevin is a 2050 Fellow at the Center for Business and Environment at Yale (CBEY) under Vincent Stanley, a global leader in sustainability and Director of Philosophy at Patagonia. Kevin has led Rockridge® to become a B Corp Best For The World and Real Leaders Top 150 global impact company has been recognized in Conscious Company Magazine, Forbes, Sustainable Brands, and elsewhere for his unique practice at the convergence of impact and innovation. Kevin is a patent attorney,  National Institutes of Health (NIH) RadX faculty member, and National Science Foundation (NSF) Center for Bioplastics and Biocomposites program evaluator.