More Businesses Pursue Triple Bottom Line for a Sustainable Economy

As corporations of all sizes increasingly choose to monitor and report on their social and environmental impacts, a growing number of mostly small and medium-sized companies are going even further: They are volunteering to be held publicly accountable to a new triple bottom line—prioritizing people and the planet as well as profits.

Just how broadly, rapidly, and rigorously this movement can spread is of critical importance, given the supersized global impacts of for-profit enterprises. Sustainable economies are likely to remain elusive without substantial shifts in corporate norms. As I point out in “More Businesses Pursue Triple Bottom Line for a Sustainable Economy,” the latest Vital Signs Online study, recent data provide signs that such change is possible and indeed may even have begun.

Over the last 15 years, for example, the number of businesses of all sizes that choose to self-assess how sustainable their operations are, using widely accepted social and environmental standards, and to publicly disclose their results has been growing rapidly, especially in Europe and Asia.

Recently there also has been a rise of a fast-moving movement, with significant leadership provided by sustainably minded businesses, whose goal is to persuade lawmakers to create a new legal status known as “benefit corporation” that for-profit businesses can choose voluntarily. The movement for benefit corporation statutes began in the United States, under the leadership of B Lab, which developed model legislation with the pro bono help of U.S. law firms.

A “benefit corporation” is a corporate form that requires a company to legally establish in its original or amended articles of incorporation that it has a general purpose of having a positive impact on society and the environment and that its board of directors, in making decisions, is required to take into account the interests of multiple stakeholders in addition to the financial interests of its shareholders. The stakeholders it must consider, by law, include the company’s own workforce and that of its suppliers, its customers, the local community and general society, and the local and global environment.

Proponents of this new corporate form say it essentially bakes a triple bottom line into a company’s DNA that frees companies from the fear of shareholder lawsuits if their decisions fail to maximize shareholder value because of some competing interest of other stakeholders, such as workers. Under current corporate case law in the United States, for example, corporate directors are generally assumed to be liable in such suits. Incorporation as a benefit corporation is intended to establish the directors’ fiduciary responsibility to consider the interests of all stakeholders. Formalizing a company’s social and environmental purposes under a legal framework also makes it more likely that its good intentions will survive the departure of its founders or any major spurts of growth and that its directors will have the legal backbone to fend off buyout offers from conventional corporations that do not have the same commitments.

Most benefit corporations to date are either small or medium-sized businesses. But they include a few larger companies that are privately held, such as the outdoor apparel and accessory firm Patagonia Inc., which reportedly had annual sales of about $540 million for the year ending April 2012, and King Arthur Flour, an employee-owned, 223-year-old company with reported sales of about $84 million in 2010.

Although the benefit corporation movement is still primarily a phenomenon in the United States, companies in 25 countries outside the United States have earned B Lab’s third-party certification as Certified B Corporations. Canada and Chile are the two countries with the most activity outside the United States. As the number of Certified B Corporations in any country begins to grow, B Lab plans to work with those that are interested in exploring the need and opportunities for revisions in their home countries’ legal infrastructure that would allow them to also legally establish their fiduciary responsibility to a wide range of stakeholders, as benefit corporations in the United States have done. A few companies in Australia have already expressed an interest in this.

Further highlights from the study:

• B Lab estimates that there are currently about 200 benefit corporations in the United States (none of which are publicly traded companies at this point).
• Total gross revenues for all Certified B Corps are about $6 billion annually, and together these businesses employ about 30,000 people, according to B Lab.
• The number of companies annually using B Lab’s online assessment tool, a marker for broader interest in eventual certification, grew from 280 in 2007 to 2,406 in 2012. By the end of the first quarter of 2013, some 8,000 individual companies had used the tool.
• Companies that apply for third-party certification by the B Lab or by the organization Green America are holding themselves accountable to higher company-wide standards for  seeking positive social and environmental impacts, in addition to the conventional corporate goal of earning a profit. This trend is further evidence that the business community embracing a triple bottom line is expanding.

Read the full report at Vital Signs Online.

Colleen Cordes is a public policy consultant and former executive director of Psychologists for Social Responsibility.