Proposed changes to the B Corp certification regime: will we see more or less B Corps?

The UK consumer landscape is shifting and it is becoming increasingly important for businesses to be able to evidence their positive social and environmental impacts to a wide range of stakeholders. Obtaining B Corporation (B Corp) accreditation can help businesses to do so, by demonstrating priorities beyond just profit.

At the time of writing, there are approximately 2,000 B Corps in the UK, with this number increasing at seemingly rapid pace. However, alongside the growth in UK B Corps there has been a developing scepticism from some commentators about whether the certification still carries the same weight as when it was first introduced.

Amidst this scrutiny, coupled with the intensifying climate crisis and a more rigorous regulatory landscape, B Lab (the non-profit organisation responsible for the standards and policies of the B Corp certification regime) has recently closed a consultation which sought views about introducing changes to the certification process.

Below we focus on UK B Corps, setting out the current certification process, the changes proposed in the consultation and the ways in which the outcome of the consultation may affect current and future B Corps.

Current certification regime

Eligibility criteria

Most for-profit businesses (whether large multinational, small-scale owner managed or sole trader) which have been operating for 12 months or more may apply to become B Corp certified.

Self-assessment

Businesses must complete a B Impact Assessment (BIA) which asks approximately 200 questions about their governance structure and evaluates how they interact with customers, employees, the community and the environment. Th BIA delves into matters such as codes of ethics, career development, equity and inclusion and supply chain management, in addition to many other questions around day-to-day operational policies and practices.

The BIA is a free tool to help measure and manage a business’ impact in each of these respective areas. There is a one-off submission fee payable when applying for certification, and businesses that achieve certification must then pay an annual fee (based on the total revenue of the certified business). In addition, from 1 July 2024, a one-off tiered verification fee is payable in advance of a business’ assessment being verified.

To qualify for B Corp status, a company must score at least 80 out of a possible 200 in the BIA questionnaire. The current approach is relatively flexible – businesses may draw from many environmental, social and governance (ESG) policies to achieve the necessary score of 80. A business can achieve a high score in one area but a low score in others and still obtain an overall score of 80+ to be certified.

Legal requirements

A business seeking to become B Corp certified must amend its constitutional documents to embed a legal commitment to using the business as a force for good and to protect the business’ mission and values. There is specific wording that must be adopted verbatim in the business’ constitutional documents which sets out:

• a legal basis to allow directors to consider all stakeholders’ interests when making decisions. This includes the interests of shareholders, employees and suppliers, in addition to the social and environmental impact of the business; and
• that the business must commit to create a positive impact on both society and the environment through its business and operations.
  
  

Implementing these legal changes prior to certification is required for all companies with 0-49 full-time employees. Businesses with more than 50 employees can make these changes within a certain time after certification – LLPs are given an additional 90 days and limited companies are given 12 months after certification to satisfy the legal obligations.

The review process

The review process follows completion of the BIA. This comprises:

• the evaluation stage (performed by B Lab UK); and
• the verification stage (led by B Lab Global).
  
  

During the evaluation stage, businesses must submit their completed BIA assessment and liaise with B Lab UK to confirm certain material information such as organisational structure. Businesses must then submit supporting documentation and information so that it can be independently assessed and verified as part of the verification stage.

The whole certification process can take between six and 10 months to complete depending on the nature of each business.

The Declaration of Interdependence

The Declaration of Interdependence is a public declaration that embodies the purpose and goals of the B Corp movement. It highlights that all facets of society rely on each other and must work together as a force for good.

The final steps in the certification process include signing the declaration of interdependence and signing the B Corp agreement.

Ongoing obligations

To maintain accreditation, all B Corps must recertify every three years by following a similar process to the initial certification exercise. In addition, if a B Corp is acquired then it must notify B Lab of its intention to retain B Corp status with 90 days. It must recertify the sooner of (1) within one year of the acquisition or (2) by the end of the three-year recertification period. Larger, more complex entities will have up to two years to recertify following an acquisition so they should consult with B Lab at the earliest opportunity.

B Corps must also write an Annual Impact Report to ensure regular, open communication with stakeholders. It should cover the business’ current progress and future plans to continue to achieve a positive impact on people and the planet and should be circulated to key stakeholders and investors, published on the business’ website and can be filed with Companies House.

Key proposed changes

B Lab’s recent consultation sought views on the introduction of fundamental changes to its certification process and we have set out below some of the key proposals. There has been a recent shift in B Lab’s objectives to ensure certified B Corps are not only hitting the existing social and environmental targets but are also purposefully continuing to improve and develop.

New ‘Impact Topics’

The current five areas of focus for assessment are governance, workers, community, environment, and customers. The proposed reforms build on the content of the existing standards in these areas, seeking to improve the impactfulness of the standards and provide further clarity on the meaning of these focus areas in practice and more granular guidance on what is required to achieve accreditation.

All businesses will be expected, therefore, to meet specific requirements across a range of newly defined Impact Topics which set out more prescriptive criteria against matters such as Fair Wages, Workplace Culture, Climate Action and Purpose and Stakeholder Governance. In addition, a diverse range of Complementary Impact Topics have been designed to support business’ ability to measure their impact more broadly and manage continuous improvement above and beyond taking action only on the core Impact Topics. Themes include ethics and transparency, supply chain management and economic impact and the Complementary Impact Topics will look at the detail to assist businesses in setting objectives such as implementing appropriate anti-corruption policies and improving existing career development plans. They will facilitate a business’ ability to adjust its goals in context within the overall certification framework.

An end to the flexible approach of self-assessment

The revised draft standards and introduction of more detailed Impact Topics also represent an end to the current flexible points-based approach. They move the certification process away from the current 80-point threshold and instead will introduce specific performance requirements across each of the Impact Topics to ensure businesses have a positive impact across a broader range of activities.

B Lab recognises that a scoring system helps businesses to examine standards and provides comparability, so new scoring models are being explored to enable businesses to continue to self-assess. Furthermore, the Impact Topic requirements will be tailored to a business’ specific context, through the lens of its size, sector, and geography.

Requirement for continuous improvement

A further proposed change is that of improvement at recertification. B Lab has stated that there is an intention to always keep improving and wants to encourage the B Corp community to commit to long-term and impactful change. Currently, businesses must merely maintain their 80 score to be recertified. If the proposed changes come into effect, B Corps will be required to evidence continuous improvement and demonstrate progress on Impact Topic-specific plans and objectives, such as setting a net zero target and demonstrating annual progress against this objective.

Next steps

B Lab has specified that no changes are expected to be implemented before 2025. There will be time for businesses to transition to the new standards during a phased roll out.

However, for businesses considering B Corp certification, it will be important to be mindful of the proposed changes and the direction of travel for certification, to embrace the new standards and ensure the business will be able to satisfy the criteria to certify under the new regime.

• Top-down engagement – meaningful engagement by a business’ leaders with the purposes of B Corp certification will aid buy-in from across the business. Early and transparent discussions should be carried out as to what it means for the business to become (or remain) certified, and the potential positives in certification.
• Be proactive and grow – if there is an end to the flexible approach as is proposed, it is important for businesses to be ahead of the curve and prepare in good time to meet the revised standards and satisfy the updated accreditation criteria. It is important to implement a proactive rather than reactive approach, and to use this as an opportunity to become a leading B Corp.
  
  

With many thanks to James Davies and Winnie Robinson-Fell, who are both trainees in the Residential & Secured Lending and Family teams, for their help with this blog. 

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, May 2024