Out-Law Analysis 4 min. read

The link between purpose-led businesses, ‘B Corp’ certification and the Better Business Act

Above view of large group of people communicating - diversity

The introduction of the Better Business Act (BBA) in the UK would elevate the importance of a company’s purpose to the way it operates and further drive the environmental, social and corporate governance (ESG) agenda.

With the campaign for the new BBA gaining momentum and set to hit a major milestone on Wednesday, now is an opportune time for businesses to explore ‘B Corps’ certification to get ahead of future potential legislative reforms.

Leman Tom_November 2019

Tom Leman

Partner, Head of Retail & Consumer

The practical impact of the BBA could be significant for many businesses

What is the Better Business Act (BBA)?

The BBA is the product of a campaign led by not-for-profit body B Lab UK, which certifies organisations that lead the way in addressing environmental, social and economic challenges. Those certified businesses are known as ‘B Corps’. The BBA is scheduled to be introduced at a virtual UK parliamentary reception at 3pm on Wednesday 14 April, registration for which is still possible.

With the BBA, B Lab UK seeks to modify section 172 of the Companies Act 2006 to impose a duty on directors to advance the purpose of the company, rather than to solely promote the success of the company. B Lab UK’s proposals are shaped around a number of core principles:

  • the interest of stakeholders takes precedence over shareholder interests. This is in contrast to section 172 in its current form. In practice, this means that directors will need to take a more holistic approach and factor in a wider variety of interests ranging from the environment to customers, and not solely shareholder considerations;
  • directors have the opportunity to consider and balance these stakeholder interests in their decision-making process. This has the effect of ensuring that companies are not entirely motivated by profit, and instead by their impact on society more broadly;
  • the importance of imposing this higher ESG standard on all companies by way of default and not by choice; and
  • the establishment of new reporting obligations on companies to not only comment on their financial performance, but also their impact on customers, the environment, workers, governance and the community.

The practical impact of the BBA could be significant for many businesses.

Depending on the company's current structure, the BBA could be the catalyst for implementing a shift in the company's policies in various respects, such as:

  • commitment to environmental initiatives and targets;
  • ensuring a greater focus and structure for employee career development and progression;
  • establishing the business' purpose and mission;
  • creating and encouraging a diverse and inclusive working environment; and
  • considering and evaluating the company's supply chain.

Directors will need to understand what is expected of them and how best they can advance the purpose of the company. Directors will also need to be aware of the reporting responsibilities imposed on the company and ensure that this reporting effectively captures the company's impact performance.

Gaining B Corps certification

A survey conducted last year found that 72% of UK adults believe that businesses should have a legal responsibility to the planet and people, in addition to maximising profits. This sentiment is likely to grow and intensify, particularly in light of Covid-19. It is therefore essential that companies, and particularly consumer brands, show greater transparency in respect of their impact on society and the environment.

One way that businesses can do this is by gaining ‘B Corp’ status. Pinsent Masons has been supporting a number of clients through this process.

Sara Roberts

Founder and CEO of Healthy Nibbles

We have a desire to work with investors that support the ethics of the business. B Corp certification provides the opportunity to formalise the company’s ethics and way of doing business

Certified B Corps are defined by B Lab UK as “businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability”.

B Corps are most prevalent in the fast-moving consumer goods sector, but they currently exist across 48 industries in the UK. Such companies are subject to B Lab's extensive verification process through the B Impact Assessment. This tool assesses the company's impact in relation to: governance, community, workers, environment and customers. To qualify for B Corp certification, companies must achieve a score of at least 80 out of 200.

Uniquely, the B Corp certification imposes a legal standard on companies. This plays a role in combatting greenwashing and ensuring that companies are genuinely committed to becoming purpose-led businesses.

The process for achieving B Corp status involves three main stages:

  • completing the B Impact Assessment;
  • satisfying the legal requirements, which involves adopting the UK wording into the company's articles of association; and
  • signing the B Corp declaration of interdependence. Companies have to re-certify every three years.

High growth companies, particularly in the health and fitness industry, are prime candidates for B Corp accreditation, primarily because the relevant components required of a B Corp company are already fundamental principles.

Interestingly, the market is simultaneously seeing a distinct increase in the important of ESG considerations to investors. B Corp status helps to improve a company’s appeal to investors. One example is the 2020 acquisition of B Corps-certified Mindful Chef by Nestle.

Scott Britton

Founder of Battle Cancer and Move Forward Gym

We want to achieve validation from an external body to provide the business with greater international recognition on a global platform. In turn, this can increase the business' exposure to greater opportunities

A number of major brands have already been actively showing support for B Corps and responding to consumer demands for companies to achieve a higher ESG standard and take greater responsibility for their impact. For example, Ocado, Waitrose and Boots have created ‘B Corp’ only digital shopping aisles, which benefits the brands due to their increased prominence on the websites whilst also creating an environment where consumers are enabled to make more conscious shopping decisions.

Prioritising purpose

Purpose is meant to encapsulate what a company is for. To answer the question, why does it exist? When done well, this means undertaking a fundamental process of self-examination, consultation and rigorous thought about the nature of the organisation. 

Pinsent Masons went through this process to become a purpose-led business and last year explored how purpose is re-shaping the world’s companies, including how it crosses over with the broader ESG agenda.

Leman Tom_November 2019

Tom Leman

Partner, Head of Retail & Consumer

Having spent time to properly understand and articulate its purpose, Pinsent Masons is now in the process of transitioning to being purpose led. Everything that the firm does and the decisions it makes are measured against its purpose and code. That has included changes in the way it measures and rewards success to include the impact on its broader stakeholders, focusing on ESG and increasing the feelings of trust and ownership in the business by distributing leadership and being more inclusive

Co-written by Tom Leman and Samantha Lewis with assistance from Gaby Kay, all of Pinsent Masons. You can contact Samantha Lewis about navigating the B Corps accreditation process at [email protected].

We are processing your request. \n Thank you for your patience. An error occurred. This could be due to inactivity on the page - please try again.