The Changing Role of Corporations
As the Paris climate summit concluded in December 2015, nearly 200 nations came together on an agreement to reduce carbon emissions and arrest global warming. Significantly, public sector partners in the agreement were joined by business corporations in support of the goal. That support was expressed in a statement by the CEO of consumer goods maker Unilever, Paul Polman: “This agreement establishes a clear path to decarbonize the global economy within the lifetimes of many people alive today.”
Previous Fifty Year Perspective blog posts have cited business interest in limiting carbon emissions. (See https://fiftyyearperspective.com/paris-2015-un-climate-change-conference/ and https://fiftyyearperspective.com/six-months-until-paris-climate-conference/) Many corporations, and the institutions that invest in them, have come to believe that climate change poses a financial risk over the long term. (See https://fiftyyearperspective.com/investors-concerned-over-climate-change/)
The early laws regarding United State corporations were at the state level, and required corporations to provide a public benefit, such as construction of bridges, roads, or canals which the governments could not finance on their own. Corporate charters defined strict limits on permitted activities of corporations, and violating those restrictions resulted in automatic dissolution. A case before the U.S. Supreme Court in 1886, Santa Clara County v. Southern Pacific Railroad, decided for the first time that a corporation was due the same equal protection as that applied to individuals by the Fourteenth Amendment to the constitution. (The 2010 Supreme Court ruling in Citizens United v. Federal Election Commission extended the First Amendment’s free speech protection, in the form of political spending, to corporations.)
Two recent movements are bringing some recognition of public responsibility back to corporations. Often confused but completely separate, they are B Corps and Benefit Corporations. (Both organizational structures differ from Social Welfare Organizations as defined by Internal Revenue Code section 501(c)(4).)
Benefit Corporations are for-profit corporations that are authorized by 30 U.S. states and the District of Columbia. There is some variance from state to state, but the common characteristic is that the corporation commits to creating social and environmental benefit in addition to the for-profit motive, hence the connotation of the “triple bottom line.” A traditional corporation exists for the sole benefit of shareholders, and pursuing a social or environmental mission would represent a deviation from its profit goal.
As described in a July 2013 article in Entrepreneur:
To qualify as a benefit corporation, the for-profit must include a statement in its certificate of incorporation that it was formed for the purpose of creating a “general public benefit,” defined as “a material positive impact on society and the environment, taken as a whole, assessed against an independent third-party standard, from the business and operations of a benefit corporation.” Existing for-profit corporations can amend their current certificates of incorporation to become a benefit corporation with a super-majority vote of their shareholders.
Benefit corporations have no tax exemptions and must have their activities reviewed using an independent, third-party standard. Around 3,000 corporations, large and small, have adopted the standard, including Patagonia Provisions and Method Products.
B Corp is a certification offered by an organization named B Lab. It works much like the voluntary process for receiving a LEED designation for green building standards. Companies seeking the designation complete an impact assessment and meet specific social and environmental criteria. About 1400 companies currently have the B Corp designation, with many, such as Patagonia and King Arthur Flour Company, also being Benefit Corporations.
Corporate interest in these designations represents both a support for efforts to reduce carbon emissions and a competitive advantage in the eyes of environmentally-conscious consumers.