Impact Topic: Purpose & Stakeholder Governance

Curious about the latest draft of the standards for B Corp Certification? This content series from B Lab’s Standards Management team explores the Impact Topics that form the foundations of the second consultation. First, Purpose & Stakeholder Governance.
By Brigitta Nemes, Senior Environmental and Governance Standards Manager
November 27, 2023

B Lab’s standards define the performance that a company needs to manage and continuously improve upon to achieve and maintain B Corp Certification. Since 2006, they have been developed to improve their impactfulness and clarity around what it means to be a leading business and to incorporate feedback shared along the way.

In order to achieve these goals, the draft standards have departed from the current framework where companies have flexibility in how to achieve a verified 80-point score, and instead meet specific requirements across the standards’ Impact Topics. While the components of the draft standards have been developed with the existing standards in mind, you can expect to see new topics, designed to optimize and improve our certification processes. After all, the B Corp community is on a journey of continuous improvement.

Purpose & Stakeholder Governance as an Impact Topic stands as a foundational pillar for certified businesses, necessitating adherence to a clearly defined purpose that actively contributes to fostering an inclusive, equitable, and regenerative economic system for both people and the planet. Within the framework of B Corp Certification standards, the comprehension and implementation of Purpose & Stakeholder Governance are pivotal. 

Keep reading to learn more from Brigitta Nemes, Senior Environmental and Governance Standards Manager, about what this vital topic entails for B Corps, and why it matters.

What is the purpose of the topic, and why is it important?

The Purpose & Stakeholder Governance Impact Topic is centered around one of the fundamentals of the B Corp Certification: stakeholder governance. This kind of corporate governance ensures that companies are required to consider the interests of all of their stakeholders — customers, workers, suppliers, communities, the environment, and shareholders — in their decision-making. One of the main reasons we are facing a poly-crisis today (think of the climate and biodiversity crisis, epidemics, etc.) is that decisions are still largely taken with an exclusive focus on profit maximization to the benefit of owners and shareholders, a term called shareholder primacy. Systemic change is needed to redesign the role of business to account for all stakeholders: the design of legal systems globally; a company’s behavior and operations; and the dominant narratives around business success.

That is why B Corps, where jurisdictions allow, are legally required to change their governance structure to consider all their stakeholders in decision-making. As such, the Purpose & Stakeholder Governance Impact Topic intends to ensure that each company is acting on the letter and spirit of that legal change, whether available or not. This includes practices like aligning a company's corporate purpose with positive social and environmental impact, considering impacts on stakeholders, creating governance structures to realize stakeholder consideration, and establishing responsible and transparent communications on the company’s progress towards its social and environmental goals.

How has the idea of this topic in relation to the standards for B Corp Certification evolved over time, and what are the main driving factors behind this evolution?

While stakeholder governance has long been a core part of the B Corp Certification standards, there are aspects of it that are newly introduced or strengthened in the latest draft standards. Companies may have bold social or environmental commitments, however, it is also important that financial decisions reflect that, for instance by ensuring that profit allocation is fair and reasonable, or that investors support the company’s purpose (see more on the topic of aligning purpose with financial decisions in the PAS 808:2022: Purpose-driven organizations – Worldviews, principles and behaviors for delivering sustainability – Guide(1), by the British Standards Institution).  

Given that decisions related to finances, especially profit allocation, are complex in nature, the Purpose & Stakeholder Governance topic focuses on a specific area of concern and high impact: share repurchases or stock buybacks(2), and dividends. It is acknowledged that a stock buyback mechanism, which aims to provide short-term financial returns to shareholders, negatively affects a company’s environmental and social performance. Therefore, the evolving standards introduced a new requirement for larger companies to consider their stakeholders in decisions they make on dividends and stock buybacks.

Another area that the Purpose & Stakeholder Governance topic spotlights is responsible marketing and communication. It goes without saying that while sustainability is something that today’s companies cannot avoid addressing, the risk of greenwashing is inherent. There are also emerging regulations to address the issue (see for instance the Green Claims Directive and the Empowering Consumers Directive from the European Commission or the Decree 2022-539 by the government of France related to the use of climate claims in advertising). Therefore, the evolving standards require companies to have a responsible marketing and communications policy and a process for addressing breaches of it.

(1) Note: the BSI standard is free, however in order to access it a company form needs to be filled out.

(2) Share repurchase/stock buyback: this is when a company buys back its shares from the marketplace. This results in a reduced number of shares on the market, which increases the ownership stake of the stakeholders, and can increase earnings per share.

If you were to convey ‘just one thing’ about why this topic is important for the standards for B Corp Certification, what would it be? 

What if we redefine business success so that it is not solely measured by financial metrics, but also how well the company’s social and environmental impact is aligned with respecting people and the planet? We can only realize an equitable, inclusive, and regenerative economy if companies have ongoing engagement with their stakeholders, understand their interests, and responsibly consider them in decision-making.

The second consultation will run from 16 January 2024 to 26 March 2024.

What is the overarching expectation of B Corps for this Impact Topic?

That B Corps act in accordance with a defined purpose, contributing to an inclusive, equitable, and regenerative economic system for all people and the planet. 

What are the most significant differences between the current standards and the latest draft of the standards in relation to Purpose and Stakeholder Governance?

The draft standards are built on the good stakeholder governance practices available in the current standards. Some practices, for instance engaging stakeholders to define material Impact Topics, having a grievance mechanism, or reporting on the company’s social and environmental performance, are introduced to smaller size of companies, with adjusted rigor. 

In addition, two new areas have been introduced in the proposed new standards:

  • dividends and stock buybacks (for larger companies)

  • responsible marketing and communication.

How will the standards related to Purpose & Stakeholder Governance be responsive to the different contexts of companies?

The requirements in this topic are adjusted to the size of the company where necessary to acknowledge that smaller companies may have less formal mechanisms and processes in place. 

This means that for instance, smaller companies are required to demonstrate stakeholder governance through examples of how they consider their stakeholders in strategic decisions. Larger companies, on the other hand, are required to have a stakeholder governance policy, regularly engage their stakeholders to define relevant Impact Topics (integrating the Baseline Requirements), have mechanisms in place to involve their stakeholders in decision-making, and publicly disclose the results of their stakeholder engagement (along with progress on social and environmental performance).

What kinds of impacts does the topic hope to address?

The impact this topic aims to drive is threefold:

  1. Overturn shareholder primacy: by ensuring that all stakeholders’ interests are understood and considered; 

  2. Put sustainability at the right level within the company: by ensuring that oversight is with those in a position of making decisions; 

  3. Fight greenwashing: by ensuring companies follow responsible marketing and communication principles, and regularly and transparently communicate about their impact.

If I’m a current B Corp, or seeking to become one, where should I focus my impact efforts for this core topic of Purpose & Stakeholder Governance?

In order to achieve the intent of the topic Purpose & Stakeholder Governance the company should consider the following:

  • Align the company’s purpose with the intent of the B Corp legal requirement;  contribute to a material positive impact on society and the environment.

  • Conduct regular stakeholder engagement and define what stakeholder governance mechanism fits well for your organization.

  • Ensure there is oversight of social and environmental impact at the highest level of governance (sustainability embedded in incentive schemes, and performance targets). 

  • Identify any risk of greenwashing in the company’s marketing and communication and implement a responsible marketing and communication strategy.

Regularly and transparently communicate about the company’s social and environmental impact.

Help shape the future of B Corp Certification. Share your feedback now.

Want to learn more about the other Impact Topics in the draft standards?

🪧 Purpose & Stakeholder Governance

🪧 Human Rights

🪧 Climate Action

🪧 Fair Wages

🪧 Environmental Stewardship & Circularity

🪧 Workplace Culture

🪧 Government Affairs & Collective Action

🪧 Justice, Equity, Diversity & Inclusion

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