Four reasons why the B Corp framework is great for investors (not just businesses)

Most discussions about the value of B Corp certification tend to focus on the benefits to the business. But there’s another angle that’s often overlooked, the B Corp framework is a really useful tool for investors to add value to their portfolio companies.

At Bridges, we’ve always been a big supporter of the B Corp movement. It chimes perfectly with our core conviction: that businesses which do a better job of serving society and the planet can create lasting economic value. We were one of the first Certified B Corps in the UK and have benefited hugely from the opportunity to learn from and network with like-minded peers.

What we’ve also found, is that the assessment framework created for B Corps has enhanced our ability to engage with companies and add value in four key areas; origination, 100-day planning, continuous improvement and exits.

Origination

As an investor, we’re actively looking to partner with businesses that are helping to build a better future for people and the planet — and in doing so, have identified a long-term growth opportunity. If companies have already engaged with the B Corp certification process, it’s a clear indicator that their motivations and aspirations align closely with our own. And it gives us a shared network and a shared language to talk about potential partnerships. As the movement grows, we believe that actively tapping into this community, both locally and globally, will become a more significant part of our origination process.

100-day planning

Whenever we invest in a company, we work intensely with management ahead of the deal closing to agree on the operational and impact priorities for the first 100 days. Increasingly, we’re using the Quick Impact Assessment* and/or modules of the B Impact Assessment (BIA) to inform this work to complement our own due diligence. This helps us understand areas of strength and potential risks. We can build on areas of positive impact and take action to mitigate negative effects across different stakeholder groups. It also acts as a great benchmark: through the B Corp directory, we can identify best-in-class players in a certain industry and replicate some of their successes closer to home.

For example, three years ago when we invested in World of Books (WOB), a business that resells or recycles used books, we went through the full B Impact Assessment process with management. By benchmarking themselves against existing B Corps, World of Books identified that in addition to averting carbon through its business model (i.e. making sure books didn’t end up in landfill) there was also an opportunity to reduce its overall carbon footprint. Since then, WOB has worked hard to set clear emission targets and reduce mileage and fuel consumption per book delivery. These responsible business practices have also generated significant cost savings, improving the bottom line of the business.

In October 2019, World of Books certified as a B Corp!

Continuous improvement

As part of our planning process, we identify key metrics — and then we review progress against these metrics annually. If they’re not already B Corps, our portfolio companies are required to complete the QIA every year; this helps us track performance over time and identify opportunities for improvement. Based on the results (plus a regular ESG materiality assessment, which is closely aligned with the BIA) we agree on a set of new or existing impact initiatives for the next 6–12 months.

Our healthcare investments require a continuous focus on quality, in order to ensure better care for service users. As well as monitoring the relevant key metrics, we’ve also introduced a number of our portfolio companies to the work of B Lab and the broader community. This has led to various initiatives around staff retention, including reward and development schemes, and building in-house training capabilities so care staff can gain new qualifications and progress through the organisation.

Exits

We actively encourage all of our portfolio companies to consider certifying as a B Corp. We think it sends a strong signal about the kind of business they are, not only to potential partners but also to current employees, customers and suppliers. B Corp certification also helps to future-proof the business and protect its mission for the long-term: by formally incorporating its social and/or environmental mission into its Articles of Association, the company can make sure it continues to enjoy the benefits of the approach even after our period of investment comes to an end.

For example, we developed a hotel concept called Qbic, which featured innovative design, sustainable practices and community initiatives; it became a B Corp in 2016. Qbic’s commitment to the environment and the local community in which it operates was an essential part of its business model, so it already had this ‘performance’ impact lock in place — but by making such a public statement about what it stands for, it effectively future-proofed its mission for the long-term. Sure enough, when US investor Cerberus bought the business in 2017, it was excited about these aspects and recognised their long-term value for the business.

There’s a growing consensus that it makes business sense for companies to consider their broader impact on society and the planet. We saw this in August when the U.S. Business Roundtable — a group of 181 CEOs in the U.S., whose businesses boast combined annual revenues of over $7 trillion, released a ‘Statement on the Purpose of a Corporation’, committing their businesses to operate for the benefit of all stakeholders.

In our view, the B Corp framework has clear and tangible benefits for investors. And over time, this should come to represent an additional benefit to businesses, too — because by certifying as a B Corp, they’re making themselves more investment-ready.

*B Lab will phase out the shorter Quick Impact Assessment by the end of 2019 to encourage stronger uptake of the more complete B Impact Assessment that is required for certification.

Bridges Fund Management is a specialist private markets investor. For almost 20 years, we’ve been investing in solutions that support the transition to a more inclusive and sustainable economy. We are driven by a clear conviction: that building a better future for people and the planet is also a unique opportunity to create lasting economic value.