By George Wilson; Flora Hudson-Evans, Aspect Capital
Published: 20 September 2022
Aspect Capital became one of the first European alternative investment managers to achieve B Corp certification earlier this year.
In this article we expand on what B Corp certification means and how it can be obtained, explain why companies might seek certification and examine some factors others, particularly in the investment management industry, may wish to consider before doing so.
What is a B Corp?
Certified B Corporations, or B Corps, are a new kind of business that seek to balance purpose and profit. They are legally required to consider the impact of their decisions on their workers, customers, suppliers, community, and the environment.
B Lab is the non-profit network behind the movement. Founded in 2006, B Lab set-out to create a different kind of economy: a global economy that uses business as a force for good; one where corporations lead the way towards a new, stakeholder-driven model. B Lab became known for certifying B Corporations, a new type of corporation, that are purpose-driven and benefit all stakeholders, not just shareholders.
The B Corp movement has at its heart the concept of ‘stakeholder capitalism’, with certified B Corps committing to the so-called ‘triple bottom line’ of people, planet and profit, unlike the traditional corporation that gives priority only to financial profitability.
Why would a business seek to become certified?
B Corp accreditation represents independent validation that a business is being run thoughtfully and sustainably, with due consideration for employees, suppliers, investors and the planet. Just as importantly, it also provides a roadmap for Corporate Social Responsibility (CSR) initiatives, enabling firms to be at the forefront of industry best practice and continue to meet the ever-evolving expectations of investors and current and future employees, who increasingly expect firms to demonstrate their wider impact.
What does the certification process involve?
Certification as a B Corp is a rigorous process designed to identify companies that meet high standards of social and environmental performance, accountability, and transparency. The process starts with completion of the ‘B Impact Assessment’, which comprises of over 220 questions about the business, spanning five ‘impact areas’: Governance, Workers, Community, Environment and Customers.
Each response in the B Impact Assessment is assigned a score, and companies who achieve a final, verified score above 80 are eligible to become certified B Corps, so this initial assessment is crucial in helping to determine whether a company is already on track to achieve that or, if not, which areas they should focus on.
Thereafter the process is about evaluating and verifying the responses provided, in conjunction with a dedicated B Corp analyst. Companies are required to evidence the answers they have provided to the B Impact Assessment, via documentation, written follow-up questions and/or a final verification interview, with scores being adjusted up and down accordingly.
One particularly important requirement, which will contribute materially to a company’s overall score, is the so-called ‘legal requirement’, whereby a prospective B Corp is required to enshrine in its constitutional documentation a commitment to remain legally accountable to all of its stakeholders.
The precise requirement will vary depending on the legal structure and jurisdiction of a company; for, Aspect, a private limited company incorporated in England, this involved a change to the articles of association, requiring the approval of a majority of shareholders.
Once a firm has achieved a verified score of over 80 in the B Impact Assessment, there are a several final background checks before becoming officially certified.
As an example, the process took around 18 months from start to finish for Aspect: initially completing the impact assessment in January 2021 and receiving certification in June 2022. The length of time it takes is reflective of the growing popularity of the B Corp movement, with the B Lab team being inundated with applications over recent years.
This is certainly a positive sign that the movement is gaining traction and recognition, with the number of certified B Corps in the UK alone growing from less than 400 at the start of 2020 to over 700 today. Globally, over 5,000 companies across 83 countries are now certified B Corps.
What factors might other investment managers wish to consider before applying?
The scale of the undertaking for a firm to become a certified B Corp will depend on a number of factors, but in no case should it be taken lightly.
The most significant factor will be the extent to which a company is already operating in accordance with the highest standards of social and environmental performance, accountability, and transparency. In Aspect’s case, we achieved an initial score in excess of 80 in the B Impact Assessment, and this was not subject to material adjustment during the verification process. We did not, therefore, have to make significant changes to the way the business operates in order to achieve certification. Firms starting from a lower base can expect a more demanding and resource-intensive process, however, the beauty of the process is that it allows firms to clearly identify the areas in which there is room for improvement and facilitates specific goal setting and tracking against those objectives.
Another relevant factor to consider is the industry in which a company operates, with the B Impact Assessment being tailored depending on a firm’s industry classification. For an investment manager, the scope for meaningful impact in certain areas will clearly be reduced.
There is a significant focus on environmental, social and governance (ESG) integration and related topics such as impact investing as part of the questioning, which may prove more challenging for some in the industry. At Aspect, we aim to incorporate ESG factors into our investment decisions where appropriate to do so, and continuously seek to minimise our impact on the financial markets in which we operate; but given the nature of our investment strategies and the asset classes we trade, we found there was somewhat limited scope to score points in these areas as part of the B Impact Assessment.
Linked to this, we hope to continue collaborating with B Lab to provide insight into how businesses like ours and the wider finance industry operate, with a view to ensuring that the things our sophisticated, international client base value – such as a repeatable investment process, robust risk management and transparency – are recognised as part of the B Impact Assessment.