Leverage B Corp to Increase Investor Returns

B Corps are businesses that meet high standards of social and environmental performance, accountability, and transparency. The growing popularity of the certification represents a significant evolution in the business landscape, driven by changing consumer preferences, regulatory shifts, and a heightened focus on sustainability. 

B Corp certification is becoming increasingly useful for investors who want to manage risks, attract capital, and make the most of a growing green and responsible consumer market. Here are ways investors can leverage the B Corp framework to increase their resilience and performance. 

Improve Risk Mitigation 

The B Impact Assessment (on which the certification relies) is a wide-reaching evaluation of a firm’s social and environmental impacts, as well as its governance structures. To certify, a company must demonstrate good practices in all three areas and so in this way, certified B Corps have proven that they’re proactively managing ESG risks. There’s growing evidence to support this, including B Corps’ increased resilience during the pandemic compared to non-B Corps. This means a potentially lower risk profile and more stable returns for investors. 

In the origination phase, seeking out B Corps via the directory as part of your pool of potential investees can be of value and as for non-B Corp prospective investees, how do you assess whether they’re managing risks? Ratings agencies? Your own custom assessment? Why not add a condensed version of the B Impact Assessment? The assessment is at the cutting edge of sustainability and by running your potential investees through a selection of the key questions, you’ll get a good idea about their ESG readiness and resilience. A firm that scores very low on the B Impact Assessment could be a higher-risk investment. 

Capture Market Demand 

There’s a growing consumer and employee market for companies that positively contribute to the world. Consumers are shopping for brands that align with their values and employees are looking for meaningful workplaces. B Corps are thriving in this new economy with their dedication to social and environmental impact and the third-party stamp to prove it. Another benefit is the continuous improvement mechanism built into the B Corp Certification. B Lab, the nonprofit that manages the certification, regularly updates its standards to ensure they reflect the current and emerging practices in sustainability and companies must recertify every three years. Improvement is mandated in many areas. In this way, B Corps are continuously innovating, ensuring they’re meeting evolving sustainability standards and in turn consumer and employee demands. Investment firms can capitalise on market demand for ethical companies by transforming their portfolio companies into B Corps and choosing B Corps in the acquisition stage. 

Increase Transparency 

Obtaining data about portfolio companies and potential investees can be a challenge. The difficulty arises from inconsistencies in reporting standards, limited disclosure of non-financial metrics, and the reliance on self-reported data that might lack verification.

B Corps’ transparency about non-financial metrics provides investors with insights into each company’s social and environmental impact. This comprehensive view helps investors assess the long-term success of a company, potentially reducing risks associated with regulatory changes and reputational damage. This can be particularly useful during the origination and due diligence stages. The trove of data about an investee also helps investors identify areas where an investor might provide technical assistance in the future. For example, the B Impact Assessment could identify that an investee doesn’t have a theory of change; impact investors might recognize this as a red flag, because the investee doesn’t have clarity on how they’ll achieve their intended outcomes.

Diversify Your Portfolio 

Including B Corps in investment portfolios can enhance diversification. B Corps often operate in emerging sectors such as renewable energy, sustainable agriculture, and ethical consumer goods, which can be underrepresented in traditional portfolios. This diversification can provide a hedge against sector-specific downturns. 

Attract Capital 

Whether it’s institutional investors like pension funds and endowments that are under pressure to align their investment strategies with broader social and environmental goals or simply ethically-minded high net-worth individuals, there has been a dramatic increase in ethical investment. By making B Corp part of your investment strategy, you can attract individual investors, co-investors, funds of funds and other segments that are prioritising ethical considerations alongside financial returns.

Level Up Your Firm’s Impact  

Investors are not only investing in B Corps, they are becoming B Corps themselves. A growing number of B Corp investors such as Lightrock, Tenzing, and BGF are using the B Impact Assessment to level up their social and environmental impact. Wealth management firms like Junxion client Genus Capital are also using the certification to identify operational areas to improve, which also helps them attract green capital. By getting familiar with the B Impact Assessment, you can transform your deal acquisition strategies and transformation plans to better reflect best practices in ESG, sustainability and social impact. 

All of this adds up to a significant opportunity to enhance the resilience and the rate of returns on your invested capital, while also contributing to solving some of the challenges our communities and societies face. Some professionals in the capital markets believe purposeful investing comes at the expense of profits and returns but leading investors and wealth managers are finding that good businesses make for great investments.

Ready to use B Corp to transform your investment approach? Benefit from our many years of experience. Contact us to get the ball rolling.