Join our community of smart investors

B Corp status helps digital companies in tight labour markets

Sustainability-focused tech and media workers are keen to join B Corp-certified companies, giving those that pass its tests a leg up
December 20, 2021
  • B Corp certifications are given to companies with strong ESG credentials
  • Studies show B Corps can perform better than their competitors

In 1970, economist and famed neoliberalist Milton Friedman set out that it is inappropriate for a business to do anything other than maximise profits, in what came to be known as the Shareholder Theory. Boards took this as a gospel for the rest of the century and beyond.

However, in the past decade there has been a distinct shift in what the public expects from corporations. “The world has changed in such a dramatic way recently, investors now understand that corporations have a huge role to play in tackling issues of climate change and inequality,” said Christopher Marquis, the author of Better Business: How the B Corp Movement is Remaking Capitalism, and a management professor at Cornell University, New York.

Investors can face a big task in weighing up various companies' environmental, social and governance (ESG) credentials, however. This is one driver of B Lab issuing B Corp Certifications, which is attracting interest from a growing number of listed companies. B Lab UK, the non-profit awarding body, hands these stamps-of-approval to companies after assessing their impact on workers, communities, the environment and customers.

So-called 'B Corporations' must pay between $1,000 (£767) and $50,000 in annual fees to keep the title and the certificate is valid for three years, after which they must reapply.

In December, digital transformation business Kin and Carta (KCT) became the first company listed on the London Stock Exchange to receive B Corp status. “We’re hugely proud that 99 per cent of our shareholders voted [that] we should pursue this path,” said CEO John Schwan. Kin and Carta was the 16th fully certified public B Corp globally, while thousands of private firms have B Corp status. 

 

Digital agencies pursuing B Corp status

Digital marketing agencies Next Fifteen (NFC) and Martin Sorrell's S4 Capital (SFOR) may soon become the next listed UK businesses to achieve B Corp status. In S4 Capital’s recent preliminary results, it said it was “seeking B Corp status by the end of the year”. While in its recent half-year results, Next Fifteen said it was “seeking B Corp status as an externally audited commitment to our people and planet alongside performance”.

In the world of ever increasing demand for digital talent, B Corp status is a useful recruitment tool. A survey conducted by Cone Communications in 2016 found that 75 per cent of millennials would take a pay cut to work at a socially responsible company while 76 per cent consider a company’s ESG credentials when looking for a place to work.

“So many B Corp companies I talked to said their retention numbers were way better than their industry peers and people wanted to work for them they hadn’t been able to find previously,” Marquis said. 

Kin and Carta’s B Corp certification comes at a timely moment. Its biggest problem currently is finding enough employees to tackle a record pipeline of work.

In September, it had a pipeline value of £135m, up 43 per cent on the previous year. In the first six months of the year, over 495 new employees were hired, with the talent acquisition team saying that the “B Corp status was the number one differentiator referenced by candidates”.

 

B Corp status boosts shareholder value

By prioritising wider stakeholders ahead of profits there is a concern that cash flow and subsequently share price performance could be hit by B Corp status. However, research from B Lab shows that between 2017 and 2019, B Corp small- and medium-sized businesses' mean annual turnover increase was 24 per cent compared with an average of 3 per cent for all small- and medium-sized enterprises (SMEs).

The SMEs sampled were private business but for public businesses, being a B Corp makes them an attractive target for the growing pools of cash channelled towards sustainable businesses. In 2020, $35.3tn (£26.6tn) of global assets were set aside for sustainable investing, up 55 per cent from $22.8tn in 2016, according to the Global Sustainable Investment Review. 

There is a risk that if interest rates rise then investor will shift towards cash generative businesses, like traditional energy companies, rather than investing in ESG names, but Marquis doesn’t think this will affect the demand for B Corp status.

“Logic would suggest that. However, in the 2008 recession the opposite happened, companies that were committed [to ESG principles], committed deeper and it helped them longer term," he said, adding that early on in the pandemic, "many" B Corps went public despite the uncertainty.

Friedman dismissed what would become ESG principles as "pure and unadulterated socialism". In the present day, they just look like good business.