Social Enterprises, B Corps, Benefit Companies, ESG

These concepts and designations all concern businesses operating with social and/or environmental objectives or considerations.

Below, we explain them and how our firm can help you achieve your goals in relation to each.

Social Enterprises

Innovation, Science and Economic Development Canada (ISED) defines a social enterprise as “a revenue-generating organization whose objective is to have a social impact.” According to ISED, it can be a for-profit business, a non-profit organization, or a charity. There is no uniform definition in Canada, and no specific legal form social enterprises must take. Accordingly, a social enterprise is a somewhat nebulous concept.

As there are no legal requirements for an organization to qualify as a social enterprise, Green Economy Law does not assist businesses or organizations in becoming social enterprises, but the firm can assist social enterprises ensure their constating documents (i.e, articles, bylaws), policies, contracts, and operations properly reflect their social and/or environmental priorities (more about this below in the section on B Corps).

B Corps

B Corps are for-profit businesses certified by the non-profit organization B Lab (or one of their international affiliates) as meeting “the highest standards of verified social and environmental performance, public transparency, and legal accountability to balance profit and purpose.”

To get certified, businesses must:

• exist for one (1) year and report annual revenue;

• score 80/200 points in a rigorous B Corp assessment;

• include the B Corp legal element in their articles or certificate of incorporation (if they’re incorporated);

• sign the B Corp declaration of interdependence; and

• pay an annual fee that varies based on revenue.

Green Economy Law helps businesses looking to become B Corps by (a) ensuring their articles feature the requisite legal language (if they’re incorporated or incorporating); and (b) working to implement as many points-garnering policies in their bylaws or non-bylaw policies as possible and appropriate, with reference to B Lab’s scoring methodology.

You can see our pricing package options for this work here.

Benefit Companies

These are companies incorporated in a distinct legal form called a benefit company or similar (e.g., in Delaware they’re called Public Benefit Corporations).

Benefit companies are similar to B Corps, and B Lab was involved in helping US states initially establish the legal form. The main difference, however, between B Corps and benefit companies is that B Corps are certified by the private non-profit B Lab, whereas benefit companies are legal entities recognized by the government.

Where benefit company incorporation is permitted under the laws of the jurisdiction, B Corps must typically adopt the legal form - sometimes within a certain time frame - to maintain B Corp certification.

Though most US states now allow benefit company incorporation, in Canada, benefit company incorporation is only available under the laws of British Columbia (we explain why this is the case here).

Since Green Economy Law is based in Ontario, we have not yet engaged with benefit company incorporation and the applicable ongoing requirements. However, generally speaking, benefit company requirements largely resemble B Corp requirements.

One key difference though, is that to maintain B Corp status a company must always meet B Lab’s verification standards, whereas benefit companies must fulfil reporting obligations (with reference to a third party standard), but they are typically not subject to any external review regarding actual social and environmental performance.

That means it’s actually a lot easier to be a benefit corporation as compared to a B Corp.

Environmental, Social, and Governance (ESG)

ESG is a standard of review applied to companies’ ability to operate in accordance with social and environmental values and objectives. With respect to how ESG is measured, ratings agencies will often look at criteria such as:

• Environmental:

  • greenhouse gas emissions (GHGs);

  • land and water use; and

  • compliance with Task-Force on Climate-related Financial Disclosures (TCFD) recommendations.

• Social:

  • diversity and inclusion;

  • gender and pay equity; and

  • exposure to child or compulsory labour practices.

• Governance:

  • board representation (e.g., are employees, women, underrepresented groups on the board of directors);

  • corporate transparency; and

  • ethical behaviour mechanisms.

ESG metrics are generally used in the context of socially-responsible investing, particularly with respect to exchange-traded funds (ETFs). However, the lack of uniform ESG standards results in different ESG ratings agencies promulgating different ratings for the same companies using different scoring criteria and methodology.*

As such, ESG investing is somewhat controversial and problematic; it’s not uncommon for companies one might consider very anti-environment (e.g., oil companies) to show up in ESG ETFs. Part of the issue is that ESG criteria is used to screen out poor performers, rather than select companies actively contributing to a more sustainable and equitable future (as is the case with impact investing).

ESG and B Corp scoring criteria generally align, so if a company is or would qualify as a B Corp, they’re likely to be a strong ESG performer. One big difference between ESG ratings and B Corp certification standards though, is that there is one universal standard for measuring B Corp performance, whereas ESG rating systems are…kind of all over the place.

Accordingly, Green Economy Law’s services for clients looking to perform well by ESG metrics would likely be the same services we provide social enterprises looking to enshrine social and environmental priorities in their bylaws, policies, and contracts in anticipation of B Corp certification.

*In the European Union, new rules regarding fund disclosures appear to mark a starting point for ESG standards. You can read more about this here.