According to the Certified B Corporation website, B Corporations are officially defined as “businesses that meet the highest standards of verified social and environmental performance, public transparency and legal accountability to balance profit and purpose.” They are legally required to consider the impact of their decisions—from their operations to business model—on their workers, customers, suppliers, community and the environment. The website further reports on and profiles over 2,600 B Corps in 150 industries in 60 countries currently in existence, of which 75 are investment advisory firms.
To learn more about this relatively new business structure and its application in financial services, we talked with Matt Blume and Pat Herrington of Appleseed Capital—an independent, socially responsible wealth management firm and advisor to the Appleseed Fund, a mutual fund— which has been a B Corporation since 2015. Beyond the obvious marketing and differentiation benefits, we are interested in the bigger questions like: Can this type of reorganization signal and help ensure a greater level of transparency and rebuild trust for the industry? Can this newer business model put a stronger spotlight on the bottom line social good that advisors provide by helping their clients and communities? Why aren’t there more financial services firms organized as B Corps?
Bill Hortz: What were your main reasons for choosing to become a B Corporation?
Pat Herrington: Becoming a B Corp was a wonderful opportunity to formalize what we had been doing all along, namely focusing on sustainable investing and trying to make a positive difference in the world by how we approach our clients, our employees, our community and our investment decisions. We are proud to provide our clients with investments that allow them to sleep well at night, knowing that their assets are being managed and that their values are not being compromised. We believe making a positive difference is an obligation for all companies, and we were excited to join the ranks of other committed organizations as part of the B Corp program. It might sound like a cliché, but we truly believe that one can do well while doing good with their investments.
Hortz: What are the essential differences in operating as a B Corp versus a traditional for-profit investment advisory firm?
Herrington: The most obvious difference between operating as a B Corp versus a for-profit company is considering other stakeholders when making decisions and not making profitability the sole, or primary, determining factor. In fact, as part of being a B Corp, written into our company’s charter is the obligation that Appleseed Capital “is to be managed in a manner that balances the stockholders pecuniary interests, the best interests of those materially affected by the corporation’s conduct and the public benefit or benefits…” This means members of our board of directors are required by state law to consider the needs of others. Examples of how we meet these obligations is by offering our associates paid days off to perform volunteer service, giving preference to third party vendors who have women or minority ownership, and using technology to limit the amount of travel associates must conduct and thereby reducing our company’s impact on environmentally damaging emissions.
Matt Blume: Our approach to investing our clients’ wealth is also different. Our charter states the company “shall promote a positive effect by, on behalf of clients, investing in companies with management teams that make decisions with an awareness of their impact on the environment and on their community…” When we consider investment opportunities for our clients, in addition to an exhaustive financial assessment, our research process includes an assessment of a company’s environmental, social and governance (ESG) performance. We believe strong ESG performers present less risk for investors and may offer superior opportunities for revenue and profit growth. We also take proactive steps to encourage management of our investments to act in responsible ways. For example, in 2017, we submitted a shareholder proposal with The Mosaic Company asking that they assess the feasibility of integrating sustainability metrics into their executive compensation plans. The proposal opened an ongoing dialogue with the company about specific sustainability metrics that they will use as future performance measures, which should help better align sustainability goals with executives’ goals.
Hortz: Who certifies you as a B Corp and what criteria and review process do they use? How do you maintain your status as a B Corp?
Blume: B Lab is the organization that facilitates the certification process. The first step interested companies must take is completing the B Impact Assessment, a free online platform that evaluates how a company interacts with its workers, customers, community, and environment. After completing the assessment, B Lab will verify the score to determine if you meet the 80-point minimum for certification. Throughout this process, you can talk to B Lab staff to review your completed B Impact Assessment, and you must submit documentation for a sample of questions to validate responses. We are required to update our certification as B Corps every three years.
We used the time between our initial certification and follow up to identify and implement changes based on recommendations from the assessment. Some of these improvements included writing an employee handbook that allowed for flexible time schedules and telecommuting, presenting to the board and associates at least annually on matters related to ESG investing, and writing a whistleblower policy. We were able to improve our score by almost 20 points, and B Lab recognized us in the Best for Changemakers lists in 2018. This is a testament to the level of support we receive from B Lab.