Larry Fink, Chairman and CEO of the world’s largest investment firm, recently noted that long-term corporate prosperity requires not just financial performance, but “a positive contribution to society.” He does not stand alone with this opinion – nearly every major Silicon Valley venture capital firm backs companies that pursue sustainable practices.
In short, there is a profound shift underway in how capital markets value companies. So if you’re an investor, what do you need to know?
In partnership with Patagonia and wealth advisory firm Caprock, the Yale Center for Business and the Environment has released a new publication to answer this question. Entitled “Just Good Business: An Investor’s Guide to B Corps,” this report explores the distinct financial value offered by Certified B Corporations and Benefit Corporations. (These designations, created and overseen by the nonprofit B Lab, offer a certification program and legal framework by which companies can fold social and environmental impacts into their bottom line.)
“Through greater appreciation of the real motives that drive and excite people, B Corporations provide a significant new opportunity for investors,” says Robert Shiller, Sterling Professor of Economics at Yale and 2013 Nobel laureate. “I think they could make more profits than any other types of companies, and this guide helps investors understand why.”
Certified B Corporations demonstrated a greater revenue growth rate than public firms of comparable size from 2006 to 2011—a period that includes the Great Recession. And between 2013 and 2015 impact investors’ assets under management grew by 18 percent compounded annually, according to The Global Impact Investing Network.
Importantly, though, certification as a B Corp or Benefit Corporation does not by itself promise solid financial returns. Rather, these designations provide investors with a novel and increasingly robust lens through which to evaluate companies, says Managing Director and Owner of The Caprock Group, Matthew Weatherley-White.
“As the economy continues to shift from manufacturing and resource extraction to technology and services, intangible assets are acquiring an increasingly important part of business valuation; it is the foolish executive who refuses to explore ways to optimize intangible asset values,” he says. “B Lab quietly offers investors a pair of braided firsts: the first toolbox to help management focus on the kind of patient, steady value creation that defines ‘the right way to do business;’ and the first window into the DNA of a sustainable business for analysts and diligence professionals who know nothing about sustainable business.”
This publication comes at a time when both corporate and investor interests in sustainability are maturing. Today, 2,500 companies have certified as B Corps and 5,000 entrepreneurs have incorporated their U.S. ventures as Benefit Corporations across 37 states, Washington D.C., and Puerto Rico. In 2015, Laureate Education was the first Certified B Corp and the third Benefit Corporation to go public, raising $450 million in its IPO. At the same time, JP Morgan has pegged the market for socially responsible investing somewhere between $400 billion and $1 trillion dollars.
Through greater appreciation of the real motives that drive and excite people, B Corporations provide a significant new opportunity for investors. I think they could make more profits than any other types of companies, and this guide helps investors understand why.
-Robert Shiller, Sterling Professor of Economics at Yale and 2013 Nobel laureate
“But so far, these movements—investors seeking sustainable companies and companies seeking sustainable existence—have grown without much help from one another,” says Vincent Stanley, Director of Philosophy at Patagonia. “The hope of this guide is to illuminate the common path walked by conscientious investors and Benefit and Certified B Corporations—for these groups to find in each other common cause and a helping hand in the great work that needs to be done to restore our communities, heal our planet, and create an economy that works for all.”
This report is a natural follow-up to “An Entrepreneur’s Guide to Certified B Corporations and Benefit Corporations,” published by CBEY and Patagonia last March. “After the success of the entrepreneur’s guidebook, we saw a gap between the value B Corps offer and the awareness of their benefits among the investor community,” says Cass Walker, Program Director, Social Entrepreneurship at the Yale Center for Business and the Environment. “B Corps are a growing trend in business, and this guide offers investors a path to understand this trend.”
Written by Alex Buerkle M.B.A ’18, Kylee Chang M.E.M. ’19, and Max Storto M.B.A. ’20, M.E.M. ’20, “Just Good Business: An Investor’s Guide to B Corps” draws on more than 60 interviews with individual and institutional investors, top academics, and entrepreneurs. The full report can be downloaded here.
Media contact: Heather Fitzgerald, Yale University