The Role Of B Corporations For Investors

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For many corporations, profit has long been a North Star of sorts. If possible, their objectives were simply to minimize costs and maximize revenue to the benefit of their shareholders. Though certainly not a law or hard-and-fast rule, it was a playbook from which many companies operated for a long time.

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In recent years, the onset of conscious consumerism has helped soften that single-minded focus. While profit remains a primary objective, many businesses have become far more aware of their impact on customers, employees, suppliers, and their surrounding communities. In 2019, an association of 181 CEOs known as the Business Roundtable signed a new Statement on the Purpose of a Corporation and declared themselves responsible for the interests of this wider stakeholder group.

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Signing a statement is one thing, but it’s difficult for consumers to know when a corporation is true to its verbal commitments. Enter the B Corp, an entrepreneurial concept focused on clearly demonstrating the kind of impact a company wants to have on the world. If you look around, you’ll likely find the B Corp logo on the packaging of some of your preferred products. B Corp certification can give consumers a sense of confidence that the businesses they support align with their values.

While many consumers exercise great care in deciding where to buy their food or clothing, few people realize how vital these values-based or sustainability-related issues can be when selecting an investment manager. Fewer still recognize the potential benefits of working with an investment manager that is a Certified B Corp.

What Are B Corps?

How does a company earn the B Corp distinction? It starts with an assessment (the B Impact Assessment) completed by an independent nonprofit (B Lab). From there, B Corp certification occurs when organizations meet a minimum assessment score, make the results of the report transparent, and amend their governance documents to declare the importance of purpose alongside profit. It’s far from foolproof, but the B Corp designation can help identify companies with sustainable business practices that might also be sustainable investment managers.

All businesses exist to turn a profit, but that motive must also be balanced with the potential for long-term growth. For example, if a company decided to pay all of its employees the minimum wage, profits might spike in the short term. But those profits would quickly evaporate as employees left to find other jobs and took their knowledge and experience with them.

B Corp certification presents a framework to help businesses implement and codify sustainable business practices such as customer relationships, employee treatment, community involvement, and environmental impact. While ethically motivated, it’s reasonable to assume that the B Corp certification helps businesses build talent and customer relationships.

Each industry has its own unique set of assessment criteria. Investment managers seeking B Corp certification are scored on the percentage of assets under their management that are allocated to ESG investments, impact investments, community investments, negatively screened investments, and positively screened investments. Such topics as shareholder advocacy and proxy voting record also factor in.

Earning a B Corp certification requires investment managers to put a significant focus on sustainable, responsible, and impact investing, pushing them to become even more engaged in their portfolio companies and move sustainable investing strategies and shareholder advocacy to the forefront. These managers must also uphold the highest standards of client, employee, and community engagement.

How to Invest With B Corporations

B Corporations are making a bigger splash in the investing world as more companies prove that purpose and profits are not mutually exclusive. If you’re thinking about working with a certified B Corp investment manager, start with these four considerations.

  1. Investing Priorities

Investing is always about making a return. But instead of prioritizing profit at the expense of everything else, many people have more nuanced feelings about their money. For example, it’s common for investors to focus on or avoid certain industries because of their values.

If you want to earn a healthy return on your investment while also making your money a force for good, then working with a B Corp advisor who shares your values might make sense.

  1. Community Impact

What kind of community member is your advisor? If it’s vital they give back and strive to make your local community a better place, then partnering with a certified B Corp advisor could be a good idea.

B Corp certification suggests they could share some of your values, but the transparent reporting required of B Corporations will allow you to confirm this notion quickly. You might even find that they share a passion for some of your most treasured causes.

  1. Employee Treatment

How crucial is it that your advisor takes good care of their employees? When advisors view employees as a cost, it might protect short-term profits but ultimately not be sustainable in the long term.

The companies that put people over profits at the start of the pandemic are faring better than counterparts that did the opposite. Instead of starting from scratch with hiring, companies that kept employees on the payroll could seamlessly open once they were permitted, kick-starting revenue streams and getting back to business sooner.

  1. Mandatory Questions

Just because an investment manager is a B Corp doesn’t mean they get a pass on the questions you would ask a non-B Corp manager. Are they a fiduciary? What’s their investment philosophy? Fees can significantly impact any long-term investment, so pay close attention to their fee structure.

Beyond the considerations above, working with an investment manager is about aligning client and manager values. It would help if you asked about their environmental, social, and corporate governance criteria, community involvement, and history of impact investments. Consider also discussing topics like shareholder advocacy and proxy voting policies.

As sustainable investing gains momentum, more B Corp investment advisors are emerging. Becoming a B Corp indicates that a company prioritizes sustainable business practices, which can be attractive to sustainability-minded investors looking for an advisor.


About the Author

Matthew Blume is a portfolio manager of private client accounts at Pekin Hardy Strauss Wealth Management; he also manages the firm’s ESG research and shareholder advocacy efforts. He earned a B.S. in electrical engineering from Valparaiso University and an MBA from Northwestern University’s Kellogg School of Management. Matthew is a CFA charterholder.

Disclaimer

This article is prepared by Pekin Hardy Strauss, Inc. (“Pekin Hardy,” dba Pekin Hardy Strauss Wealth Management) for informational purposes only and is not intended as an offer or solicitation for business. The information and data in this article do not constitute legal, tax, accounting, investment, or other professional advice. The views expressed are those of the author(s) as of the date of publication of this report, and they are subject to change at any time due to changes in market or economic conditions. Pekin Hardy cannot assure that the strategies discussed herein will outperform any other investment strategy in the future; there are no assurances that any predicted results will actually occur.

Because the application of ESG (environmental, social, governance) screens eliminate certain securities as investments, it may cause performance to behave either positively or negatively compared to strategies that do not apply ESG screens.

Because the application of Socially Responsible Investing (SRI) eliminates certain securities as investments, it may cause performance to behave either positively or negatively compared to strategies that do not screen for SRI criteria.

Because impact investing may eliminate certain securities as investments, it may cause performance to behave either positively or negatively compared to strategies containing investments that are not excluded due to various criteria.