By: Alex Dumais
On October 8, 2018, the United Nations Intergovernmental Panel on Climate Change released its report on climate change. Among other things, the report warned the world was approaching a devastating and irreversible environmental “tipping point” in the battle against climate change. But while governments drag their feet, action is coming from an unlikely place: corporations. In late November, popular outdoor adventure supplier Patagonia took matters into its own hands, taking the $10 million it saved in the recent Trump tax reform and donating it entirely to “groups committed to protecting air, land and water and finding solutions to the climate crisis”. In the November 28th LinkedIn post, Patagonia CEO Rose Marcario wrote, “In this season of giving, we are giving away this tax cut to the planet, our only home, which needs it now more than ever.” An unprecedented move by Patagonia, however, this shouldn’t come as a total surprise, Patagonia is after all is a “B-corporation”.
“B-corporation” stands for “benefit corporation” and is a type of corporate entity that, aside from a corporation’s typical pursuits of profit maximization, includes the pursuit of one or more public benefits in its legally defined purpose. For example, as of 2017 Patagonia has donated $89 million toward environmental work since 1985 and continues to donate 1% of net revenue each year. B-corporations do not face the same legal pressure to forgo social goals in favor profit maximization, and unlike non-profits and charities, they are not, however, restricted in their ability to raise capital. As a result, B-corporations provide a bridge for shareholders wishing to maximize profits while still maintaining their social responsibilities.
There is currently B-Corporation legislation in 34 US States, Canada, however, currently has no legislation permitting B-Corporation. In May 2018, British Columbia (BC) MLA and Green Party leader Andrew Weaver introduced a bill that would amend the current BC Business Corporations Act to enable corporations in the province to register as B-Corporations. The proposed changes to BC’s Business Corporations Act would require corporations registered as Benefit to include “B.Co.” in their name, to report annual benefit reports, and to include an expanded duty on directors and officers.
That being said, there is currently nothing stopping a corporation in Canada from specifying in their articles that it is operating to the benefit of stakeholders in addition to shareholders, in essence becoming a B-corporation. As a result, many corporations registered in Canada have already been certified as B-corporations through the Non-Government Organization (NGO) B-Lab. Such companies include Bullfrog Power, Beau’s Brewery and the Optel Group.
However, officially introducing B-corporation legislation in Canada could be the start of a more sustainable future. First, B-corporation legislation would legitimatize corporations who are actively pursuing environmental goals. A name says a lot, and having “B.Co.” at the end of corporations name would allow investors to properly identify those corporations who purport to be environmentally sustainable through such methods as their branding from those who actually follow sustainable practices and are actually engaging in environmental protection. Currently in Canada, as per the Canadian Business Corporations Act (CBCA) and the Supreme Court of Canada in BCE, directors and officers must act in best interest of the corporation as a good corporate citizen. In addition, directors and officer shall consider the reasonable expectations of stakeholders, not just shareholders, when exercising their discretion. The problem, however, is that a board’s discretion is broad because courts will not question their decisions so long as proper process is followed. Meaning that a board, when faced with a potentially environmentally damaging decision may justify it by determining that the environmentally conscious option is not in the best interest of the corporation. Conversely, in the same situation, a registered B-corporation would be required to act in the best interest of the environment along with that of the shareholders.
Currently, there are no legal duties in Canada that explicitly require corporations to act in the best interest of the environment. Liability against directors primarily flows through the CBCA, however, various Federal Legislation impose personal liability on directors, notably the Canadian Environmental Protection Act (CEPA), the Canadian Environmental Assessment Act and the Fisheries Act. For example, s.280.1 of CEPA imposes a positive duty on every director and officer to take all reasonable care to ensure that the corporation complies with the act and regulations. However, this type of legislation does not impose a strong enough duty on directors and officers to act in the best interest of the environment.
Second, B-corporations are attractive to millennials. Millennials now make up the largest component of Canada’s workforce yet are the most fiscally conservative generation since the great depression. Recently, the Investor Office at the Ontario Securities Commission released a report on the investment habits of millennials, citing distrust of big banks and large corporations as a reason why they are not investing. However, several studies have shown that millennials will pay more for environmentally sustainable products, are the driving force behind brands practicing socially responsible marketing and are the most active generation for environmental stewardship. As a result, B-corporation legislation has the potential to tap into a market of investors who are fiscally conservative yet environmentally progressive.
Finally, B-corporations do not need to wait for governments to act. Governments come and go and often it is the environment that suffers the most: Ontario’s recent repeal of the cap and trade is a good example. However, corporations can be long-lived and businesses that choose to register as a B-corporation would be held accountable by their investors in upholding their social responsibilities. The difference is generating change with your dollar rather than with your ballot.
A number of key barriers still stand in the way to enacting B-corporation legislation in Canada. Such barriers range from confusion regarding the nature of B-corporations and other legislative objectives, to the idea that corporations in Canada are already free enough to independently pursue environmental goals.
For far too long have corporations been at odds with the environment, it is time for new legislation that will allow investors to pursue their economic interests without obstructing their environmental aims. Likewise, Canada has the potential to be a leader in this emerging trend with a growing population of fiscally conservative and environmentally conscious millennials.