How are the requirements tailored to a company's context?

Tailoring the standards according to company context has been a prominent feedback theme during the stakeholder engagement process in 2021 and 2022. Aligned with the objectives of increased impact, clarity, and responsiveness of the standards, one of the key aspirations of the Evolution of the Standards for B Corp Certification, is to have a meaningful degree and quality of tailoring of the standards to companies’ contexts (i.e. their size, sector, location, industry).

In these draft standards, the spirit and vision of universality of the goals within each topic has been maintained and to make the standards actionable and relevant for companies across the globe with varying operating contexts, a range of tailoring strategies exist, namely:

  • Differentiated sub-requirements based on company size and sector

  • Sub-requirements that provide different options or are inherently context-based

  • Tailored guidance

  • Equity Mechanism for Countries/Territories

Differentiated sub-requirements based on size and sector

All sub-requirements in the draft standards are differentiated by size, sector, and (in some instances) industry of the company. The sub-requirements have been drafted in a way that their number and rigor increase as a company’s size increases. 

  • An example of sector differentiation can be seen under the Environmental Stewardship & Circularity topic, where the service sector with minor footprint has fewer sub-requirements focusing on operational impact, as their main impact is through the type of clients and projects they take on. For a few specific industries within the service sector with minor footprint, a new sub-requirement was added around client and project engagement. 

  • An example of size differentiation can be seen under the Human Rights topic, where in terms of achieving human rights objectives in the supply chain, smaller companies are expected to consider human rights in their procurement decisions while larger companies are additionally expected to have a supplier engagement and monitoring approach and take action with their suppliers, among other expectations.

Updated size categories based on workers and revenue 

While defining size based on the number of workers is a simple approach, stakeholder feedback indicated this does not always accurately capture the true nature of a company. For example, a company that outsources will reduce the number of workers without necessarily seeing a reduction in other variables, such as revenue or profit. In response to such feedback, in the latest draft standards, the size of the company is determined using a combination of revenue and the number of workers as shown in this table. A company is assigned to the size category corresponding to their number of workers or revenue, whichever is higher.

New Size Categories

Updated size categories based on workers and revenue.

These classifications of size have been informed by the data of existing B Corps. FTE stands for full-time equivalent.

Requirements for Large and Multinational Enterprises and considerations for corporate families

The sub-requirements in the latest draft standards consider the impact of large and multinational enterprises to ensure that they comply with social, environmental and stakeholder governance practices reflecting their impact. The sub-requirements have been drafted in a way that their number and rigor increase as a company’s size increases. For instance, X Large (‘extra large’) and XX Large (‘extra extra large’) companies are asked to:

  • have a roadmap to trace the origin and potential environmental and human rights impacts of their high-risk raw materials

  • publicly disclose their gender wage gap

  • have a public policy on responsible lobbying.

The current Baseline Requirements for Multinational Companies over USD $5 billion in revenue have also been integrated and adjusted where necessary. The integration follows the new size categories proposed by B Lab (see table above). 

The integrated Baseline Requirements, depending on their nature, may apply to XX Large, X Large or even in some cases to smaller companies as well (e.g. Human Rights Policy), with the compliance criteria adjusted to the size and impact of the company. This means that the Baseline Requirements will not be called out separately anymore since there are many other sub-requirements that apply to the largest companies throughout all topics. With the new size approach, a separate USD $5 billion revenue category will also cease to exist.

Corporate family considerations

Acknowledging the complexity of corporate families and to support the application of the sub-requirements, an interpretation note has been added under Compliance Guidance to clarify the sub-requirement scope of application for parent/group certifications and independently certifying subsidiaries for all sub-requirements.

When parent companies are deciding on their size they would need to consider the revenue and size of the corporate group in total.

To note, the new size categories do not apply yet to verification approaches for certification. The intention is to align the certification requirements and the verification approach as much as possible. The potential alignment of the verification approach is currently being analyzed and tested.

B Lab is also testing if the current scoping rules could be replaced to simplify data reporting and verification, and allow for greater alignment between operational decision making and impact reporting in order to drive actionable insights and de facto improvements. The current scoping rules determine the scope of certification alongside legal ownership and financial consolidation lines. This may be replaced with scoping alongside managerial reporting and accounting lines.  

Similarly, B Lab is exploring whether its current aggregation and separation rules for corporate families with regards to the completion of the B Impact Assessment could be simplified with a three-layered reporting principle to simplify certification for large corporate groups by allowing greater aggregation of data and consolidated reporting. The layers being considered are:

  • Layer 1: the whole corporate group

  • Layer 2: per industry or global business unit

  • Layer 3: per market/cluster or local subsidiary

Sub-requirements that allow optionality or are inherently context-based

Another way in which standards are tailored for companies’ context is by providing options to choose from. Some examples of this approach:

  • GACA2.1 The company engages in at least one collective action (from five actions) at the policy, industry, and/or business community level to advance social and/or environmental impact(s).

  • JEDI2.1 The company chooses two JEDI actions (from 23 actions) using stakeholder views and then implements them.

In addition to providing options, some sub-requirements are inherently context-based. For example, FW2.1 The company pays workers a living wage or collectively-bargained wage, is inherently context-based as the living wage or collectively-bargained wage is specific to a worker’s location. 

Tailored guidance

In addition to sub-requirements that are themselves tailored, the guidance that accompanies some of the sub-requirements is also tailored to make the standards suitable for the company’s context. Some examples of such guidance is as follows:

  • Compliance guidance of HR1.1 states that: If the company operates in a country where using the term ‘human rights’ poses a risk to the safety of company workers, then alternative measures may be taken, including the use of alternative language, referring to ‘international frameworks’, focusing on the more accepted rights, such as labor rights.

  • Compliance guidance of ESC1.5 states that: The company may rely on national / regional data available by the local authorities or non-governmental organizations for assessment of proximity of operations to biodiversity sensitive areas.

Equity Mechanism for Countries/Territories

B Corps in different countries/territories are subject to different societal dynamics, legal frameworks, geographical constraints, and availability of resources. Consequently, all aspiring and current B Corps are exposed to unequal pre-existing conditions in their locations, which affect their capacity to run a company and meet certain requirements of the standards. 

During the preliminary consultation on the draft standards in 2022, feedback indicated a lower attainability rating of the draft standards for companies in ‘emerging markets’. This is also reflected in the difference in performance on the B Impact Assessment between companies on the ‘emerging’ and ‘developed’ tracks. To account for inequalities between countries/territories, the latest draft of the standards introduces accommodations for companies based on the countries/territories that they are located in, which are described below. Accounting for historical and existing inequalities between countries/territories is a way to make the standards more equitable.

We acknowledge that often there are also inequalities within countries/territories. However, an approach at the sub-national level would be too complex and costly to implement, and so the focus is currently on the country/territory level.

Features of the equity mechanism

In the latest draft standards, the approach for tailoring the standards by country/territory is as follows:

  1. Countries/territories are classified as those with fewer, some, and more operational barriers (see below for how this classification is made). 

  2. The above classification yields the degree of accommodation a company receives through the equity mechanism. Specifically, accommodation is provided to companies operating in countries/territories with some and more operational barriers. 

  3. In these draft standards, each sub-requirement is accompanied with a column called “Eligible for equity and flexibility mechanisms?” which identifies whether the sub-requirement is or is not eligible for this mechanism (see below for how this identification was made; more details on the flexibility mechanism are explained within the Flexibility mechanism section which is under the Recognition of the Impact Business Models section). 

    1. Those sub-requirements which are not eligible are to be met by all companies regardless of the country/territory that they operate in.

    2. Companies operating in countries/territories with some and more operational barriers can choose to be exempted from those sub-requirements that are eligible, up to a certain percent (see table below). In such cases, companies would need to justify the exemption by stating their operational barrier. 

Provisions of the Equity Mechanism for Countries/Territories

Countries/Territories with fewer operational barriers must comply with all sub-requirements on certification and recertification. Countries/Territories with some operational barriers can justify non-compliance with up to 10% of total sub-requirements on certification and 5% on recertification. Countries/Territories with more operational barriers can justify non-compliance with up to 15% of total sub-requirements on certification and 10% on recertification.

Note: The percent accommodation is decreased during recertification to recognize that there might be operational barriers that could delay the achievement of specific requirements or make them more difficult, but not necessarily prevent them from being achieved. 

Benefits of the equity mechanism

The equity mechanism allows the achievement of a universal set of outcomes for the B Corp community while still acknowledging that certain sub-requirements might be unattainable in certain countries/territories given local operational barriers. This aligns with feedback heard during the preliminary consultation especially from companies in the Global South.

While the equity mechanism applies to companies in countries/territories with some and more operational barriers, they would still need to provide a justification for why they are limited in meeting a certain sub-requirement. Over time, data from these justifications across companies will allow B Lab to understand why certain sub-requirements might be challenging in certain countries/territories, which can inform future updates to the standards.

How are countries/territories classified as those with fewer, some, and more operational barriers?

The proposed approach to classifying countries/territories builds on B Lab’s existing approach to identifying ‘emerging’ and ‘developed markets’. The new, proposed approach relies on an aggregate of five indices from other organizations, the first four of which are used for B Lab’s existing approach. 

A combination of these indices (as opposed to any one of them) provides a broad coverage of themes such as education, health, financial wealth, corruption, business credit, etc. which reflects the cross-dimensional nature of the operational barriers that may affect a company’s performance against the standards for B Corp Certification. 

Ranking of Countries/Territories Based on Five Indices

Country decile scores from each of the five indices are averaged to a single score. The score determines whether the countries/territories are classified to have fewer, some, and more operational barriers.

The country decile scores from each of the above indices was averaged to a single score. Countries/territories with the top 20% of the scores were classified as countries/territories with ‘fewer’ operational barriers. Countries/territories with the next 40% of scores were classified as countries with ‘some’ operational barriers and the final 40% were classified as those with ‘more’ operational barriers. The quantitative results were cross-referenced with qualitative feedback from stakeholders. This was done in recognition that whilst quantitative outputs are tangible, they are not necessarily a representation of truth and therefore should be taken alongside other types of inputs, such as qualitative feedback. In a handful of instances, this resulted in manually reclassifying a country/territory. For example, the quantitative results put Chile in the ‘country/territory with fewer operational barriers’ classification by a small margin, whilst four of five stakeholders felt that ‘country/territory with some operational barriers’ is a better reflection. As shown below, we manually reclassified Chile to match the stakeholder feedback over the quantitative results. This example serves as a reminder that whilst quantitative information and list are tangible, there remains a degree of subjectivity and oversimplification inherent to this process. 

Countries/Territories Classification Table

Countries/Territories listed with determined classification of fewer operational barriers, some operational barriers, and more operational barriers.

Note: The inclusion of a country/territory in this list is not an indication that B Corp Certification is or will be possible there. Country eligibility, as well as temporary impacts on certification eligibility (e.g. because of conflict) is governed via a different process and list.

How were sub-requirements identified as eligible and not eligible for flexibility and equity mechanisms? 

The primary objective of such identification was to ensure that the standards for B Corp Certification contain a set of sub-requirements that are universally applicable to all companies and that result in collective impact. Specifically, to identify sub-requirements that should not be eligible for flexibility and equity mechanisms, the following principles were applied:

  • Linkage to behavior change

  • Demonstration of achievement of an outcome

  • Level of contribution to achieving the related topic’s purpose/impact

  • Barriers to meet the sub-requirement in challenging operating contexts are not known.

Note: Sub-requirements for companies in size categories X Large and above are not eligible for flexibility unless there is a clear barrier to meeting the sub-requirement in challenging operating contexts.