Social Enterprise and B Corp: Are They Any Different?
Sustainability is now a hot topic. Consumers and investors no longer want to just support a profitable business, but one that also aims to reduce the negative environmental impact of its operations and actions. Better still if there is a social impact.
As a business keen on sustainability, there are various business models to explore. The basic model would be that of a social enterprise. We are also now hearing about a B Corp certification, which is deemed to be the gold standard of sustainability.
This article will cover:
What is a Social Enterprise?
A social enterprise, as its name suggests, is a business entity formed with the aim of fulfilling social and environmental goals. Whilst it is not a legally defined term, the Singapore Center for Social Enterprise (raiSE) lists the following characteristics of a social enterprise to qualify for its membership:
- Have a sustainable business model: You generate the majority of your revenue from the provision of goods and services, and have a clear business plan to achieve financial sustainability and profitability;
- Have clear management intent: Your management or founder has a clear intention to make social goal(s) the core objective(s) of the business, and there is an allocation of at least 20% of resources to fulfil social outcomes;
- Support persons in need or at risk: You assist persons in need or at risk who largely fall into these categories – economic (low income, risk of poverty etc), mental (dementia, depression etc), social (social isolation and discrimination), and physical (mobility issues, inability to perform daily activities);
- Address a social need or gap: Your business achieves at least one desired impact outcome area through the provision of employment opportunities, education, skill development etc.
raiSE was set up in 2015 to develop the social enterprise sector in Singapore. It adopts a mentorship role by seeding and nurturing social enterprises through advisory services, programmes, training and resources. They also provide financing options and funding support. Through its connections with various social enterprises, it further seeks to share best practices in managing social enterprises.
There are many types of social enterprises, of which the more commonly known ones are cooperatives like NTUC, non-profit organisations like TOUCH Community Services as well as hybrid models. For example, The Nail Social runs a profit model by offering nail services to customers whilst its social model offers vocational training and employment to local marginalised women facing a higher barrier to employment.
In Singapore, social enterprises are registered as businesses and therefore recognised as legal entities. Examples of some social enterprises in Singapore are Better Trails LLP and Unpackt Pte Ltd. Better Trails LLP aims to promote the ethical and responsible use of outdoor and green spaces as part of its environmental goal. It satisfies its social goal by engaging at-risk youths with training opportunities. Unpackt similarly promotes environmental goals by offering package-free food in bulk, thus minimising waste. It fulfils its social goals by providing employment and career advancement opportunities for persons in need like low-income families, single mothers and senior citizens.
What is a B Corp?
A B Corp is a for-profit corporation certified by B Lab for its social impact and for meeting high standards of social and environmental performance, transparency and accountability. B Lab itself is a non-profit organisation which creates standards, policies, tools and programmes concerning the B Corp certification. By conforming with these standards and policies, B Corps are businesses that seek to balance profits with purpose, understand their social and environmental footprint and make an effort to make a social impact in the world.
You might not have heard of B Corps, but you might have heard of these Singapore-based businesses which are B Corps working towards being sustainable businesses:
- Boxgreen – retailer of healthy snacks. Engages ex-offenders and the special needs community for the preparation and packaging of products.
- Sustenir – retailer of clean, pesticide-free vegetables (e.g., kale, spinach, arugula) which are harvested fresh daily. You may have seen their products in various local supermarkets.
Are There Any Differences Between a Social Enterprise and a B Corp?
The straightforward answer is no. A social enterprise may also be a B Corp. These are different types of certifications offered by different organizations. In Singapore, both types of entities will need to be registered as companies with the Accounting and Corporate Regulatory Authority (ACRA).
A social enterprise is registered as a business with ACRA. Membership with raiSE is successfully granted if an entity fulfils the definition of a social enterprise as mentioned above and provides a track record of its social impact or business sustainability. New social enterprise members pay S$300 as a one-time membership fee, and S$100 as the yearly renewal fee.
A B Corp undergoes a stringent certification process in accordance with its high standards of verified performance, accountability and transparency on factors such as employee benefits and charitable giving to supply chain practices and input materials. The entire business is evaluated for its social impact or business sustainability in various areas. As a result, verification fees are payable. Verification fees start at US$500 (~ S$670) depending on the company’s revenues.
A B Corp certification is valid for 3 years and annual certification fees are payable. Again, the amount of certification fees depends on your company’s annual revenue and starts from US$1,000 (~ S$1,340). B Corps also have to apply for recertification. Since 2022, B Lab Singapore, a local subsidiary of B Lab, has absorbed and will continue to absorb the verification fees for current Singapore B Corps seeking re-certification.
A B Corp certification is the gold standard for sustainability and social impact, and its certification requires an evaluation of the entire company on metrics like worker engagement, community involvement, environmental footprint and governance structure. To evaluate a company’s metrics, a B Impact Assessment is usually conducted. A minimum Impact Score of 80 on the Assessment is required to qualify for B Corp Certification.
Some questions that may be asked as part of the B Impact Assessment include:
- Governance: What portion of your management is evaluated in writing on their performance about corporate, social, and environmental targets?
- Workers: What % of the company is owned by full-time workers (excluding founders/executives)?
- Community: What % of management is from underrepresented populations?
- Environment: Does your company monitor and record its universal waste production?
- Customers: How do you verify that your product improves the impact of your client organizations?
Using Boxgreen as an example, Boxgreen has an overall B Impact Score of 82.7, which is higher than the current median score of 50.9 for ordinary businesses and qualifies it for the B Corp Certification. With regard to its “Workers” aspect, it was evaluated based on factors like financial security, health, wellness & safety, career development, and engagement & satisfaction.
A social enterprise, on the other hand, need only have a social or environmental goal, or maybe sell an environmentally friendly product. Holding a B Corp certification is like holding an “organic” certification; there are high standards to meet before an organisation can hold itself out as a B Corp.
Both types of businesses do not need to specify their purpose, either as a social enterprise or B Corp, during incorporation and registration with ACRA.
However, B Corps are required to update their governing documents like the Articles of Association, based on The B Corp legal framework which allows companies to protect their mission and ensures that the company will continue to practise stakeholder governance even after capital raises and leadership changes. They must incorporate clauses in their governing documents in line with their commitment to balancing and advancing social, environmental, and financial objectives. B Corps must also be transparent by allowing information about their performance measured against B Lab’s standards to be publicly available on their B Corp profile on B Lab’s website.
B Corps are also legally required to consider the impact of their decisions on all of their stakeholders. They must do so by integrating stakeholder governance into their governing documents. In Singapore, specific clauses like the Purpose Clause which acts to help the reader understand the business purpose and the Directors Clause which explains the requirements of a director’s role, or those to this effect, must be incorporated:
Purpose Clause: Subject to the provisions of the Companies Act and any other written law and this Constitution, the Company has full capacity to carry on or undertake any business or activity, and in connection therewith to do any act or enter into any transaction. The Company shall conduct its business and activities in a manner that seeks to create a positive impact on society and the environment taken as a whole commensurate with the size of the Company and the nature of its business and activities. For all of the foregoing purposes, the Company shall have full rights, powers and privileges.
Directors Clause: a) In discharging the duties of their respective positions and in considering the best interests of the Company, the board of directors, committees of the board, and individual directors shall consider the effects of any action or inaction upon: i) the members of the Company; ii) the employees and work force of the Company, its subsidiaries, and its suppliers; iii) the interests of its customers as beneficiaries of the purpose of the Company to have a positive impact on society and the environment, taken as a whole; iv) community and societal factors, including those of each community in which offices or facilities of the Company, its subsidiaries, or its suppliers are located; v) the local and global environment; vi) the short-term and long-term interests of the Company, including benefits that may accrue to the Company from its long-term plans and the possibility that these interests may be best served by the continued independence of the Company; vii) the ability of the Company to create a positive impact on society and the environment, taken as a whole; and viii) such other matters as may be appropriate in the relevant circumstances. b) In discharging his or her duties, and in determining what is in the best interests of the Company, the board of directors, committees of the board, and individual directors can prioritise considerations of the Company’s ability to create a positive impact on society and the environment, taken as a whole. c) Nothing in this Article, whether express or implied, is intended to create any right or cause of action for: i) a third party; or ii) any party who does not have such right under law.
Companies imbued with the B Corp certified status may expect funding from mission-driven or impact investors by virtue of its raised standards. raiSE, on the other hand, offers a more formal funding avenue, namely the VentureForGood (VFG) grant which provides early and seed-stage social enterprise members of raiSE with up to S$300,000 in funding to create more human-centered social impact.
How Do a Social Enterprise and a B Corp Differ From a Non-Profit Organisation?
The most significant difference between a social enterprise and B Corps with a non-profit organisation is that the latter can only be non-profit. The former has a choice of being non-profit or for-profit. Whilst all three pursue social initiatives, social enterprises and B Corps make profits to fund their social initiatives whilst non-profit organisations do so with external funding.
Also, social enterprises, as with B Corps, are registered as businesses and recognised as entities regulated by ACRA. Non-profit organisations must be registered with the Commissioner of Charities.
As a starting business, and especially one in need of funding, it is usually recommended to start off as a social enterprise first and then venture to obtain the B Corp certification once the business is on track.
Both business models are not mutually exclusive; a social enterprise can also be a B Corp.
Whether you choose to run your business as a social enterprise or a B Corp, it is important to first set up your business with ACRA and obtain the relevant licences required. In this regard, do consult a corporate lawyer. He or she would be able to provide further advice on these various business models, regulatory and other compliance-related requirements and registration processes etc.
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