Investors’ Circle is proud to be the first GIIRS partner. To explore the new GIIRS system, IC Undergraduate Fellow, Rosie Sharp, spoke with B Lab/GIIRS representative, Beth Richardson.
Q: Can you tell me about how GIIRS developed and how it is different from the B Ratings system?
A: A group of investors from the Global Impact Investing Network (GIIRS) identified a need for a ratings system that would allow them to make more investments in the space. The steering committee determined that the B Ratings system had shown the most progress and was the closest in terms of outputs that they were looking for in a third party ratings system. They asked B Lab to put a business plan together for what has now become GIIRS.
To clarify, GIIRS is powered by the B Impact System, which is the system used for B Certification. Any certified B Corporation will have access to a GIIRS rating for free. In fact, it will be generated for them.
A key means of differentiation between the two is that a GIIRS rating is used mainly for a company’s capital raising process because it generates different reports. In addition to the B Impact Assessment, investors have been interested in seeing more raw data, Key Performance Indicators (KPI), and benchmark data. Whereas companies need to score a total of 80 or above to become a certified B Corp, their GIIRS rating reports are used for investment purposes.
Q: Which types of organizations benefit the most from using each evaluation method?
A: Companies looking to become a B Corporation clearly benefit from the B Impact Assessment as it provides a standard they must meet in order to become certified. If they aren’t meeting the standards, they benefit from the best practices tools built into the survey providing goals to strive for in social and environmental performance.
Companies and funds that are trying to raise capital benefit greatly from GIIRS, as do institutional investors who are investing in those companies and funds. Investors receive access to comparable data on which to base their investment decisions.
Q: How do you collaborate with others in the space like Global Impact Investing Network (GIIN), Impact Reporting and Investment Standards (IRIS), foundations, etc.?
A: Initially, GIIRS and IRIS were one project, but it was decided that IRIS should be a stand-alone entity. IRIS was launched by GIIN, B Lab, Acumen Fund, and the Rockefeller Foundation.
As far as the differences between IRIS and GIIRS, IRIS is a reporting framework with metrics and common definitions like GAAP for financial statements. We realized that this was missing in our sector and created GIIRS. GIIRS, on the other hand, provides a judgment. It determines which metrics should be tracked and what is good or good enough in terms of performance. GIIRS is more like Morningstar or Moody’s.
Q: Would you say that the ultimate goal of B Lab is to create a movement around new legal structures or to actually lobby for new corporate forms for social enterprises?
A: B Lab’s mission is to help create a new sector of the economy. There are 40,000 businesses that are already creating products and services that promote social and environmental change. They do this through Fair Trade, green initiatives, energy efficiency, and many other vehicles. Our goal is to create a collective voice for this community. Once this is achieved, there is further infrastructure that is needed. As far as policy, the first piece is creating a new corporate form that allows and requires companies to consider the interests of their stakeholders in decision-making processes. The second piece is to build incentives for companies to do business in this way. A key distinction though is that the corporate form is of higher importance and priority, and incentives will be built later off of that platform not the other way around.
Additionally, there is the role of capital markets for B Corporations and similar companies. Without capital, these companies are unable to scale. GIIRS, which again is powered by the B Ratings System, will help accelerate that change and help investors connect to companies in order to invest in a mission aligned way. The collaborative efforts of B Lab and IRIS are moving these goals forward.
As far as progress, these pieces are moving simultaneously. There are now 275 B Corporations, so the community piece is definitely growing, and on the policy front legislation has been proposed in Vermont and Maryland and is up for passage in both those states. Looking to the future, GIIRS will launch in January 2011.
Q: How does becoming a B Corp promote a company’s transparency in the market?
A: Certified B Corporations are required to publish their B Impact Assessment on our website. Bcorporation.net shows exactly how companies score on their assessment so that their social and environmental performance is very transparent.
Q: What competitive advantage do you feel companies gain from transparency? Do you feel like social enterprises have more to gain from it than traditional business?
A: A social enterprise may not benefit more from transparency than a multinational corporation. However, a company that is becoming a B Corporation is holding themselves to a higher standard of transparency and backing claims up with rigorous assessment is crucial to establishing trust with consumers. A large multinational corporation may also benefit from this type of transparency similarly to benefitting from a Global Reporting Initiative (GRI) report. In conclusion though, social enterprises may not benefit more broadly per say, but because they make certain claims about social or environmental standards they need to be able to back those up.
Q: How could a B Corp certification strengthen a company’s value for investors?
A: There is definitely a value-add for investors when a company is a certified B Corporation. Part of what we see in becoming a B Corporation is that a company shows that its mission is built to last. From an investor’s perspective, this is exactly what you want, as you don’t want to find out that the intent of the company is different than you thought it was. It’s easy for companies to cherry-pick data. For example, a cleantech company might be doing great things as far as creating energy efficient products, but you don’t know how they treat their employees, community, etc. B Corporations are a way to align the interests of entrepreneurs and investors by exposing not only what a company wants to communicate about itself but its overall performance.
We envision that investors will use ratings as a place to start a dialogue and as a model for rating social and environmental performance. Then they can ask their own due diligence questions and inquire about performance.
Q: We are very excited at IC to be the first GIIRS partner. What does this mean for our membership?
A: This model can be used to create consistent information processing that’s comparable across companies with very different impact models. It can assist investors in the due diligence process, be updated, show progress and be used as a tracking tool. For some investors it will serve as a starting point for due diligence, giving them information on which to base conversations with companies and ask them questions about performance. There will also be a discount for IC fund members to receive GIIRS ratings for their own funds.
B Corporations are a new type of corporation which uses the power of business to solve social and environmental problems. B Corporations are unlike traditional responsible businesses because they:
- Meet comprehensive and transparent social and environmental performance standards.
- Institutionalize stakeholder interests.
- Build collective voice through the power of a unifying brand.
For more information, visit http://www.bcorporation.net.
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