New Resource Bank is supporting legislation sponsored by B Lab (creator of the B Corporation certification) and the American Sustainable Business Council (ASBC) that would create a new corporate form allowing California companies to make sustainability commitments part of their legal charter.
AB 361, introduced by Assemblymember Jared Huffman, would create a new corporate form in California called a Benefit Corporation—essentially, a legal structure that conforms with the B Corporation certification. The form would be optional for companies that want it, not a requirement.
Benefit Corporations would strive to have a material positive impact on society and the environment. Their boards would be required to consider the effect of decisions on all stakeholders (employees, suppliers, customers, the community and the environment, as well as shareholders), and they would report on overall social and environmental performance using an independent third-party standard.
“As a B Corporation ourselves, we already pursue environmental and social, as well as financial returns,” says Vince Siciliano, New Resource president and CEO. “But we also see the importance of having a corporate legal framework that promotes and legitimizes making decisions with the triple bottom line in mind. This bill provides an appropriate structure for companies that have a larger purpose.”
Traditional corporate law defines corporate officers’ and directors’ fiduciary duty narrowly, considering only the financial return to shareholders.This makes it difficult for mission-based businesses to make decisions that account for both financial and nonfinancial interests and thus satisfy a wide range of stakeholders.AB 361 would solve that problem, the bill’s sponsors say, and provide significant advantages to businesses and the state without adding regulation or affecting the state budget. According to their analysis, the bill would:
- Remove legal barriers that prevent businesses and investors from using sustainability and social innovation as a competitive advantage, particularly in liquidity scenarios
- Accelerate development of a new economy driven by businesses that have higher standards of corporate purpose, accountability and transparency
- Create a platform for innovative entrepreneurs to build great companies that generate high-quality jobs and economic development for communities
- Rebuild public trust in business by demonstrating that businesses are willing to be held accountable for creating value for both shareholders and society
AB 361 is similar to legislation signed into law last year in Maryland and Vermont, passed in the New Jersey and Virginia legislatures, and working its way through the legislatures in several other states, including New York, North Carolina, Hawaii and Pennsylvania.
The text of AB 361 is available on the California legislative analyst’s website.
Find out more about B Corporations and legislation in other states on the B Corp site.