Benefit companies represent a new approach to business: social and environmental benefits are added to the achievement of profits, involving stakeholders inside and outside the company. Effective stakeholder engagement contributes to the success of the company, as the company and stakeholders influence each other. What are benefit corporations?
Why are more and more companies becoming benefit corporations? Let’s find out together.
Benefit societies: what are they?Benefit societies in Italy: regulatory details and statisticsHow to become a benefit societyWhy to become a benefit societyBenefit societies benefits: what are theyThe obligations of the benefit societyBenefit societies: what to indicate in the impact report
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Benefit societies: what are they?
Benefit companies (or benefit corporations) are a legal form of business legally recognized in Italy since 2016, following the law of Dec. 28, 2015 no.
208.
Italy was the second country in the world, after the United States, to introduce benefit corporations into its legal system. The purpose of benefit corporations is to produce a positive impact on all stakeholders, society and the environment.
Benefit corporations, in fact, have a dual purpose:
- Profit purpose: arising from the conduct of business activity;
- Voluntary common benefit: concerning the social aspect, environmental sustainability and transparency.
Benefit corporations, in addition to having a for-profit purpose, must pursue one or more purposes that contribute to long-term environmental and social prosperity; they must make transparent what they do, but more importantly, how they do it.
Benefit companies in Italy: regulatory details and statistics
In Italy, the regulations pertaining to benefit companies are governed by the Stability Law, namely Law no.
208 of 2015. It is the legal framework itself that establishes the focus of the activities of benefit corporations, namely the achievement of social and environmental goals. According to a report compiled by the Italian Observatory on Benefit Societies, data updated as of December 31, 2022, show that there are more than 2,600 benefit societies in Italy, with a recorded increase of 55 percent over 2021 (more than 300 percent more than 2020). The Observatory’s analysis shows that many of these benefit companies are large corporations, with a total number of employees amounting to 140,000. The most represented sectors are: the service sector, with more than 45 percent of companies operating in professional, scientific and technical activities or in the field of information and communication, mainly in business management or management consulting, as well as in software production and computer consulting. The second most represented sector is manufacturing, especially the food and chemical industries.
That of benefit corporations represents a way of doing business that will tend to expand more and more over the years, as evidenced by the exponential growth in the number of benefit corporations born since 2020.
How to become a benefit corporation
All types of corporations under the Civil Code that pursue profit-making purposes can use a benefit corporation model by amending their bylaws to include the following in the corporate purpose:
- purposes of general common benefit: accountability, sustainability and transparency to stakeholders;
- specific common benefit purposes: ways in which the benefit corporation undertakes to create the common benefit.
Although there is no express regulatory prohibition, there is no logical consistency between the benefit corporation model, which combines the purpose of profit with the purpose of common benefit, and that relating to cooperatives, which are exclusively nonprofit corporations.
The obligation to indicate the common benefit the company intends to pursue is crucial for managers and executives so that they do not incur liability actions through their actions.
Why become a benefit society
Becoming a benefit corporation means achieving a common benefit and generating profits for shareholders. Common benefit is defined as a tangible impact on society and the environment, such as through:
- The provision of goods or services for low-income citizens or disadvantaged communities;
- environmental protection;
- The improvement of human health;
- The promotion of art, science and knowledge;
- The increase in capital flows to entities that create a common benefit (impact investments).
Company benefit advantages: what are they
Amending one’s articles of incorporation in order to become a benefit corporation or forming a new benefit corporation brings several benefits:
- Ability to attract social impact investment (Impact Investment);
- greater reputation as an enterprise that operates responsibly;
- winning young talent, who are increasingly interested in working in socially responsible enterprises;
- entry into a network of businesses that share the same values and develop new markets;
- Participation in innovative business that can provide greater value to society and the environment;
- access tax benefits, such as the benefit corporation tax credit, a 2022 tax break that was provided to support incorporation and transformation expenses and may be provided again.
The benefit society may introduce the words Benefit Society or the abbreviation SB next to its corporate name.
Presenting oneself in the marketplace as a benefit company attracts the interest of suppliers, customers and investors, who are increasingly focused on sustainable choices.
The obligations of the benefit society
The benefit corporation must state the purposes of common benefit in the corporate purpose.
Each benefit corporation must appoint an impact manager, whose job is to ensure that the corporation pursues its stated purpose of common benefit. The benefit corporation must submit an annual report-impact report or impact assessment-written to a standard that is comprehensive, transparent, credible, and developed by an entity not controlled by or related to the benefit corporation. The most widely used standard is the B Impact Assessment (BIA) issued by B Lab, a nonprofit organization, which acts in accordance with the principles of independence and transparency.
The BIA makes it possible to measure the environmental and social impacts generated by the company, using a questionnaire.
>The transparency and truthfulness requirements of the transmitted data are verified by the Competition Authority.
Benefit societies: what to indicate in the impact report
The information in the impact report must comply with the requirements of the Benefit Corporation Act, including the following areas of evaluation:
- corporate governance: purpose of the company, level of engagement with stakeholders, degree of transparency of policies and practices adopted by the company;
- workers: employee and contractor relations; compensation, benefits, communication, flexibility, job security, training, and personal growth opportunities;
- other stakeholders (parties directly or indirectly involved in the company’s activities): the company’s relations with suppliers, the territory and community in which the company operates, volunteer and local development support actions, supply chain, cultural and social activities;
- environment: impact of society in terms of resource use, energy, raw materials, production, logistics and distribution processes, use, consumption and end of life.
The impact report requirement allows for transparency in the pursuit of common benefit and impact assessment.
In order to prepare the impact report, the appointment of an impact manager is mandatory; a figure with cross-cutting skills in economic-business, legal and technical subjects assigned to report on the results achieved and actions taken.
Before drafting the impact report, benefit companies establish the principles on which to develop their sustainable strategy, clearly defining the purpose to be pursued; as a matter of consistency, companies should choose social and environmental goals consistent with their business model, for example, a company in the energy sector might focus on developing energy management strategies aimed at reducing the environmental impact of its operations.
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In recent years there has been a considerable increase in attention to the issue of sustainability, an example of which is the growing number of benefit companies in our country, as of December 2022 amounting to 2,600.
In order to be a competitive company, it is necessary to integrate the principles of sustainability and innovation into one’s core business, as they are increasingly demanded by the market; above all, it is essential to develop strategies for continuous improvement, from an economic and environmental perspective.
Becoming a benefit company means demonstrating that you are a socially responsible and trustworthy enterprise.
