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How Sustainable Companies Keep Their Cred After They Go Public

Sustainability is trending on the Nasdaq.

Over the past year, a number of companies that tout environmentally conscious aims as a core tenet of their brand ethos have gone public. Allbirds had a successful IPO in November, after aiming to set a precedent with the first “sustainable public equity offering.” This language was eventually changed to “sustainable principles and objectives framework,” or SPO framework, before the company went public. Rent the Runway IPOed in October with several mentions of its environmentally friendly business model in its S-1. Chobani, the first U.S. dairy company to earn Fair Trade certification, filed for an IPO in July. The sustainable consumer goods company Grove Collaborative just went public via a SPAC backed by Richard Branson’s Virgin Group (special purpose acquisition companies, or SPACs, are publicly held entities that are formed with the sole purpose of buying other companies in order to take them public). 

This flood of socially and environmentally minded companies onto the Nasdaq reflects rising demand from investors who want shares in companies that have purpose, as well as profits. “There’s been a dramatic increase in B corporations and benefit corporations going public,” says Holly Ensign-Barstow, the director of stakeholder governance and policy for B Lab, the non-profit that certifies companies as B Corps. The first benefit corporation to IPO was Laureate Education in 2017. But it wasn’t until the summer of 2020 that others followed, Ensign-Barstow says: “There’s been a waterfall of interest, filings, and SPACs.” A July 2020 amendment to Delaware law made it easier for companies to adopt a public benefit corporation model, she adds, which helps to explain the sudden increase in IPOs.

Going public typically demands a profits-first, shareholders-first focus. But with the rise of the benefit corporation, sustainability no longer had to take a back seat to profits or dividends. That provided a road map for companies to successfully IPO without sacrificing core values. 

Build investor confidence with facts. 

Over the past two years, Aron Cramer, president and CEO of the sustainability-focused business organization  BSR (which worked with Allbirds on its IPO) has noticed this sea change in investor interest in companies with strong ESG (environmental, social, and governance) criteria. That interest was recently confirmed to him by the April 2021 launch of the Glasgow Financial Alliance for Net Zero, a coalition of financial institutions with combined assets of around $130 trillion  that are dedicated to reaching a net-zero future. Investors see the benefits of sustainability–but demand documentation. “Proof points are essential, and reporting and disclosure are crucially important,” Cramer says. 

Map out future plans in detail.

Accountability is just the beginning; there’s also planning for a sustainable future. “One of the reasons why sustainability has become so important for companies is that there’s a direct link between changing global conditions and changing consumer interests,” Cramer says. “Looking ahead is really important, not only for the public and for transparency reasons, but for business strategy. Will natural resources your company needs be available? How will climate risk your company’s operations and supply chains?”

Laying out detailed plans for sustainability improvements doesn’t just help a company achieve its altruistic aims, it also increases shareholder confidence: investors can’t judge a company’s resilience if they don’t have a grasp on its strategy, Cramer adds. 

Make sustainability part of your financial structure

Ensign-Barstow encourages companies to adopt a B Corporation status, or a public benefit corporation status. There’s a distinction here: B Corps are certified by the non-profit B Lab, and are held to high standards for their ESG impacts. Benefit corporations are legally defined at the state level. Not all benefit corporations become B Corps, but many do, including companies such as Patagonia, Kickstarter, and King Arthur Flour. Essentially, when a company has one or both of these classifications, it codifies the business’s aim to balance profits with social and environmental good. In a sense, the planet becomes a shareholder. 

Having the planet as a shareholder or constituent helps justify decisions that may, either in the long- or short-term, trade profit for sustainability. “Lots of companies that aren’t B Corps or benefit corporations have great programs and give to charities, but they ultimately have to justify these actions to shareholders,” Ensign-Barstow says. “If they step too far over that line, shareholders can force them to abandon those programs–so the benefit corporation status is a way to build your mission into your legal DNA. It gives you that protection.” It’s not impossible for companies to adopt benefit corporation status when they’re already public, but it is easier to do so pre-IPO, to circumvent shareholder involvement. 

Consider the a sustainability-focused framework in your S-1.

Cramer hopes that Allbirds’s recent IPO, which followed BSR’s  “SPO framework,” will be an example to other companies that place a high value on sustainability. He considers the framework a “good starting point,” as it lays out how a company can deal with 19 different issues across ESG criteria, from direct operations to supply chain. But there are other frameworks available, too. The Sustainability Accounting Standards Board’s guidelines, Cramer says, may be better suited to more mature companies. “There’s a range of standards and frameworks that are out there,” he says. “It’s important for a company to start by looking at the ones that are most relevant and then making choices about the things that are most material to its business and most material to its impact on the world.”

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