Accounting for Social Impact

            Since B Corps represent a new approach to business and attempts at addressing social problems, it’s perfectly reasonable that they would require their own designation, tax breaks, funding mechanisms and incentives. Like nonprofits, B Corps have a social goal, however they ultimately seek to create a self-sustaining mechanism that delivers not just on that goal but profits to sustain the business that performs that goal. While B Corps make a profit, they also have significantly more criteria to both with whom and how they do business and pursuing a supply chain and process that is sustainable and socially responsible will likely require a set of business practices that would leave less of a surplus on the balance sheet.

            In order to compensate for these costs, B Lab created service partnerships that helped participants use a network of discounted business services to offset certification and business costs otherwise generated from the running of a socially responsible business. In a similar vein, the city of Philadelphia worked with B Lab to create a $4000 tax break for businesses that were certified as sustainable. Yale University also made a move to extend the same loan forgiveness provisions that exist for students working for nonprofits to students at B Corps. These benefits help to make up the cost in resources to pursue a sustainable strategy, but when it comes to receiving just money to fund the solution to a problem, novel solutions like crowdfunding and social impact bonds are also particularly useful.

            The most famous example of crowdfunding is Kickstarter, which allows backers to spend various amounts to provide funding to get projects off the ground. Kickstarter is only a drop in the bucket, as numerous other sites tailoring themselves to niche markets have sprung up. Crowdfunding outfits are interesting because they allows people to directly fund innovation on a smaller scale, which sometimes means that these upstarts are able to fund their projects without worrying about shareholder input.

             Another funding mechanism is the social impact bond, where an organization can seek funding from a private institution and then set a benchmark for success. Based on performance the financier is then paid by the government like with any bond, however if goals are not met the financier is not paid. While this is low-risk for project managers, it represents a gamble to the financier. This is how the first SIB in the United Statesplayed out when Mayor Bloomberg’s 2012 effort to reduce recidivism rates atRiker’s Prison failed to meet benchmarks and Bloomberg was left covering costs. Strategies found to have worked in other locations were found to have failed when they hit 44% of milestones but not the goal. A major problem with the SIB is that in its focus on results, progress towards the goal is ignored and instead of pro-rating, the SIB can hold a financier to a standard that disincentives future investment. This hurdle might be why there are so few established in the United States.