The third quarter was a busy one for the public benefit corporation, or PBC, Vital Farms Inc. (ticker: VITL). A producer of pasture-raised eggs and butter, the company increased its network of family farms to more than 250 and expanded retail distribution to more than 18,000 stores. It reported record net revenue and raised its full-year sales outlook by nearly 20%.
It also swung to a loss because of expenses associated with increased staff and higher freight costs. More broadly, its shares have been declining and are now worth less than their August 2020 initial public offering price, in part because of rising inflation and the market shift from growth stocks to value stocks.
While the stock price decline may be worrisome for investors, management may not be as concerned as they would be at other types of publicly traded companies. Because Vital Farms is a PBC, it doesn’t have to prioritize the needs of stockholders like traditional corporations do. It can legally take into account the not-directly-financial needs of other “stakeholders,” such as farmers, crew members, customers, communities and the environment.
Vital Farms is one of a growing number of publicly traded PBCs that are attempting to usher in a new era of “conscious capitalism,” where shareholder profits are not the be-all and end-all. The trend coincides with an increasing number of companies becoming B Corporations amid a broader push, especially among millennial investors, for firms to be more responsible with environmental, social and governance (ESG) considerations.
But how exactly is a B Corp distinct from a public benefit corporation?
What’s the Difference Between a Public Benefit Corporation and a B Corp?
While PBC status is a legal designation recognized by certain states, B Corp status is a certification from nonprofit network B Lab that shows a company meets high standards for social and environmental performance, accountability and transparency. The designations aren’t mutually exclusive, and there is overlap with companies that are both a PBC and a B Corp, such as Vital Farms.
Many traditional corporations have started to include ESG considerations in their strategies, but PBC status ups the ante by codifying it into a company’s incorporation documents, while B Corp certification is a rigorous process that elevates a company’s ESG credentials.
“The traditional corporate structure was too narrowly focused on benefiting investors as investors,” says James Katz, CEO of Humankind Investments, a PBC that has been considering getting a B Corp certification. “Investors are also human beings. People are starting to get wise to this idea of how companies are affecting them outside of their portfolio.”
Social and environmental considerations encapsulated in PBC status can also affect a company’s ability to attract talented workers.
“Consumers have, for several years now, embraced the notion of speaking with their wallets in support of companies whose mission, vision and values they identify with,” says Mike Davis, founding partner of private equity firm Olive Tree Ridge. “Employees are increasingly doing the same with how they choose to spend their time.”
Growing Number of Publicly Traded PBCs, B Corporations
Holly Ensign-Barstow, director of stakeholder governance and policy with B Lab, says both the certification and the legal incorporation are becoming more popular options for publicly traded companies. The market has seen “tremendous growth” over the past 18 months, she says.
Publicly traded PBCs include financial services firms Lemonade Inc. (LMND) and Broadway Financial Corp. (BYFC), biotech companies GreenLight Biosciences Inc. (GRNA) and Zymergen Inc. (ZY), education stocks Coursera Inc. (COUR) and Laureate Education Inc. (LAUR) and technology companies Planet Labs (PL) and Veeva Systems Inc. (VEEV).
Multinational companies have been getting involved in the B Corp movement, and Danone SA (DANOY) and Unilever PLC (UL) are leading the way with multiple subsidiaries certified.
For investment firm BSW Wealth Partners, converting to a PBC was consistent with its mission of making life better for clients, staff, families and communities, CEO David Wolf says.
The flexibility for PBCs’ management to maximize economic outcomes for multiple types of stakeholders is a freedom from the quarter-to-quarter focus that traditional corporations tend to hew to, says Wolf, whose company is also a B Corp.
“It is returning corporate forms to their original planning outlook horizon, which is long-term,” Wolf says. “It’s business as a force for good.”
Investment Considerations for PBCs or B Corps
For investors considering putting money into publicly traded PBCs or B Corps, Wolf says they can use the same metrics to arrive at their valuation opinion as they would for any other publicly traded company.
“I don’t think that there is much of a difference in the equity valuation,” he says.
He points to Danone and Unilever as the strongest publicly traded companies embracing B Corp movements. Because they’ve been public for so long, investors will be able to compare their market penetration before and after they began certifying their subsidiaries, he says. Plus, because they are consumer staples companies, they are inherently more defensive than some of the newer growth-oriented benefit corporations, he says.
Still, publicly traded PBCs are few and far between, and it’s unclear how they’ll end up performing compared with traditional corporations that get a B Corp certification or simply adopt strong ESG platforms in coming years.
“People do have to be careful,” Katz says. “The jury is still out on the long-term impact of investing in this way.”