Benefitting from Sustainable Development

Author:Victoria Frappaolo
Position:Victoria Frappaolo is a JD/MA candidate at American University Washington College of Law. She is pursuing her master's in Social Enterprise from American University's School of International Service. She is currently a law clerk at Klamp & Associates, P.C.
26 Sustainable Development Law & Policy
benefittinG from SuStainable Development
Victoria Frappaolo*
s the world continues to strive to achieve sustainable
development, U.S. states must continue to adopt laws
that govern benefit corporations. A benefit corporation
“is a new corporate entity that requires directors to take social and
environmental considerations into account when making corpo-
rate decisions.”1 It has been suggested that the benefit corporation
structure will appeal to larger corporations who will see it as a
way to protect the organization’s social mission.2 There are also
many smaller for-profit organizations that have adopted this struc-
ture.3 Regardless of the size, this corporate entity has found favor
among institutional investors who have a growing interest to invest
in companies that have an environmental and social impact.4
The International Institute for Sustainable Development (IISD)
defined sustainable development as “development that meets the
needs of the present without compromising the ability of future
generations to meet their own needs.”5 This contrasts with many
for-profit corporations in that unlike nonprofit cor porations that are
driven by a mission, as their name suggests, for-profits are driven
by profit. Thus, a disparate relationship exists between companies
wanting to do make decisions that allow them to maximize profits
while ensuring that these decisions do not impact sustainable devel-
opment.6 Benefit corporations provide companies with an incentive
to find ways to use mechanisms that allow for sustainable develop-
ment while still maximizing profit, thus achieving this dual mission.7
Laws for incorporating and managing benefit corporations will
provide socially focused companies and entrepreneurs the tools they
need to make the environmental and social issues a primary focus
of an organization.8 When states provide a legal structure for U.S.
entities to incorporate a benefit corporation under, they are creat-
ing a corporate structure that has a reporting requirement, which
includes a review and summary of the organization’s environmental
and social performance.9 These reporting requirements are depen-
dent on the state where the benefit corporation is incorporated.10
Outside organizations, such as B Lab, a nonprofit that works with
companies and people whose businesses act as a “force for good,11
have created a best practice for benefit reporting.12
Thus far, thirty-one states have passed laws that provide a legal
framework for businesses to become benefit corporations.13 Of
the nineteen states that do not provide laws for forming a benefit
corporation, eight are currently working on passing legislation.14
To ensure that all businesses throughout the U.S. are encouraged
to adopt practices that help guarantee sustainable development, the
nineteen states that have yet to adopt laws which allow organizations
to incorporate as benefit corporations should do so immediately.15
It is necessary for every state to adopt a legal structure for
benefit corporations because this corporate str ucture encour-
ages businesses to take sustainable development into account.16
Businesses incorporated in states without these laws do not have
the same level of incentive or guidance on how to ensure that they
consider sustainable development.17 Benefit corporations provide
businesses with an “increased legal protection, accountability, and
transparency around its mission” and require companies to produce
an annual benefit report, which increases access to private invest-
ment capital.18 Although one may say that there is no rush because
thirty-one states have already adopted legislation, corporations that
are incorporated in the other nineteen states are not provided with
the opportunity to be at the forefront of this growing movement.19
If every state in the U.S. adopts laws supporting benefit cor-
porations, sustainable development would be fostered throughout
the U.S. This will also provide other countries considering adopt-
ing laws regarding benefit corporations’ examples of ways they
may develop their legal framework. In addition, U.S. laws will
demonstrate to other countries that these laws allow for companies
from their countries to be at a competitive advantage. Once laws
are adopted throughout the U.S. and the world, companies will not
only be competing for a greater profit, but also keeping sustainable
development at its forefront.
1 elizabeth SchmiDt, nonprofit law 539 (Wolters Kluwer Law & Business,
1st ed. 2011).
2 See id.
3 Find a Benefit Corp benefit corp.
benefit-corp (last visited Mar. 14, 2017).
Why do Investors Like Benefit Corporations, benefit corp., http://benefit- (last visited Mar. 14, 2017).
5 Sustainable Development, intl inSt. for SuStainable Dev., http://www. (last visited Mar. 26, 2017).
Dana B. Reiser, Note, Benefit Corporations: A Sustainable Form of Organi-
zation? 11 wake foreSt l. rev. 591, (2011).
7 Id. at 592.
8 What is a Benefit Corporation?, benefit corp.,
nesses (last visited Mar. 14, 2017).
10 Id.
11 About B Lab, certifieD b corp.,
corps/about-b-lab (last visited Mar., 26 2017).
12 See Benefit Corp., supra note 8.
13 State by State Status of Legislation, benefit corp.,
policymakers/state-by-state-status (last visited Mar. 14, 2017).
14 Id.
15 See id.
16 Why is a Benefit Corp Right for Me? benefit corporation, http://benefit- (last visited March 26, 2017).
17 See id.
18 See id.
19 See id.
* Victoria Frappaolo is a JD/MA candidate at American University Washington
College of Law. She is pursuing her master’s in Social Enterprise from American
University’s School of International Service. She is currently a law clerk at
Klamp & Associates, P.C.