Should More Community Banks Be B Corporations?

Banks face a highly competitive landscape filled with thousands of other banks, credit unions and financial technology companies. Could proving your values be a powerful way to differentiate your institution in such an environment? A 2021 Edelman survey found that 61% of consumers will advocate for brands they trust, and 86% expect them to “act beyond their product or business,” wrote Richard Edelman, CEO of the global communications firm. “[B]rands will need to operate at the intersection of culture, purpose and society.”

Sunrise Banks, a $1.9 billion community development financial institution (CDFI) based in St. Paul, Minnesota, aspires to be “the most innovative bank empowering financial wellness,” says Bryan Toft, its chief revenue officer. That mission “attracts customers [who] really care about those values,” he says. “Passionate employees are attracted to it as well, who work hard and want to make a difference because of that mission, as opposed to a paycheck.” In addition to its community bank footprint around St. Paul, Sunrise also offers a banking-as-a-service platform, choosing partner fintechs through a “social filter” that considers how those companies align with its mission.

Toft views this as a competitive advantage, not one that detracts from profitability. Sunrise Banks’ quarterly return on assets averaged 1.22% from March 2018 through Sept. 30, 2021. Performance during this period was fueled by commercial loan growth, new fintech relationships and fee income through the Paycheck Protection Program.

Certifying as a B corporation, Toft says, was a natural fit for the bank. These businesses are redefining what it means to run a successful enterprise, according to B Lab, which certifies B corporations. B Lab likens its certification to Fair Trade USA’s standard for coffee, providing a way to assess and verify a company’s social and environmental impact. The nonprofit has certified more than 4,600 companies worldwide and 1,691 B corporations in the U.S., including ice cream manufacturer Ben & Jerry’s and clothing retailer Patagonia. Eleven of these B corporations are U.S. banks. Becoming a B corporation doesn’t guarantee higher profits; few reported an ROA on par with Sunrise as of third quarter 2021.

B corporations must score a minimum 80 points on B Lab’s “B Impact Assessment,” a tool the nonprofit developed to “measure, manage, and improve a company’s positive impact performance” in the following areas:

• Governance, including mission, ethics and transparency.
• Workers, including health, wellness and safety, and career development.
• Community, including economic impact, civic engagement and diversity, equity and inclusion.
• Environment, including the company’s impact on air, water, land and biodiversity.
• And customers, including products and services as well as data privacy and security.

“We have to look at all aspects of our business,” says Toft. The assessment features 200 questions, he says, and explores questions such as, “What percent of your employees are paid a living wage? How do you support diversity, equity and inclusion? What are some of the things that you measure in terms of environmental impact? … How do you know [that] your products make an impact positively in your customers’ lives?”

The assessment is free and can help a company benchmark its performance in the examined areas.

While the assessment is free to use, certification isn’t. The annual fee charged by B Lab to verify B corporation status ranges from $1,000 to $50,000 or more, based on the company’s revenue. In addition to the initial assessment, B Lab selects a subset of questions for additional documentation, and assessed companies must meet B Lab’s risk standards. And B corporations are legally required to consider all stakeholders; opting to become a public benefit corporation – a legal structure available in most states where a company commits to creating a positive social impact – offers a way to fulfill this requirement.

For $2.5 billion Mascoma Bank, the multi-stakeholder approach aligns with its mutual bank charter. “Our governance does not require us to give primacy to shareholders, because the community is primarily the shareholder,” says Clay Adams, CEO of the Lebanon, New Hampshire-based bank. “We measure ourselves versus peers. How do we maximize profitability but also maximize stakeholder results?”

B Corporation companies must recertify every three years, says Adams, a process he compares to a “kinder, gentler version of a regulatory exam.” Average scores range from 40 to 100 out of 200 possible points, according to B Lab. (The score for each bank appears in the below table.) And companies demonstrate different strengths; both Sunrise and Mascoma scored in the top 5% globally in the governance category in 2021.

Toft and Adams both believe that B corporation values align with community banking values, with customers and employees seeking to do business with banks that do good in their communities.

“Where [customers] put their money matters” to them, says Toft. “A lot of banks do great things in their communities, and this is a way to have a third party verify that. … A lot of banks probably could be certified as B corps, because inherently what they do is all about the mission in their respective community.”

B Corporation Banks

Source: B Lab, Federal Deposit Insurance Corp.

The B Impact score reflects the most recent score received by the bank in B Lab’s B Impact Assessment; a company can receive a maximum of 200 points. On average, companies score between 40 and 100 points; a minimum of 80 is required to be certified as a B corporation.