BENEFIT CORPORATIONS: The Italian Experience

by and | Jun 11, 2021

Italy is the first European country inspired by the American legislative initiative of 2010 to introduce with the 2016 Budget Law a similar business model into their legal system: the so called Società Benefit (SB), that integrates the profit-oriented economic activity with the purpose of common benefit producing in the long-term positive effects on territories and the environment, people, communities and other stakeholders, and several successful experiences can now be counted.

The Legal Framework

The Italian legal form for benefit corporations, introduced through the Law 208/2015, provides that every registered Società Benefit (SB), in order to balance the interests of shareholders with the interests of the community, must pursue responsible, sustainable and transparent management. Consequently, according to the law it is necessary to appoint a director who is responsible for the impact of the company, reporting in the annual report (attached to the corporate financial statements) – in a transparent and complete manner – the methods and actions implemented to achieve the specific objectives included in the bylaws, as well as the plans and commitments for the future, in addition to any circumstances that have prevented or slowed down the pursuit of the company’s mission.

After Italy, France was the second European country to introduce specific rules for these types of companies, namedSociétés à mission, with the Loi n° 2019-486 entered into force on 23 May 2019 and implemented by décret n° 2020-1. There is currently no harmonized legislation in the European Union, but there are stakeholders who have worked over time to highlight the impact of this model in the context of various European initiatives, such as the recent one on Sustainable Corporate Governance, the Call for contribution on Competition policy supporting the Green Deal, or the Consultation on a Renewed Sustainable Finance Strategy, and within OSCE as well.

Different Approaches

Unlike the Italian and American legislation, French law provides that control over the achievement of the benefit objectives is left to a collective body, distinct from the main controlling body and composed of representatives of the interested parties or independent external members affected by the corporate mission, which will transmit the annual report drawn up to the management. Otherwise, following the example of the US Benefit Corporations, the Italian model of Società Benefit (SB) put into practice innovative business methods as these companies voluntarily decide to strategically engage in the creation of benefits for the community and the environment, without neglecting the maximization of profit. This represents a higher level of Corporate Social Responsibility (CSR): while the CSR is intended as a company policy that company’s management may, at some point, decide to change or not to continue, these entities are bound to adopt certain behaviors of high social value by fixing them in their bylaws, with the consequence that by failing to comply with these rules, the companies not only do not fulfill their mission but fail also to comply with real legal obligations, resulting therefore in liability.

Benefit Corporations VS B-Corp Certification

It is appropriate to distinguish the Società Benefit (SB) from the B-Corp, which is an international certification created in 2006 by the non-profit organization B-Lab, achievable by any for-profit company and aimed at measuring the environmental and social impact of the company at a given time. Every company holding a B-Corp certification in Italy is certainly able to transform into a Società Benefit (SB) by integrating in its bylaws through the adoption of internal rules the dimension of the positive impact that is only measured in the certification and binding the management to achieve the given social objectives. At the same time, the company may not be able to obtain the necessary score for the B-Corp certification. B-Corp certification applies to the entire company, includes all product or service lines and all business areas, and any company is potentially eligible for certification. Once obtained, the certification is valid for two years and is renewable if the company can prove that the standards being measured continue to be guaranteed.

What Advantages Can Companies Secure?

It is common to wonder what the advantages are for a company trying to get a B-Corp certification or transform in Società Benefit (SB). It is important to note that the Italian legislator has not provided any kind of reward, incentive or economic or fiscal advantage for the establishment or the transformation of Società Benefit (SB), making the decision to do so a wholly entrepreneurial choice intended as a social mission.

While government incentives may not be present, there are indirect advantages, which may include:

a) the attention paid by investors to a company that strives to maintain its corporate mission without limits of duration, offering consequently major guarantees for shareholders;

b) attracting long-term capital investments through publicity and transparency on non-financial risks, which are as important as financial risks;

c) being registered as Società Benefit (SB) ensures a greater reputation, as it means to be an active part of a truly motivated group of companies and not driven exclusively by tax benefits;

d) this also implies that in order to manage business risk in the long term, strong governance and an effective management are necessary;

e) the SB brand has a high reputational and reliability value, which when used in the company name, highlights the company’s attention to the community and the environment;

f) consumers and customers are normally more attracted by economic activities focusing on social and environmental issues;

g) the social mission adopted by the company and the principles of transparent, sustainable and responsible management will have effects along the entire value chain;

h) this model generally attracts the best talent searching for an employment, and companies that share environmentally and socially responsible values ​​are preferred;

i) finally, there are reward criteria for access to public tenders such as investments and public funding.

Industry Leaders

In line with the current search for sustainable development and the new trends led by the European Green Deal (at the heart of which is the Farm to Fork Strategy with the purpose to make the food system “fair, healthy and environmentally-friendly”), the most dynamic sectors for this company model, which numbers about 500 Società Benefit (SB), seem to include the food chain. In particular, these companies range from the olive oil producers to manufacturers of traditional cheese and other local specialties, pastries, to beverages, including mineral water and, of course, wine. There are also service and promotion companies supporting the food industry, as well as food delivery businesses and marketplaces that have chosen to go or stay in the market in a responsible and sustainable way, even more today when the attention of consumers is particularly focused on social and environmental issues.

Obviously more economic areas are affected, such as healthcare, marketing and communication services, training and education, machinery, equipment and fashion. As for the latter, while the fashion sector is booming, its impacts on pollution, water use, carbon emissions, human rights, and gender inequality are increasing, making the need for a shift to sustainable fashion stark. Importantly, the UN Sustainable Development Agenda 2030 perfectly matches the motivations behind B-Corp designations, which while they may significantly vary, they are encouraging individual entrepreneurs as well as large groups to obtain the B-Corp certification and to transform in Società Benefit (SB) as the eyes of savvy consumers watch closely what companies say – and what they do.

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