What can we learn from research into the investors in mission-led businesses, social enterprises and B-Corps?
Over the past few years, there has been a notable surge in the number of mission-led companies and social enterprises across the world. These businesses are characterized by their commitment to making a positive impact on society and the environment, alongside generating profits. This trend reflects a growing recognition among consumers, suppliers, managers, entrepreneurs and investors of the importance of social responsibility in business operations. Mission-led companies and social enterprises address pressing social and environmental issues while meeting consumer demand for ethically sourced products and services.
The rise of mission-led companies represents a shift towards more sustainable and inclusive capitalism, with businesses voluntarily adhering to high standards of social and environmental performance, transparency and accountability. As such, it raises interesting and important questions about how these firms are financed. Who is investing in mission companies, and have we witnessed a shift among shareholders?
What are their practices? And what is their ownership structure?
Who are the shareholders?
To answer these questions, we carried out a survey of 102 companies based in France who had adopted the legal status for corporate purpose bylaws (société à mission) between 2019 and 2021. We observed the shareholder base for these companies, and tracked its evolution between 2014 and 2021. The société à mission legal status is broadly similar to that of a B-Corps, or the Community Interest Company in the UK, and Societe Benefita in Italy.
The initial results of the study show that employee shareholding continues to increase both before and after the adoption of mission company status. We also noted that these companies tend to have a stable and concentrated shareholder base, which increased after the adoption of mission company status. This confirms that for companies to be able to sustain their mission, it is necessary to build a sustainable shareholder base. To this end, it is necessary to increase employee shareholding for two main reasons. First, to align the interests of employees with those of financiers: by having employees share the financial risk, dialoguing with them during shareholders’ meetings, and by sharing the profit. Second, it strengthens employees’ sense-making, by committing them in a normative way to the company’s mission.
The results reinforce the idea that, to build sustainability-focused business models, it is necessary to build a shareholder base that is engaged for the long term.
Who are the investors?
To answer this second question, we surveyed private equity investors and institutional investors: 15 investment and asset management companies that had adopted the legal status for corporate purpose bylaws, including six ‘impact native’ management companies (that is, companies that already had impact funds before the statute was adopted), five asset management companies, two banks, and two funding platforms.
We found a variety of profiles among these investors, who presented themselves as either ethical investors, citizen investors, responsible investors, engaged investors (i.e. active in managing their investment funds), or impact investors. We also found that investors with a mission (set out in the company’s raison d’être and statutory environmental and social objectives) adopt a more comprehensive and engaged approach to addressing the challenge of aligning with stakeholders’ expectations. Several key characteristics were identified.
Employees and managers collaborate in defining and implementing the mission, ensuring a cohesive approach. The company’s commitments are articulated and understood through a focus on active learning. The implementation of organizational due diligence throughout the investment chain, and the disclosure of the mission, drive increased standards for compliance, corporate social responsibility, and adherence to established norms.
In addition, mission companies are developing incentive systems for organizational and systemic impact, involving all teams in the pursuit of their goals. One specific incentive is carried interest, where the capital gains earned by investment fund managers are tied to impact indicators, incentivizing them to prioritize socially responsible investments.
We noted that mission companies create a framework that involves all employees and executives in defining the company’s purpose and its environmental, social, and economic goals. This purpose guides actions beyond corporate social responsibility, by focusing on impact. The framework includes indicators of net negative externalities and engages stakeholders through mechanisms like the mission committee – a feature of the French société à mission company form, distinct from the board of directors, which comprises external experts and at least one employee. Incentive systems linked to impact indicators help redistribute profits, both internally (through carried interest) and externally, including via endowment funds.
Value distribution and employee shareholding
One of the most important features of mission companies is the way they are developing new ways of distributing the value they create, sharing the benefits more widely than typical enterprises. Some profits are distributed between different stakeholders, such as associations, via foundations or endowment funds. For instance, at insurance group Maif, a value-sharing system means that 10% of annual profits are distributed to climate solidarity and biodiversity regeneration projects – such as sustainable forest management, wetland rehabilitation and watercourse restoration – that help local authorities strengthen their resilience in the face of climate change. The cooperative banking group Crédit Mutuel allocates 15% of its annual profits to various projects, with half of this social dividend going into its Environmental and Solidarity Revolution fund, which prioritizes investments that are environmentally resilient and socially supportive. This fund, which has no financial profitability objective, aims primarily to transform production models.
The growth of employee shareholding, both among these mission-driven investors and in the companies they finance, is a significant trend. The engagement of internal teams translates into commitment for companies as they transform their business models to be more sustainable.
A transformation in investment
Our studies reveal a transformation in the investment profession and its relationship with mission-led companies – one that is being accompanied by a reconfiguration of shareholder structures and the increasing involvement of employees in company governance. These shifts are creating a strong foundation for mission-led companies to play an increasing role in the economy, helping to tackle the profound challenges facing the world today.
Carine Girard-Guerraud is professor of corporate finance and governance in the finance department at Audencia
Research presented in this article was part-funded by the Agence Nationale de la Recherche, grant ANR-21-CE26-0024