Benefit Corporations and other impact-driven corporate entities, such as Delaware Public Benefit Corporations and California Social Purpose Corporations, are proliferating at a healthy pace. More than 30 states have enacted Benefit Corporation statutes and more than 1,000 companies have incorporated as Benefit Corporations or similar entities. With the number of impact-driven companies increasing rapidly, it is only a matter of time before the management of an impact-driven company decides to scale its impact through an initial public offering.
There are not currently any separate or additional SEC disclosure or other requirements applicable solely to benefit corporations or similar impact-driven companies. However, a registration statement must contain all material information necessary for investors to make their investment decision. The SEC has not established a definition of “material”, but the term has been elucidated through informal SEC guidance and federal court decisions. The leading U.S. Supreme Court decisions on the subject established that a fact about an issue is “material” if the fact would alter the total mix of information available to investors or a reasonable investor would consider the information important in making an investment decision.
Because the enabling statutes for impact-driven companies typically require such a company to provide an annual or biennial report describing its impact objectives and assessing its progress in promoting such objectives against internally established or third party standards, it would be prudent for an impact-driven company to include information about its objectives, standards and assessments of its progress during the periods for which financial statements are required (two or three years) in the registration statement and prospectus since the information is likely to be considered material to investors in such a company.
The Sustainability Accounting Standards Board has developed sustainability accounting standards comprising disclosure guidance and accounting standards on sustainability topics for use by US and foreign public companies in their annual filings with the SEC. These standards vary by industry and identify topics that may constitute material information for companies within each industry. Although designed to support the disclosure of financial sustainability information, that is, financial information regarding environmental impacts caused and incurred, by public companies in required annual and periodic filings (on Forms 10-K, 20-F, and 10-Q), these standards could be easily adapted for use in IPO registration statements for companies with sustainability objectives.
The Global Impact Investing Network’s Impact Reporting and Investment Standards (IRIS) provide a significantly broader set of performance measurement metrics across a very broad set of very specific social, environmental and other public benefit objectives. The metrics in the IRIS library could also be used to articulate public benefit objectives and standards for measuring an impact-driven company’s progress in promoting such objectives in a registration statement to give investors a clear understanding of the company’s success in promoting its impact goals. It is possible that the SEC may eventually adopt rules requiring impact-driven companies to state their objectives, standards for measuring progress and self-assessment of success in meeting the stated objectives as part of the disclosure requirements for such companies, although given the breadth and distinctness of possible impact missions it is unlikely the SEC will seek to establish specific standards that must be measured and disclosed.
Benefit Corporations, Public Benefit Corporations and their counterparts in other states reflect investors’ and managements’ increasing appreciation of social impact and other values beyond the maximization of strictly financial stockholder value. As these types of corporations eventually become listed reporting companies, we can expect rule making by the SEC, as well as accounting standards boards, to provide guidance on the kinds of new material information needed for these kinds of corporate entities to fulfill their unique duties.