Connection between the B Corp Legal Requirement and the PSG 1 Requirement

This article is not intended to provide legal advice to any specific business. Applicable state, province or national statutes may have specific requirements and features, and thus should be consulted for the proposed jurisdiction of incorporation. Businesses should obtain competent legal and accounting advice before taking any steps to become a benefit corporation or change their organizational documents.

• Legal Requirement: Ensures the company cannot legally neglect one dimension of impact, it needs to consider both society and the environment.

• PSG1 (Purpose & Stakeholder Governance): Recognizes that companies communicate their unique purpose differently. Building on the B Corp Legal Requirement, it ensures that the company can develop meaningful targets relevant to its business to pursue its purpose. Regardless of the company’s public facing purpose, it must still address both social and environmental dimensions of impact through the seven Impact Topics in the B Lab Standards.

• The Legal Requirement and the PSG1 requirement mutually support each other. Where the company has established a specific purpose statement in its corporate charter or other organizational document to fulfill the Legal Requirement, and this purpose statement meets the compliance criteria of PSG1, the company will comply with the PSG1 requirement with one and the same purpose statement.

The B Corp Legal Requirement 

The B Corp Legal Requirement asks companies to adopt “stakeholder governance” specifically, and a broad purpose to create “material positive impact on society and the environment.” This sits alongside modified director obligations, ensuring that the leaders of the business must consider the impact of their actions on all their stakeholders, not just shareholders. 

The intention of these legal changes is to ensure that all decisions at the company, whether it is a decision about taxes, wages, factory location, or another decision, include an analysis of how the decision would impact the company’s stakeholders, and that there is accountability for the act under consideration. This legal obligation is implemented in practice through the seven Impact Topics.

The requirement PSG 1

The requirement PSG 1: The company establishes a public purpose to make a meaningful positive impact. It is the public display of the company’s commitment to creating a positive impact for specific stakeholders. It helps communicate the ways the company uses its business operations and strategies to create a positive impact transparently to the broader public.

While adhering to the B Corp Legal Requirement does not automatically count for fulfilling the PSG1 requirement, companies that have implemented the Legal Requirement may meet PSG1 if their purpose statement fulfills the compliance criteria of PSG1. Especially if their purpose statement is publicly available, the company can demonstrate business relevance, and has related KPIs and targets in the strategy. 

Why does the B Corp Legal Requirement mandate the creation of a material positive impact on society AND the environment, while the PSG1 requirement allows to focus on either the society, the environment or both?

• The Legal Requirement is broad and encompassing because its primary aim is to protect the company's purpose from being challenged by shareholders who might prioritize profits over purpose. It provides a legal shield, ensuring that a company's leadership has the right to consider all stakeholders (workers, community, customers, and the environment) in their decision-making, not just financial shareholders. This requirement avoids “cherry-picking” and “greenwashing”: a company can’t legally commit only to social impact while ignoring environmental harm (or vice versa). The word AND ensures holistic consideration across all stakeholders, which is the key principle for stakeholder governance. This lays the foundation for the implementation of the seven Impact Topics of the new B Lab Standards.

PSG1 deals with a company’s public-facing purpose: articulating its ultimate intended value for specific stakeholders. The intent is to allow companies to publicly communicate a clear, business-relevant purpose that clarifies how their existence generates specific social or environmental value (which may be influenced by their sector, context, or business model).

• Example 1: A microfinance organization might set an ambition to accelerate social inclusion.

• Example 2: A food company might aim to ensure access to nutrition for all.

While this public purpose can be targeted, its implementation is constrained and enforced by two elements:

1. The mandatory, broad scope of the Legal Requirement (which requires consideration of all stakeholders).

2. The rigorous demands of the seven Impact Topics of the B Lab Standards.

This structure ensures that even when a company spotlights one area of impact publicly, it cannot ignore its fundamental social and environmental responsibilities across all stakeholders.

Comparative analysis

1The wording depends on the jurisdiction. See more in the B Lab Legal Requirement Tool.

2 In some states throughout the United States, benefit corporation law already requires or allows companies to adopt a similar purpose statement, which is often called a “specific public benefit purpose.” For example, in Delaware, benefit corporations must balance three sets of interests: stockholder pecuniary interests, the general public interest (i.e., stakeholders or “those materially affected by the corporation’s conduct”), and one or more specified public benefits. Specifically, the statute requires that a public benefit corporation “identify within its statement of business purpose . . . one or more specific public benefits to be promoted by the

corporation.” The definition of public benefit is as follows: 

A positive effect (or reduction of negative effects) on one or more categories of persons, entities, communities or interests (other than stockholders in their capacities as stockholders) including, but not limited to, the effects of an artistic, charitable, cultural, economic, educational, environmental, literary, medical, religious, scientific or technological nature.