b corp – The Green Tau

Green Tau: Issue 89

Profit, cost and loss

10th May 2024

Maximising profits seems to be the name of the game, the chief goal of businesses, educational establishments, public services, governments etc. But what are profits and are they intrinsically good?

What is profit?

A profit is an advantage or benefit, or more specifically a financial gain. The word’s meaning comes from the Latin ‘profectus’ meaning growth, advance, increase, success or progress. From this there comes the idea that to profit is to benefit.

In business terms profit may be understood as:-

Gross profit = revenue from selling a product or service less costs of materials used in producing it.

Operating profit = gross profits less operating costs such as of labour, machinery, depreciation, rent and utilities.

Net profit = operating profit less all other costs such as taxes and interest payments.

Who benefits from the profit?

The business owner who can simply pocket the lot.
The business owner as a return on his/ her investment – possibly a risky investment.
The business if the owner reinvests the profit in the business. Such investment could upgrade the business’s resources, infrastructure, and/or workforce, and so improve productivity.
The shareholders if the profit is shared as a dividend.
The employees if the profit is shared as a bonus.
The country may benefit if tax is paid on the profit.

The company and its shareholders may also benefit in other ways. Increasing profits can increase the value of the company’s shares which benefits the share holders (if they choose to sell) and increase the value of the company. The latter can benefit the company if the owner wished to sell or, conversely, protect the company if the owner wished to avoid being bought out. It can also benefit the company by making it easier for it to obtain finance for its operations. Maintaining and indeed improving profits also safeguards the jobs of the senior members of staff.

But are higher profits always better?

Increased profits may not be better for the consumers who may be contributing to these profits through paying higher prices. Last summer UK supermarkets were accused of ‘greed-flation’ as they reported significant profits whilst food price increases peaked at nearly 20%.

Increased profits may not be better for employees who may face redundancies and pay cuts in order to maintain profits. Labour costs are often the first things a business tries to reduce to improve profitability.

Increased profits may not be better for the environment, if more damaging processes and trading practices are used to reduce costs and increase profits. Some companies transfer operations to other countries where there are lower environmental protection standards – or where there is cheaper labour and/ or lower welfare requirements.

Increased profits may not be better for the environment if they also increase pollution. Increasing oil production leads to more flaring and more oil leaks damaging the environment. Increasing profits through sales of more takeaway meals, increases the use of single use plastic and the pollution it causes.

Increased profits may not be better for the environment if the increase comes from the increased production of a product that is intrinsically damaging – whether that is carbon producing fossil fuels, or muck and methane producing cattle/ chickens etc.

All the above will also have adverse effects on the local community either though increased local unemployment or through increased pollution. Local communities can also be affected if the increase in profits arises from increases in production leading to increases in delivery traffic.

If the increase in profits only, or disproportionately, benefits those on high incomes, that can increase environmental damage as those on high incomes tend to have lifestyles with a higher carbon and environmental footprint. It can increase social inequalities that undermine social cohesion and wellbeing. It can create inequalities in power, resulting in the community/ society/ economy being shaped to suit those with most money – further disadvantaging the low paid and unemployed.

The increase in profits may not benefit the host country if the company can arrange its affairs so that its tax is paid elsewhere – probably at a lower rate.

Do markets prevent excess profits?

According to pure economic theory the movement of the market will prevent excess profits being made. For if a business makes more profits than expected, other companies will enter the market and such competition will continue until profits return to the normal level. In reality markets are not perfect. It can be hard for new or small firms to enter especially of the start up costs are large – eg in the oil industry, in supermarket chains etc.

It maybe that a company holds an effective monopoly – rivals to ‘X’ cannot offer their customers the same audience base. Ditto for an online market trying to compete with Amazon.

Information is not perfect. Many consumers may not know that Starbucks does not pay a fair proportion of taxes in the UK, that Shell is not paying for the safe dismantling of its disused oil pipelines, allowing them to leak toxic chemicals into the North Sea, or that their supermarket chicken has come from a factory farm that is polluting the River Wye. If customers knew these facts would they be as willing for pay for the products that generate profits for multi national companies? Sadly it maybe that many customers have a low income that prevents them making other choices.

Does profit have to be the over riding priority?

No, other business models exist.

Charities and not for profit businesses operate in the basis that the prime objective is to pursue the mission of the organisation, and if profits arise, they are to be used to support that. eg The National Trust, the Big Issue, The Peabody Housing Association.
Social enterprises which aim to promote, encourage, and make social change. Any profits are reinvested in the enterprise. eg Belu who sell bottled water who donate their profit to Water Aid. Clean For Good is a London based cleaning company that promotes fair and ethical employment of cleaning staff; profits are shared between reinvested, cleaning staff and shareholders (charitable bodies such as the Parish of St Andrew’s in the Wardrobe, CMS, and the Centre for Theology & Community.
Cooperatives are companies owned and controlled by its members so as to meet their shared needs. eg Suma is a workers’ cooperative – its business is owned and run by its employees who then share equally in the profits. Energy 4 All helps develop community owned renewable energy projects. Members receive a fair return on their investment from the sale of green electricity but at a level that is capped so that the balance of the profits can support the community fund enabling more such projects.
Mutuals are companies which are owned by their customers, who share in the profits. eg Scottish Friendly which is a finance services provider whose profits are reinvested in the business. NFU Mutual which is an insurance company for the farming industry. It has 900,000 members and any profits made are shared between them.
Impact businesses have two ‘bottom lines’, one being profitably and the other a dedicated issue that could be social, environmental etc. eg Octopus Energy aims both to be profitable and to make the renewable energy transition faster and cheaper for its customers. Hey Girls sells period products using a buy-one-give-one model to end period poverty and improve period health.
B-corps are impact businesses that have been certified by B Lab – a world wide certification body – as meeting specific target levels vis a vis their social impact. eg The Guardian is a B Corp with a commitment to using its profits to support carbon neutral policies, reporting on climate change and, for example, not accepting advertising from fossil fuel extractors. OddBox takes fruit and vegetables that would otherwise go for waste – because they are too many or too few in number, the wrong shape or otherwise unwanted by retailers – and sells them via a veg box scheme.
Credit Unions are community-based financial organisations where profits are used to support local initiatives or are repaid to members. Members may have to qualify by living in a certain area or working within a certain industry or for a specific employer. Members are often encouraged to save money with the Credit Union before applying for a loan.
Community share schemes allow people to invest in a local scheme via ‘withdrawable shares’ – these cannot be sold, traded or transferred, and whilst the share holder may receive interest on their investment, no dividend is paid. All members have an equal vote in shaping the policy of the company. Members can withdraw their share – but only if the company has the funds to buy them back. Community share schemes are used for to support nurseries, pubs, local transport schemes and preserved railways etc.

There are many ways of running businesses that benefit society in ways other than purely financial. These are the truly ‘profitable’ businesses!

Green Tau: issue 87

8th February 2024

What is the purpose of running a business?

A business is an enterprise that sells something it makes or sells a service it provides. It can be a one person operation or a multinational employing thousands.

The business operation will incur costs and will remain viable provided it covers those costs. The business may need capital to get started or to expand it operation, and it may need loans to balance out peaks and troughs in its cash flow. Usually the business will over time earn more from what it sells than its costs and so makes a profit. Such profits are usually kept by the people owning the business. In some cases that might be some or all of the people who work in the business, in some cases it might be both employees and customers (eg a cooperative), and in some cases it might be external shareholders.

The success of a business is usually equated with its ability to make a profit. A successful business makes large profits, less successful businesses make smaller profits, and those that make no profit close down.

But is profit the only way of measuring success? What about customer satisfaction? What about being a good employer? What about the business’s contribution to the stability and wellbeing of the local community?

Thames Water makes high profits and has the worst for receiving complaints from customers. Might a more successful water company be one that best provides what customer need – clean, reliable drinking water?

Amazon is highly profitable company but many of its employees are both poorly paid and subject to stressful working conditions. Employees feel they are being constantly monitored and that even taking time to go to the toilet is counted against them. Might a successful company be one that provides long term secure employment that gives job satisfaction, wages that support comfortable living standards, and credible pension? It could be us or our neighbour or our children who are looking for gainful employment.

Small rural communities – and increasingly deprived urban communities – are finding that they have no local bank, fresh food shops, dental surgery etc as the pressure to maintain profits pushes business to leave an area or to downsize. This is not good for the local community and can become a spiral where the more businesses leave, the more quickly the area becomes depressed and the more other businesses leave. With the businesses go local jobs. The heart of the community is quickly lost. Might a successful business be one that adds vitality to its community, is valued by local people and keeps jobs and money circulating with the community?

Actually in all three of these scenarios one might feel that the customer’s wishes were not be valued by the businesses. What has happened to the understanding that ‘the customer is always right’? How often have you been held on a phone call to have the oft repeated – but barely credible – ‘Your call is important to us’ automatically relayed to you?

It does seem that the idea that the main purpose of a business is to make a profit does not benefit the consumer nor the community. Further what we are now increasingly seeing, is that the primacy of profit is also detrimental to the environment.

In Herefordshire the large number of industrial scale chicken farms has led to high levels of effluent running into the River Wye, polluting it with phosphorus and killing its wildlife.

In Spain strawberry growers have been abstracting so much water for their crops, that the Doñana national park – a renowned wetland area – is being depleted of water threatening the survival of many plants and creatures including flamingos, spoonbills and the glossy ibis.

Globally the burning of fossil fuel products has triggered an escalating climate crisis threatening all forms of life, whilst the fossil fuel companies have continued to make recording breaking profits.

One approach to this problem is to replace the traditional bottom line of ‘loss or profit’ with a ‘triple bottom line’ which measures the business’s impact over three area: economic, environmental and social – or the 3Ps: people, planet and profit. It is however harder to find ways of measuring the loss and profit aspects of people and planet, and of doing so in a way that allows for comparison across businesses. How do we put a price on community stability or clean air?

Suffolk Libraries commissioned a research company to assess the value of their libraries. Using surveys, focus groups and modelling, the researchers found ways of measuring the social impact of the services the libraries offered that translated into monetary values. They concluded that for every £1 spent, the social value gained was £6.07.

The environmental impact of a business might be measured in terms of carbon emissions, or in terms of the cost of making good damage to the environment. If the chicken farms in Herefordshire has to pay the cost of cleaning and revitalising the River Wye, it would make a significant impact on the bottom line of their businesses. In 2021 local MPs wrote to the government asking for £15 million to clean up the river.

One organisation that has developed a way of measuring better business

practices is B Lab. This not-for-profit international organisation has developed a certification system that “measures a company’s entire social and environmental performance. From supply chain and input materials to charitable giving and employee benefits, B Corp Certification verifies that a business is meeting high standards of social and environmental performance, transparency, and accountability.” Successful businesses become certified as B Corps. (For more info – https://bcorporation.uk/)

The campaign for better business practices is ongoing and seeks to include not just those businesses with a conscience, but to extend the expectation of good practice in all the 3Ps, to all businesses. B Lab UK and a coalition of more than 2400 businesses, is campaigning to amend Section 172 of the Companies Act. At present this section directs businesses should prioritise the success – ie the profitability – of the company for the benefit of its members – ie shareholders. The proposed amendment would direct that businesses should prioritise the purposes – ie the social, economic and environmental impacts – of the company. (For more info – https://betterbusinessact.org/ and https://thehumanbusiness.co.uk/better-business-act/)

Change in the way businesses operate is both possible and achievable.

Stuff and sustainability

What does sustainability look like in daily life? I thought I would share my experiences.

Previous pages have looked at the use of heating and energy, food and travel for which it is generally easier to calculate one’s carbon footprint and assess the sustainability of alternative choices. Today I am going to reflect on the none food things I buy such as books, clothes, things for the house and garden. These all have a carbon footprint and have more or less sustainable credentials. Here are some of the ways I try to ensure that I use stuff sustainably.

*Not acquiring things that I don’t actually need. It is surprising how often we are tempted – or encouraged by advertising – to buy things we don’t need. Do I really need it? Do I need to buy it now or could I wait and see if I still need it at a later date? Have I got something similar that will fulfil the same purpose?

* Research – find out what choices are available: which product is most sustainably, how long it will last and, if electrical, its energy efficiency. The internet is useful, as is Ethical Consumer which has both a web site and a magazine. When we needed a new printer, we bought a more expensive Epson model that instead of using disposable cartridges (which hardly last any time at all) has an economical refill system – and 8 months later we have yet to need to refill these.

Buying second hand – or more endearingly, preloved – items allows existing resources to be reused rather than consuming even more fresh resources. I buy clothes and books from charity shops with the plus of funding a worthwhile cause. Sometimes I can also find household items here too – such as a saucepan or a pestle and mortar – but then I do have to be patient as what a charity shop stocks is not predictable! I bought my mobile phone and iPad from Music Magpie – an online second hand site. When I need a particular book I try web sites such as World of Books and Oxfam – I avoid Abe Books and The Book Depositary being subsidiaries of Amazon. If I buy new books, I use our local independent book shop.

* Repairing rather than replacing. When something breaks, see if it can be repaired – either at home or via a specialist. Years ago, I bought a Globe Trotter suitcase because of their reputation for quality. When the handle broke, I was able to take it back and have a new one fitted. I frequently darn socks and T shirts, patch up tears, glue broken items in the kitchen, mend punctured tyres, takes shoes to the cobbler, and buy spare parts from the manufacturer.

Up cycling – sometimes rather than buying, I can make what I need from something I already have. Eg pillow cases from worn sheets, plant pots from have cartons, a seed sprouted from a jam jar and a piece of muslin. Old inner tubes become garden ties, and shoe laces are reused as string. Old trousers become shorts, and trouser legs bags for root vegetables.

Making do with – enjoying! – what I have: I could buy a food processor but instead I use the knife and the ballon whisk I already have. We have an old kettle whose automatic switch no longer works but since the rest functions, we continue to use it.

* Lending and borrowing: do I need to buy something if I am only go to use it occasionally? As well as libraries for books and videos, there are libraries for things. I prefer to rent skis knowing that they are going to be well used, as opposed to buying skis that would become obsolescent before they wore out.

* If I can, I look for options that will make a positive contribution to someone else: eg choosing a fair trade or organic option, supporting a local producer, buying from a B corp.

Packaging – I often make choices dependant on packaging, choosing not to buy something because it comes wrapt in plastic. For example buying a pencil I might choice the pencils sold loose over those pre-packed in plastic.

I prefer to spend money on doing rather than having: going to a cafe for a coffee and a cake rather than buying a magazine, going to the theatre rather than buying clothes, buying membership for a nature reserve (eg The Wetlands Centre) rather than cosmetics.

Fairly traded

24th February 2022

This week is the first half of Fairtrade fortnight when the Fairtrade Foundation draws our attention to the their work in protecting and supporting farmers, farm workers and small businesses in developing countries. For products to gain the Fairtrade mark a thorough investigation of trading practices is made, standards attained and goals established. Products with the Fairtrade mark often command a higher price which consumers are willing to pay knowing that the extra supports the wellbeing of those involved in its production and of the environment.

These principles are clearly ones one would wish to apply in every circumstance. As consumers we can make the effort to find out about workers pay and conditions, the effects of production on the environment, of safe guards and sustainable practices, company practices, shareholder remuneration and the payment of taxes. It is not just in developing companies that one should desire fair trade practices, but here in the UK too. Being better informed we can chose to support those companies which trade fairly. The following groups/ foundations etc offer standards and identifying logos that help inform us as consumers.

Fairtrade is a system of certification that aims to ensure a set of standards are met in the production and supply of a product or ingredient. For farmers and workers, Fairtrade means workers’ rights, safer working conditions and fairer pay. For shoppers it means high quality, ethically produced products. Choosing Fairtrade means standing with farmers for fairness and equality, against some of the biggest challenges the world faces. It means farmers creating change, from investing in climate friendly farming techniques to developing women in leadership. With Fairtrade you change the world a little bit every day. Through simple shopping choices you are showing businesses and governments that you believe in fair and just trade. https://www.fairtrade.org.uk/what-is-fairtrade/

The Rainforest Alliance is a global leader in sustainability certification. Farms, forest communities, and businesses that participate in our certification program are audited against rigorous sustainability standards based on the triple bottom line: environmental, economic, and social well-being. More than two million farmers follow our agriculture standards in 70 countries around the globe. Our programs focus on coffee, cocoa, tea, bananas, and many other important commodity sectors facing urgent environmental and social challenges. https://www.rainforest-alliance.org/approach/

The Living Wage Foundation is at the heart of the independent movement of businesses and people that campaign for the idea that a hard day’s work deserves a fair day’s pay. They celebrate and recognise the leadership of responsible employers who choose to go further and pay a real Living Wage based on the cost of living, not just the government minimum. They coordinate the announcement of the real Living Wage rates each November, based on the best available evidence about living standards in London and the UK. We also provide advice and support to employers and service providers implementing the independently-calculated Living Wage rates. This includes best practice guides, case studies from leading employers, model procurement frameworks and access to specialist legal and HR advice. They offer accreditation to employers that pay the independently-calculated Living Wage rates to all staff in London and the UK, or those committed to an agreed timetable of implementation, by awarding the Living Wage Employer Mark. https://www.livingwage.org.uk/living-wage-foundation

The Fair Tax Foundation was launched in 2014 and operates as a not-for-profit social enterprise. Our Fair Tax Mark accreditation scheme seeks to encourage and recognise businesses that pay the right amount of corporation tax at the right time and in the right place. We believe companies paying tax responsibly and transparently should be celebrated, and any race to the bottom resisted. Tax contributions are a key part of the positive social and economic impact made by business. The growth of tax havens and unethical corporate tax conduct have become prominent concerns across the world. Aggressive tax avoidance negatively distorts national economies and undermines the ability of responsible business to compete fairly, both domestically and internationally. https://fairtaxmark.net/

Certified B Corporations, or B Corps, are companies verified by B Lab to meet high standards of social and environmental performance, transparency and accountability.B Lab is the non-profit network transforming the global economy to benefit all people, communities and the planet. It was created in 2006 with the mission to inspire and enable people to use business as a force for good. There are B Labs across the globe (forming the B Global Network) including Australia, East Africa, mainland Europe and North and South America. B Lab UK is a charity that launched in 2015. As part of this international network, B Lab UK leads economic systems change to support our collective vision of an inclusive, equitable and regenerative economy. Our purpose is to redefine success in business through building a community of engaged businesses, raising awareness of the B Corp Movement and influencing change in the UK economy. Together, we are shifting our global economy from a system that profits few to one that benefits all: advancing a new model that moves from concentrating wealth and power to ensuring equity, from extraction to generation, and from prioritising individualism to embracing interdependence. https://bcorporation.uk/about-b-lab-uk/

The Soil Association is the charity that digs deeper to transform the way we eat, farm and care for our natural world.Why do we do this? Because we want to live in a world which is in balance with nature. In a future with good health and a safe climate. For the last 75 years, we’ve worked with citizens, farmers, policy makers and businesses, supporting them to explore the vital relationship between the health of soil, plants, animals and people. Because the only way to solve the issues we face is to understand that they are all connected – and that food, farming and forestry are a vital part of the solution. Any product sold as ‘organic’ in the UK has to comply with organic regulation requirements written into a set of Standards. The Soil Association acts as a certification body and its symbol is a recognised and trusted international mark of organic certification internationally. https://www.soilassociation.org/who-we-are/

The Marine Stewardship Council (MSC) is an international non-profit organisation on a mission to stop overfishing. For over 20 years, they have been working with fisheries, seafood companies and scientists to help protect the oceans around us, and safeguard seafood supplies. The blue MSC ecolabel is the world’s most recognised label for sustainable seafood. It is found on retail products and in restaurants identifying fish and seafood that has been wild-caught in a sustainable way and is fully traceable. The blue MSC ecolabel is only awarded to well-managed fisheries that meet the MSC’s independently verified standards for sustainable seafood production. https://www.msc.org/

The Forestry Stewardship Council, the original pioneers of forest certification, has 25 years of experience in sustainable forest management. They use their expertise to promote the responsible management of the world’s forests, bringing together experts from the environmental, economic and social spheres. 12 Irreplaceable Forest Products in Our Daily Lives: paper, toilet paper, books, cardboard, paper packaging, wood, furniture, musical instruments, charcoal, rubber products such as condoms, balls, tires, fruits and berries, and medicines – A lot of medicines have important ingredients that come from the rainforest. While there are not any FSC-certified medicines (yet!), the standards set by FSC for responsible forest management protect the forests where these ingredients come from, thus ensuring that we will have access to them for future generations. Next time you add them to your shopping bag, make sure they are sourced sustainably by looking for the FSC logo. https://fsc.org/en

In 2008 The Round Table on Sustainable Palm Oil developed a set of environmental and social criteria which companies must comply with in order to produce Certified Sustainable Palm Oil (CSPO) in response to the ever-urgent need and growing global concern that commodities are produced without causing harm to the environment or society. Sustainable palm oil is responsive to increasing global food demand, supports affordable food prices, supports poverty reduction, safeguards social interests, communities and workers, and protects the environment. All organisations in the supply chain that use RSPO certified sustainable oil products are audited to prevent overselling and mixing palm oil with conventional (or non-sustainable) oil palm products. https://www.rspo.org/certification