September 1, 2011

California law to let corporations accept duty to benefit environment, society

California lawmakers sent a bill (A.B. 361) to the governor Aug. 29 that would establish a class of corporations with legal commitments to benefit society and the environment.

Backed by dozens of “green” businesses and advocacy groups, A.B. 361 would clear the way for the formation of “benefit corporations” with a fiduciary duty to have a positive effect on society and the environment as well as to produce shareholder value.

If enacted, California would join Maryland, New Jersey, Vermont, Virginia, and Hawaii, which have similar laws. Other states weighing laws to create benefit corporations include Colorado, Michigan, New York, North Carolina, and Pennsylvania.

‘Material Positive Impact' on Environment

Under A.B. 361, businesses that want to incorporate as benefit corporations would have to say in their mission statements that one purpose of the company is to create “a material positive impact on society and the environment.”

A company also would need to identify one or more specific public benefits it aims to pursue, according to the bill. Finally, the measure would require benefit corporations to submit annual reports that evaluate their overall social and environmental performance.

“Socially responsible businesses, investors and consumers all over California are calling for this type of legislation,” Assembly Member Jared Huffman (D), who sponsored A.B. 361, said in a written statement announcing final passage of the bill on Aug. 29.

“[T]his bill sends a message to socially-minded companies and entrepreneurs that California is open for this emerging form of business,” Huffman said.

The State Senate passed the bill on a 23-7 vote Aug. 22, sending it back to the Assembly for approval of minor amendments. In May, the Assembly had voted 58-17 to approve A.B. 361. The state's Assembly Judiciary Committee passed the bill on May 3 (89 DEN A-3, 5/9/11).

Gov. Jerry Brown (D) has yet to indicate whether he would sign the bill.

A similar measure, S.B. 201, is pending in the Assembly. She state legislative analysts have said it would more likely favor larger businesses than A.B. 361. The Corporations Committee of the Business Law Section of the State Bar has said A.B. 361 “would create a framework in which directors are no longer accountable to their shareholders” and would provide no protection for shareholders.

Source: BNA Daily Environment Report

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