Barry Law Environmental and Earth Law Journal

In September of 2022, Yvon Chouinard, the founder of Patagonia, Inc., announced that rather than going public, or selling the company, he would be donating it to the planet. Chouinard cleverly coined in his open letter that with this move, “Earth is now our only shareholder”.[1] The ownership of Patagonia, Inc. will transfer 100% of the company’s voting stock to the Patagonia Purpose Trust and 100% of the nonvoting stock to the Holdfast Collective.[2] Patagonia, Inc. has a value around $3 billion, and with this move close to $100 million annually will likely go to help the environment.[3] 

            While this is arguably the greatest move of this kind to date, this type of environmentally conscious businesses a movement that has been quietly gaining traction for some time. Environmental, social, and governance investing (“ESG”), whereby a set of standards for a company’s behavior is used as a screening procedure for investors. [4]The rise in the late 2000’s of the Public Benefit Corporation (“PBC”), can be seen by the adoption in 37 states, and the District of Columbia. [5] “The PBC entity allows a corporation to codify its public benefit mission in its organizational documents (specifically its certificate of incorporation) and allows the corporation’s board of directors in managing the corporation’s business affairs to shift the corporate mandate toward balancing shareholder interests with the stated public benefit mission.”[6] Within the structure of public benefit corporation, even less are certified “B Corps”, a certification issued by B Lab, a non-profit encouraging this formation, of which Patagonia is one of the less than 6,000 recipients.[6][7] In order to receive the “B Corp” certification the business must meet environmental, social, and governance standards 

            Some public benefit corporations formed around an idea of sustainable development. The United Nations set out Sustainable Development Goals in 2015 as a call to action to better the world. The main goal is to ensure by 2030 that all people enjoy peace and prosperity.[8] One way to do this is to look at a company’s stance on climate policies, energy use, and natural resource conservation. [9]PBC’s have become the go-to vessel for accomplishment of sustainable development with a look toward the future.[10] The UN Conference on Trade and Development has estimated that between $5 trillion and $7 trillion will be needed in annual investment to its goals.[11]While Patagonia’s $100 million annually is but a fraction of this, the trend towards looking at earth as a shareholder is an important step in the process. By moving away from a shareholder financial profit model, and towards a sustainability model where health of the planet is at the forefront, the money needed to accomplish these goals can more easily be raised. 

Of course, with more broad scale adoption of these business vessels new regulations follow. The Securities and Exchange Commission (“SEC”) announced a climate and environmental, social, and corporate governance task force to address the increasing promulgation of corporate entities to “go green”.[12] These new regulatory requirements have prompted more considerations of environmental and climate investment in the investment and disclosure process.[13] A positive side effect of companies looking to trend towards environmental conservation is investors looking at the company’s transition as a factor for investment.[14]This could possibly work to quicken the transition, and embolden more companies to convert to a more environmentally-conscious model by directly tying the level of their efforts to do so to funding.

“ESG investors are also increasingly informing the investment choices of large institutional investors like public pension funds.” [15] It is indeed important to work on the macro-level to effect global sustainability, but arguably one the best ways to do this is starting at the local level. By focusing on a micro-level, and more focused impact goals, businesses can work towards the macro-goals like those established by the UN. One of the unique ways Patagonia differs from other public benefit corporations is their desire to support local, close-to-home movements. Headquartered in Ventura, California, Patagonia supports numerous local sustainability and environmental conservation movements in California. [16] By doing so, it is able to keep up with how the money given to these causes is being impactful, and thus taken to do so at a larger scale.

While business profits and shareholder happiness have loomed large as goals in the 20^th century it is at least encouraging that a more grounded focus on the environment, preservation of the planet, and sustainability for the future are being utilized by companies. It has been posited “[p]erhaps we are at a turning point in the evolution of the business enterprise. A transition point after which the notion that business should only be concerned about wealth creation for its shareholders will seem old fashioned and limiting.” [17] While this is yet to be seen, the idea of businesses being for profit, while also being good stewards to the planet looks to be a good way to move forward. Patagonia’s idea of earth as a shareholder takes the idea of the benefit corporation to the next level, and by doing so, shows the kind of thinking necessary to accomplish sustainability and environmental impact goals to support our planet. 

Written by Matt Smith, Associate Editor 2022-2023