Legal Protections and Incentives for Sustainable Businesses

May 8, 2010
Client Alert Newsletter May 2010

In response to increasing corporate interest in sustainability and social responsibility, "Benefit Corporation" legislation enacted in Maryland on April 13 creates a new class of corporations that must generate social or environmental benefits in addition to profits. Similar legislation has been proposed and is being considered in Vermont. Benefit Corporation measures are also under consideration in other states, and momentum is reportedly building for introduction of a similar measure in the Pennsylvania General Assembly.

Under the enacted Maryland legislation, Benefit Corporations are obligated to consider environmental, community, or employee interests in making business decisions in addition to shareholder financial interests. Benefit Corporations thus have increased protection from shareholder lawsuits for business decisions that favor sustainability principles over profits. Benefit Corporation charters must define their corporate values and annual reports prepared by Benefit Corporations must comply with recognized third-party sustainability standards including, for example, the Global Reporting Initiative.

Although Pennsylvania has yet to propose Benefit Corporation legislation, businesses in Philadelphia that are certified as sustainable businesses by the City's Office of Sustainability are now eligible for the country's first financial incentive for sustainable businesses. The Sustainable Business Tax Credit provides eligible businesses with a tax credit of $4,000 to be used against the gross receipts portion of the City's Business Privilege Tax. The tax credit is in effect for tax years 2012 through 2017, after which it will be reviewed for possible extension.