Company's real impact and IWAI index

• From Morning Consult, a research about the consumers' perception of what we, in Libenitum, define "Political Branding";
• The publication of the first part of Harvard Business School study about the new Impact-Weighted Accounts Initiative (IWAI).

In 2021 Harvard Business School will publish the final report based on Impact-Weighted Accounts Initiative (IWAI). The first overall index for measuring enterprise real impact.

Ronald Cohen: “The era of impact transparency has begun, and it is moving the goal posts for businesses and investors. Technology and Big Data have combined with longstanding efforts by many individuals and organizations to make the measurement and valuation of corporate impact a reality. With the arrival of impact transparency, impact and profit set the new rules of the game.”

According to the data just published, about the cost of the environmental impact of 1,800 companies (the rest of the research will be published in 2021) seems that the "true profitability" of companies is very different nature than it seems. It becomes apparent that many companies are creating environmental costs that exceed their total profit (EBITDA). Of the 1,694 companies which had positive EBITDA in 2018, 252 firms (15%) would see their profit more than wiped out by the environmental damage they caused, while 543 firms (32%) would see their EBITDA reduced by 25% or more.

Performaces vary a lot among industries and economic segments, in the challenged oil and gas industry, where 75% of companies would see more than a 25% reduction in EBITDA, a few best performers have overtaken their competitors.

On the other side companies generate positive impact, for example Ronald Cohen and George Serafeim highlight that Intel’s employment impact as an example. In 2018, it created approximately $3.6 billion of positive impact in the U.S. through the wages it paid and the jobs it provided in areas of high unemployment. Intel can increase this impact by improving its level of diversity and offering more equal opportunity for racial minorities and women to advance within the company.

Ronald Cohen and George Serafeim: "Impact transparency will have far-reaching consequences. First, instead of taxing all of us to remedy negative impacts such as pollution, pay below the minimum wage, and products that cause obesity and ill health, governments will be able to tax companies directly for the harm they create. They will also be able to provide direct incentives — in the form of reduced taxes, subsidies or preferential procurement — for companies to deliver positive impact through their products, operations and employment practices."

Furthermore the observation of 13,000 companies performed in the analysis shows that a significant correlation between negative environmental impacts and lower stock market valuations in many industries, including chemicals, apparel and construction materials. Such a correlation does not yet appear in other industries such as utilities, hospitality, or industrial conglomerates. But it can be expected to appear once impact transparency enables investors to reliably account for impacts in their valuation analysis. 

Therefore investors will price the environmental and social impacts of companies into their investment analysis. Firms with greater negative impact generate less investor interest, which reduces their stock market valuation and raises their cost of capital. Impact transparency will, therefore, motivate management to improve corporate impact, in order to increase stock market value and, sometimes, their own compensation too.

There is also a customer side: transparency will allow customers and employees to align their purchasing and career choices with their values. “Impact-washing” is currently widespread because relevant impact data is sparse. For instance, all automobile manufacturers claim that their products benefit society more than the products of their competitors. But when we measure all manufacturers’ product impact, according to safety, affordability, customer satisfaction, fuel efficiency, and emissions, we find that only a few companies, such as Tesla, Renault, Hyundai and Nissan, can justifiably make these claims.