How to Measure a Company’s Real Impact
In recent years, most major international airlines have reported healthy profitability. But our calculations show this to be a mirage. In the case of Lufthansa and American Airlines, for example, accounting for their environmental costs of $2.3 and $4.8 billion respectively would make both companies unprofitable.
What explains this discrepancy? To date, there has been no way for companies to account for their benefits and costs to society and the environment. We have been working to change that.
Accounting for impact took a major step forward in July with our publication of the cost of the environmental impact of 1,800 companies by the Impact-Weighted Accounts Initiative (IWAI) at Harvard Business School. Next year, the IWAI will publish the cost of product and employment impacts too, providing a complete picture of the impact companies create.
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.
Analyzing the IWAI’s extensive dataset for 2018 through an impact lens brings a new perspective on the true profitability of companies. 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.