Companies have always caused “externalities” — benefits for society for which they are not fully compensated and costs on society which they don’t have to fully pay for. A major change in global business in recent years is that these externalities are becoming increasingly rare — what was once extraneous to a business is increasingly affecting corporate revenues, costs, and risk profiles. This is a positive development, as society holds business to account. A major outstanding hurdle to this “internalization,” however, is the lack of a full accounting method to understand and quantify companies’ impacts on society. The good news is that accounting for impact took a big step forward in July 2020 with the 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 each of the 1800 companies create. The authors claim the initiative will have far-reaching consequences. It will allow for more effective taxation, more accurate pricing by capital markets, and for customers to more easily shop ethically. The authors argue that impact transparency will reshape capitalism.
Authors: George Serafeim, Ronald Cohen
Source: Harvard Business Review
Subjects: Economics, Social Responsibility