A Framework for Product Impact-Weighted Accounts

George  Serafeim; Katie  Trinh

Working Paper | HBS Working Paper Series | 2020

A Framework for Product Impact-Weighted Accounts

Abstract

While there has been significant progress in the measurement of an organization’s environmental and social impacts from their operations, metrics to evaluate the impact of products once they come to market lag far behind. In this paper we provide a framework for systematic measurement of product impact in monetary terms and delve into the rationale for the framework’s seven elements. We then apply the whole framework to two competitor companies to show the feasibility of measuring product impact and the actionability of the framework. We indicate the value of impact-weighted financial statement analysis with examples of insights enabled by industry-wide product impact measurement. We see our results as a first step, rather than a definitive answer, towards more systematic measurement of product impact in monetary terms that can then be reflected in financial statements with the purpose of creating impact-weighted financial accounts.

Keywords: social impact; product life cycle; environment; sustainability; measurement; metrics; impact investing; ESG; ESG (environmental, social, governance) performance; ESG reporting; Product; Environmental Sustainability; Measurement and Metrics; Framework; Financial Statements;

Language: English

Format: Print

37 pages

SSRN Read Now

Citation:

Serafeim, George, and Katie Trinh. "A Framework for Product Impact-Weighted Accounts." Harvard Business School Working Paper, No. 20-076, January 2020. (Revised July 2020.)

Organizations create significant positive and negative impacts through their employment practices. This paper builds on the substantial body of research regarding job quality and impact measurement to present a framework for monetized analysis of employment impact. We identify and propose a framework for measuring the four most salient dimensions of impact for employees, including wage quality, career advancement, opportunity, and health and wellbeing, as well as two principle impacts, diversity and employment location, for the broader labor community. The framework and methodology for calculating employment impact-weighted accounting figures is applied to several large corporations, resulting in positive impacts that range between 25 and 249% of their EBITDA suggesting significant heterogeneity in employment practices across organizations. These results demonstrate the feasibility of calculating employment impact in monetary terms, and provide a foundation for future application across additional geographies and contexts.

We apply the product impact measurement framework of the Impact-Weighted Accounts Initiative (IWAI) in two competitor companies within the consumer-packaged goods industry. We design a methodology that allows us to calculate monetary impact estimates on customer health, access and affordability of products and recyclability, among other factors. Our results indicate substantial differences in the impact that competitors have through their products. These differences demonstrate how impact measures reflect business strategy choices and informs decision-making on industry-specific areas, including food reformulation and product placement.

Faculty & Research

A Framework for Product Impact-Weighted Accounts

Abstract

Citation:

About the Author

More from the Author