Why net impact?
This page explains why net impact is a relevant and useful measure of the impact of a company.
Introduction
The net impact of a company is the net sum of costs and benefits that the company creates. Costs (i.e. negative impacts) and benefits (i.e. positive impacts) include all types of costs and benefits - including externalities. Since net impact is a measure of costs and benefits, it can also be referred to as the net value creation of a company.
Upright measures net impact in four dimensions: environment, health, society, and knowledge. Examples of costs include e.g. GHG emissions by a car factory, usage of highly-skilled labor by an IT company, and damage to human health caused by sugar-sweetened beverages. Examples of benefits include e.g. improvements in health caused by a cancer medicine, knowledge created by research equipment, and pollution removed by a catalytic converter.
Why measure net impact?
The purpose of the Upright's net impact data is to allow individuals to understand what ends their decisions are actually promoting and to make sure that they are in line with their intention.
The collective use of global resources is determined by everyday decisions of individuals, which are driven by (1) available information and (2) each person’s individual view of value. Such decisions include decisions we make in different roles, such as consumers, investors, employees, voters, politicians, or business leaders.
Examples of choices Upright helps guide include:
An asset manager chooses how much to invest in PepsiCo and how much in Walmart.
A student chooses whether to accept a job offer from Goldman Sachs or General Electric.
A consumer chooses whether to buy regular milk from Nestle or oat drink from Oatly.
A CEO decides whether to recommend product strategy X or product strategy Y to the board.
A minister decides the excise tax rate for petrol products.
Net impact provides clarity to these types of decisions by providing a clear picture of related costs and benefits. This allows decision-makers to avoid gut-feeling decisions in favor of explicit assumptions about costs and benefits.
In order to serve these use-cases, the model must satisfy the following requirements.
Measure net: the model must consider both costs and gains, and provide their net sum. This is a minimum requirement for informing decision-making on resource allocation. (Read more in Weighting of impacts.)
Comprehensiveness: the model must consider all types of costs and gains, not only, e.g., environmental costs or financial gains. This is a minimum requirement for understanding the whole value creation of a company and thus informing decision-making on resource allocation.
Indirect impacts: the model must capture the cost and benefits created in the whole value chain of a company, not just what happens inside the company or how it affects its immediate stakeholders (shareholders, clients, employees).
Comparability: all estimated costs and benefits produced by the model must be comparable. Comparisons must be possible within industries, across industries, and across different types of costs and benefits.
Scalability: the marginal cost of estimating the impact of an additional company should be close to zero, meaning that it should not require any manual work. This is required for large-scale adoption and thus significance of the data.
Adaptable values: The model must not assume universal values, and must instead accommodate for the fact that every individual decision-maker has a different view of value and different optimization criteria when making decisions in different roles.
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