What If Companies Had To Pick Up The Tab For How Their Products Affect Consumer Health?

The IWAI Product Impact Data Release (2021)

Dataset Parameters:

Key Findings:

SDG Linkage (Our Opinion)

We think that product impact accounting honors the intent of the following UN SDGs.
Please note: this is our perspective and not that of the data authors.

Overall Product Impact: Highest & Lowest

Product ‘Impact’ Accounting: What’s The Big Idea?

Imagine, for a moment, a world in which companies had to “pay” for the effects that their products had on the health of their consumers.

You could say that it’s a pretty far-reaching idea. A radical proposal, even.

It might get you thinking:

Is it fair that confectionery manufacturers are allowed to turn large profits if their products are demonstrably proven to contribute to the incidence of diabetes (a public health burden which we all ultimately bear in the form of taxation?)

If regulators were to introduce such monetisation in the form of financial regulation, would it be fitting for them to do so or would this represent the encroach of government into moralistic concerns properly in the private domain? The debate might quickly take a philosophising spin.

Your first question might be “how would this be possible?” Another might be “interesting idea, but what would that achieve?” We’ll touch on both in this blog post.

The Missing $185M: What Impact Accounting Reckons Normative Accounting Is Missing In Uncaptured Product ‘Impacts’

Firstly, a metric from the data that I think is probably its most remarkable finding: the average total monetised product impact (calculated across all industries) exceeded (in the negative) $184M.

In other words: The data from IWAI reckons that if your average publicly listed American company had to foot the actual bill for its “impacts” on consumers (at least as they choose to define and view them at the time of publication) its actual financial performance would be degraded to the tune of $185M (rounding to the nearest integer). Comparing the monetised impact data with the EBIDTA figure, you can even simulate what such effects on the bottom line would look like.

In some cases, the changes are extremely dramatic. Take Nestle which was estimated by IWAI to have the lowest net monetised impact performance in a single year of any of the companies considered (specifically in 2018 when the research group pegged its figure to be almost $20BN in the red). Imputing the data, its profitability would be slashed from billions to a (mere) $71M.

As is evident, the dataset is not new. In fact, IWAI itself has since spun out to an organisation called the International Foundation for Valuing Impacts (IFVI).

International Foundation for Valuing Impacts (IFVI)

We’re building and scaling the practice of impact accounting to promote decision-making based on risk, return, and impact.

Attempts to quantify product impacts remain ongoing, however. So while the methodology and research group may no longer be active, attempts to continue calculating product impacts are very much ongoing.

(The methodology papers used in the original IWAI estimates are freely accessible online such as this one describing the calculation method used for CPG product impact).

How Would Product Impact Accounting Quantify Product “Impacts” Exactly?

The IWAI product impact dataset broke impacts down according to an eight fold schema which was designed to quantify products’ sometimes far-reaching “impacts. The total monetised product impact is the product of these various individual impacts (which in some instances are null). These were:

Some of these are self-explanatory while others provoke thought.

For instance: The monopoly and addiction metric is designed to provide an offset for companies selling goods to addicted customers (consider the case of an alcoholic beverages manufacturer. At least some of its customers are likely to be physiologically addicted to the product. If some of those “sales” were made out of the need to service an addiction rather than true volition, is it reasonable that they should be accounted as such?).

Basic need attempts to pin down to what extent products are being consumed because they’re a human necessity (for example, drinking water). And health and safety looks at factors such as safety breaches.

Were Some Industries More (And Less) “Impactful”?

Industries with average net positive (and negative) average monetised impacts

Another interesting metric to look at is the average monetised product impact by industry.

This is relatively easy to calculate given that there are only 5 industries in the dataset (airlines, automobiles, CPG, finance, water utilities).

Doing so reveals the following findings:

• The most negatively impactful industry (by far) was consumer packaged goods (CPG) – likely due to the fact that sample included several companies which produce confectionery products
• The finance sector had the most positive impact, on average. While this finding might seem a little against the grain, bear in mind that the methodology accounts for activities such as microfinance initiatives that may be demonstrated to have high (positive) impact.

Highest And Lowest Overall Values

The research also shared some very outsized figures:

The lowest overall product impact was calculated for Nestle in 2018 ($-19.875 BN) and the highest positive impact was calculated in respect of Discover ($4.34 BN).

If the total product impact were simple added onto EBITDA, the results would be as follows:

For Discover (credit cards, banking loans) which had the highest net positive value for product impact in any one year:

Variable	Value
EBITDA	$3.12 BN
Total Product Impact (IWAI Calc)	$4.34 BN
EBITDA + Total Product Impact	$7.46 BN

Variable	Value
EBITDA	$19,946,100,000 ($19.95 BN)
Total Product Impact (IWAI Calc)	($19,875,238,498) ($-19.86 BN)
EBITDA + Total Product Impact	$70,861,502 ($70.86 M)

Of the two, the Nestle (NESN: SIX) figure is much more interesting:

Its calculated product impact (above) is almost a perfect mirror image of its posted EBITDA for the 2018 financial year (99.65%).

According to the IWAI calculations, if its total monetised product impact were considered against its EBITDA for the 2018 financial year, its EBITDA of $19.95BN would be whittled all the way down to $70.86M (million).

While not everybody will agree with the methodologies used (including, most probably, Nestle) they ask difficult worthwhile questions about what kind of ‘impact’ conventional accounting methods (which consider nutritional effects as ‘externalities) are leaving unexamined.