Chapter 3The Big 500

Chapter 3.1

World’s 500 largest companies ranked by net impact: 5 key takeaways

The largest companies in the world are often ranked based on market value, growth, profit and a myriad of other financial metrics. But what about net impact?

We ran the Fortune Global 500 list through the Upright net impact model. Here are five things we learned:



Takeaway 1: Newcomers perform better than droppers also in net impact

A comparison between the Fortune 500 rankings of 2020 and 2019 reveals an interesting trend: newcomers on the latest list rank higher in net impact than companies that have dropped in rank since the previous year. As can be seen in Figure 3.1, companies whose position on the list has dropped since a year before seem to be strongly net negative especially due to their environmental impacts.

Fortune Global 500 - newcomers: -4%

Fortune Global 500 - dropped in rank: -47%

Figure 3.1.

The net impact of Fortune Global 500 newcomers compared to companies that have dropped in their rank on the list.

Overall, within all Fortune Global 500 companies there is a slight, but statistically significant, positive correlation between net impact and net profit (Figure 3.2.). Chapter 6 discusses this in more detail.

Europe
North America
Africa
Asia
Other
Figure 3.2. The net impact ratio of Fortune Global 500 companies in relation to their net profit ratio (source: fortune.com).

Takeaway 2: Creating a lot of emissions does not automatically make you bad

The current impact discourse is mainly focused on measuring the negative impacts of companies. As a consequence, companies operating in e.g. transportation are easily seen as the bad guys when it comes to environmental impacts.

This way of thinking can lead to sub-optimization if lacking understanding of what outcomes the resources are used to create. All in all, it’s about what you get done with the resources you use, not just the resources employed.

The Fortune Global 500 list includes many companies which upon first look may seem weighed down by large emissions but are actually net positive. A good example is Deutsche Bahn. The railway company uses a significant amount of resources for constructing, maintaining and operating its rail transport network. On the other hand, the company uses these resources to provide humanity with transport networks to move humans and cargo.

If we fail to measure and understand the positive value Deutsche Bahn creates in its provision of societal infrastructure, i.e. the basic infrastructure our society needs to operate, it is impossible to make any rational judgements about the total impact of Deutsche Bahn. Despite the negative environmental impacts, Deutsche Bahn’s impact is net positive.

Figure 3.3.

The net impact of Deutsche Bahn: Despite transportation being energy-intensive, the societal gain of enabling people and cargo to move in a relatively low-emission way pushes the value creation profile to net positive.

Takeaway 3: Keeping your own backyard clean is no longer enough - value chains matter

The Fortune Global 500 data shows how value chains affect the overall impact of a company, in both good and bad.

As an example, a consulting company, with very minimal impacts from its direct operations, can create significant negative or positive effects through services the company enables. On the contrary, a company operating in the energy-intensive forest industry producing paper typically suffers from large negative effects from its internal operations. However, by measuring where the paper material is actually used - e.g. for primary school textbooks or tobacco packaging - the total net impact of the paper company can change quite radically.

In Figure 3.4, technology company Apple’s net impact profile demonstrates how value chains affect the overall impact of a company. In addition to Apple’s quite minimal internal impacts, it is important to recognize the negative environmental and health effects that occur during the electronics production processes and raw material sourcing. Downstream, when its products are used by the end customer, Apple’s products enable distribution and creation of knowledge.

Figure 3.4.

Net impact profile of Apple: only by looking at the whole value chain of a company, including its downstream - i.e. where its products and services are used -, the overall impact of a company can be understood.

Takeaway 4: Industry does not dictate impact

Health and IT companies are always nice, and mining can’t be good, right? Wrong. The Fortune Global 500 data shows that two companies operating in the same industry can have very different net impact profiles, depending on what they actually do: for instance, companies operating in the energy sector scoring all the way from +70% to -253%. Manufacturing conglomerate 3M (Figure 3.5) provides a good example. Even though the manufacturing industry is not stereotypically seen as an “industry with a positive impact”, 3M’s products, such as industrial adhesives, traffic signs and protective clothing, create significant positive health values when used, compensating for the material use and other environmental burdens.

Figure 3.5.

Net impact profile of the manufacturing conglomerate 3M: not all manufacturing is bad, if the end product’s use brings gains larger than the environmental tolls taken by the production.

On the other hand, being in the sports industry does not automatically make you positive: the environmental burden of sports gear company Adidas (Figure 3.6) don’t get compensated by the added runs a few might take inspired by a new pair of sneakers.

Figure 3.6.

Net impact profile of the sportswear manufacturer Adidas: operating in the sports industry does not automatically lead to a net positive impact profile.

Instead of its industry, the net impact of a company is driven by its core business: the products and services it provides, and their ultimate use cases. Changes in strategy change net impact, too.



Takeaway 5: Global ESG leaders are not always net positive

Companies that are generally known to be the ESG leaders in their field are not always - or even in most of the cases - net positive. This point was discovered when measuring the performance of a subgroup including only Fortune Global 500 companies that have been recognized as Carbon Disclosure Project (CDP) climate change leaders (score A in CDP’s climate change ranking, source: cdp.net).

According to CDP “A high CDP score is usually indicative of a company's high environmental awareness, advanced sustainability governance and leadership to address climate change”. As can be seen in Figure 3.7, the total net impact of the CDP leaders group lands close to zero. Almost half of the companies are on the net negative side.

Why? When it comes to environmental performance, CDP leaders seem to create only little positive impacts within the GHG and non-GHG emissions impact categories. In the Upright’s net impact model, positive contribution to the environment means actual reduction of emissions by actively removing emissions from the atmosphere or providing low-emission alternatives to most commonly used products. One reason for the result might be that CDP still focuses mostly on governance and transparency, and not so much on changes in the companies’ actual product offering and core business.

Figure 3.7.

The aggregate net impact of “CDP climate change leaders” in the Fortune Global 500 list.

Interested and want to explore more? See and download the whole dataset!