Reimagining capitalism is an imperative. We need to create a more inclusive and sustainable form of capitalism that works for every person and the planet. Massive environmental damage, growing income and wealth disparity, stress, and depression within developed economies amid a substantial economic boom are examples of how our current system of creating and distributing value is broken. We need to be able to factor into our decision-making the consequences of our actions not only for financial and physical capital but also for human, social and natural capital. In order to provide actionable signals for business leaders, these impacts must be connected to accounting statements. Just as the development of the financial accounting infrastructure has been a necessary condition for the development of large-scale capital markets, the development of impact-weighted financial accounts (“impact-weighted accounts”) is a necessary condition for the development of capital markets driven by sustainability considerations. What are impact-weighted accounts? Impact-weighted accounts are line items on a financial statement, such as an income statement or a balance sheet, which are added to supplement the statement of financial health and performance by reflecting a company’s positive and negative impacts on employees, customers, the environment and the broader society. The aspiration is an integrated view of performance which allows investors and managers to make informed decisions based not only on monetized private gains or losses, but also on the broader impact a company has on society and the environment.

1. Copyright © George Serafeim
Redefining Profit, Value, and Success
George Serafeim
Charles M. Williams Professor of Business Administration

2. Profit
2

3. Success
3

4. Success?
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5. Taxonomy
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Source: Serafeim, Zochowski, Downing.
“Impact-Weighted Financial Accounts: The Missing Piece for an Impact Economy”

6. Possible?
“Most of the things worth doing in the world had been declared
impossible before they were done”
U.S. Supreme Court Justice Louis D. Brandeis (1913)
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7. Where to Start?
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Environment Employees Customers

8. Environmental Impact
Environmental Impact
GHG
Water
NOx
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SOx
VOC
 Capacity
o Working
o Fish Production
o Crop Production
o Meat Production
o Water Production
o Wood Production
 Biodiversity
 Abiotic Resources

9. Food Products and Retailing
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35%
$1,06 Billion
13%
$180 Million
62%
$1,01 Billion
5%
$669 million
7%
$282 Million
5%
$136 Million
9%
$2 Billion
6%
$269 Million
21%
$396 Million
15%
$324 Million
9%
$1,1 Billion
Source: Freiberg, Park, Serafeim, and Zochowski.
“Corporate Environmental Impact: Measurement, Data and Information”

10. Energy and Air Transport
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73%
$15 Billion
44%
$6,3 Billion
33%
$5 Billion
25%
$7,7 Billion
8%
$1,4 Billion
212%
$3,3 Billion
110%
$2,3 Billion
140%
$4,8 Billion
81%
$4,2 Billion
Source: Freiberg, Park, Serafeim, and Zochowski.
“Corporate Environmental Impact: Measurement, Data and Information”

11. Auto Components and Cars
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14%
$401 Million
38%
$114 Million
12%
$457 Million
41%
$417 Million
17%
$758 Million
4%
$956 Million
8%
$440 Million
4%
$281 Million
3%
$87 Million
4%
$396 Million
Source: Freiberg, Park, Serafeim, and Zochowski.
“Corporate Environmental Impact: Measurement, Data and Information”

12. No Profits
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Source: Freiberg, Park, Serafeim, and Zochowski.
“Corporate Environmental Impact: Measurement, Data and Information”

13. Value
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Source: Freiberg, Park, Serafeim, and Zochowski.
“Corporate Environmental Impact: Measurement, Data and Information”

14. Employment Impact
Labor Community
Employees
• Diversity
• Location
• Wage Quality
• Opportunity
• Career Advancement
• Health & Well-being
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15. Employment Impact
Labor Community
Employees
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+69%
+$4,5 billion
+25%
+$7,9 billion
+32%
+$1,9 billion
+180%
+$7 billion
Note: US operations only
Source: Freiberg, Panella, Serafeim and Zochowski.
Accounting for organizational employment impact.

16. Employees
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Wage Quality
Career
Advancement
Opportunity
Health &
Wellbeing
+98%
+$6,5 billion
+32%
+$10,3 billion
+37%
+$2,2 billion
+252%
+$9,8 billion
Note: US operations only
Source: Freiberg, Panella, Serafeim and Zochowski.
Accounting for organizational employment impact.

17. Labor Community
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Diversity
Location -29%
-$1,9 billion
-7%
-$2,4 billion
-4%
-$246 million
-72%
-$2,8 billion
Note: US operations only
Source: Freiberg, Panella, Serafeim and Zochowski.
Accounting for organizational employment impact.

18. Product Impact
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Reach Dimensions of Customer Usage Environmental Use End of Life
Quantity AccessDuration Quality Optionality
Emissions &
efficiency
Recyclability
The
magnitude of
individuals
reached
Length of time
the product
can be used,
particularly for
durables
Accessibility
of product
through
pricing and
efforts to
provide for
the
underserved
Quality of
product through
health, safety,
effectiveness,
and inherent
need or
goodness
Ability to
choose an
alternative
product with
full
information
and free will
Emissions in
the
environment
and efficiency
enabled
through
customer
usage
Projected
product
volume
recycled at
end of
product life
Source: Serafeim and Trinh.
“A Framework for Product Impact-Weighted Accounts”

19. Product Impact
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Quantity and duration
How many products are
sold and what is the
average product life?
Access
Is the product
accessible and
affordable?
Quality
Does the product
work as it should?
Does it pose health
and safety
concerns?
Emissions
What are the
emissions’ impacts
resulting from product
use?
Recyclability
What happens to the
product once it has been
consumed?
2019 Company Product Impact in USD bn
Source: Richmond Global Sciences
-$15
-$10
-$5
$0
$5
$10
$15
Toyota
Volkswagen
Honda
Tesla
Hyundai
Daimler
Ford
GM

20. Product Level
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2019 Product Impact in USD
Tesla Model 3
(Electric)
Toyota Prius
(Hybrid)
Honda Accord
(Petrol)
GM Sierra
(Petrol)
Toyota Yaris
(Petrol)
Source: Richmond Global Sciences
Ford Transit
(Petrol) Mercedes E-Class
(Petrol)
Fiat Chrysler Grand
Cherokee (Petrol)
Honda Ridgeline
(Petrol)

21. Outcome
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Creation of widely adopted financial accounts that reflect a company’s financial, social, &
environmental performance in a way that drives investor and managerial decision making
Intuitive Measurement Unit Comparable & Aggregated Existing Assessment Tools
Translates social & environmental
impact into comparable units
that business managers and investors
intuitively understand.
Can be meaningfully aggregated and
compared without obscuring important
details needed for decision-making.
Displays financial and impact
performance in the same accounts,
allowing for the use of existing
financial and business analysis tools to
assess corporate performance.

22. Perfect vs Progress
“It is better to be roughly right than precisely wrong”
John Maynard Keynes
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23. We Each Have a Role to Play
If you lead a company, measure, improve and communicate your impact-weighted performance
If you are an investor, demand impact transparency from the companies you invest in and use
impact-weighted numbers to assess opportunities and risk
If you are a regulator or government official, mandate the publication of impact-weighted
accounts, and introduce taxes and incentives based on both profit and impact
And since we are all consumers, let’s buy the products of companies that deliver positive impact
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24. Copyright © George Serafeim
THANK YOU
More information: IWAI