Apple has one retained positive impact linked to the SDG 10 – representing 2.77% of its activities (it supports diverse entrepreneurs through the implementation of a supplier diversity program) and five positive impacts that have been labeled “considered” only.

Alphabet has two retained positive impacts: the first one is linked to the SDG 8 and represents 0.29% of the company’s activities (it supports emerging technology businesses through investments in Google’s portfolio, along Google for Startups Accelerator: Climate Change). The second one is linked to the SDG 10 and represents 0.9% of Alphabet’s activities (it supports Black entrepreneurs in the U.S through the implementation of a supplier diversity program). 

As mentioned earlier, according to impak’s methodology, due to the large number of negative impacts rated “Z” for both Apple and Alphabet (mostly related to material and severe controversies, see the Negative impact and controversies section) 100% of the points attributed to each company for its positive impact score were deducted, and, as such, the final positive score for each company is 0.

This decision may appear extreme for some, but the reality is that the positive impact scoreTM has to be impacted by what is going on in the negative impact section. Taking this example to the extreme, imagine a green energy producer using modern slavery to produce its energy. Showing an unimpacted positive impact score could mislead an investor into believing that XYZ company is a force for good, but such a company could not possibly be rated “B” (benefit stakeholders) or “C” (contribute to solutions) if it does not properly mitigate all its negative impacts. Here, the depth of information provided by our impact statements is key for both investors and issuers to acknowledge and address negative impacts and controversies.

Finally, Microsoft has five positive impacts that have been considered but none that were retained because, in each case, one of the five criteria was not met. 

The key word here is “retained”. Apple, Alphabet, and Microsoft all appear to have numerous activities with positive outcomes. To name just a few: Apple offers solutions for digital health through the use of ICT, such as the Apple Watch, and supports educational initiatives to expand learning opportunities in communities that are historically underrepresented or under-resourced in technology. Microsoft provides free-of-charge tools for organizations to identify and quantify water-related risks and reduce water usage, and implements an AI program for disaster recovery efforts. Alphabet helps to increase the employability of underserved populations by providing training and internship programs in the ICT field, and develops a commercial app for sustainable commodity sourcing. This seems positive, but what is the actual scope covered by these initiatives? 

All these activities are “considered” in the impact analysis, but not “retained”. Why? Because the ultimate criterion to retain a positive impact is that the activity must reach the financial materiality threshold (step 5 in the infographic), i.e the percentage that this activity represents in the whole company. The threshold is >0.01% of the company’s activities.

Green Bonds, Sustainable Bonds and Climate Funds

It would be remiss of us to talk about positive and negative impacts without mentioning green and sustainable bonds. At the end of Q3 2022, USD3.5 trn have been issued in “sustainable bond labels”. Like many large cap companies, Apple and Alphabet have decided to join the party and have issued green/sustainable bonds. But what is the real impact of these bonds?

Since Apple’s first green bond issuance in February 2016, the company has issued $4.7 billion, with $3 billion green bonds allocated to this day. Although it does not provide the entire breakdown of its allocation, its 2021 Green Bond Impact Report shows that the bonds mostly support Apple’s own mitigation activities.

For its part, Alphabet issued “$5.75 billion in sustainability bonds […] the largest [sustainable] bond issuance by any company in history at the time [2020],” with full allocation occurring in 2022. In its 2022 Sustainability Bond Impact Report, the company clearly outlines the allocation of funds, showing that 90% finances Alphabet’s own mitigation activities and projects (i.e preventing food waste in campus cafeteria, achieving LEED certification for office buildings, developing energy efficiency projects for Alphabet’s data center campuses, etc.). It is understood that less than 9% of the allocation can be attributed to positive impacts (i.e. affordable housing, loans to Black-owned SMEs and loans to SMEs in response to COVID-19). 

Compared to Apple and Alphabet, Microsoft is a breath of fresh air, with its USD1 billion Climate Innovation Fund, which has the potential to have a positive impact. The fund focuses on funding emerging climate technology solutions that (i) have early commercial traction and need capital to scale-up, or (ii) need financial support to bring existing climate solutions to scale. 

So why did impak consider Apple and Alphabet’s bonds and Microsoft’s fund as potential positive impacts rather than an actual one? It is often difficult to distinguish a clear contribution to a positive impact from the mitigation of a negative impact. As such, the quantitative information was not sufficient enough to assert that these positive impacts have reached our financial materiality threshold of 0.01%. Therefore, in order to provide an accurate impact assessment of a company, activities must be labeled as they are, in this case, potential positive impacts. For the moment, Apple and Alphabet’s green bonds mostly cover the implementation of their mitigation activities, which tells more about their risk management strategies, than their actions to create positive impact.

Conclusion

The world of extra-financial reporting and ratings is a wild one. Financial market participants are getting more sophisticated everyday and regulations are slowly but surely building a framework to work with. Looking at Apple, Alphabet and Microsoft through the lens of the impact analysis – which includes the double materiality approach and the analysis of both the positive and negative E, S and G impacts – they fail to demonstrate that they are agents of change… just yet. With a respective impact Score™ of 106, 165 and 173 out of 1,000 points, they are very far from their top ESG ratings.

We are at a pivotal moment for the E, S and G assessment and as shown, the market has all the tools, theories and data to prevent further misleading ESG ratings regarding large cap companies – the most damaging ones in terms of ineffective sustainable investing.

With the global triple crisis, economic, sanitary, and environmental, that we are currently living in, an economic paradigm shift is inevitably underway. In the United States alone, Treasury Secretary Janet Yellen highlighted a five-fold increase in annual billion-dollar disasters in the last five years. 

It is only with the right regulations, tools, and data that financial market participants will be able to benefit from long-term investments while contributing to a positive impact economy, one that re-establishes the lost, but fundamental, link between the well-being of living beings and the economy. 

Behind an impact assessment and scoring system

An impact assessment is complex and the industry standards which only look at outcome indicators are simply insufficient, as part of this complexity is lost. With this in mind, impak Analytics has developed the impak iS2 methodology and impak Score™.  Ratings such as the impak Score™ can embrace that complexity, providing a holistic tool backed by a human eye to track the evolution of impact through time and, most importantly, benchmark investments.

impak’s methodology allows us to have a 360-degree view of the positive and negative social and environmental, negative and positive impacts of organizations of any size and in any sector (unlike ESG analysis which focuses on negative impacts alone) thus enabling efficient comparison and transparency. This methodology results in two components: the impak Score™, described below, and the impact statement, a complementary and detailed qualitative assessment of the company’s impact, all in alignment with the UN’s 17 Sustainable Development Goals (SDGs) and based on the Impact Management Project (now IMP norms, hosted by Impact Frontiers). This comprehensive information allows investors to understand and benchmark their performance, enabling quicker data-driven decision-making, based on the social and/or environmental impacts of companies and portfolios.

As mentioned above, the methodology is based on the IMP norms, most notably on the IMP criteria. The iS2 methodology uses 16 criteria divided into five categories drawn from the IMP’s impact dimensions, which go as follows:

The WHAT or impact type: What outcome(s) do business activities drive? How important are these outcomes to the people (or planet) experiencing them?

The WHO or impact beneficiaries: Who experiences the outcome? How underserved are the affected stakeholders in relation to the outcome?

The HOW MUCH or impact magnitude: How much of the outcome occurs— across scale, depth, and duration?

The CONTRIBUTION: What is the enterprise’s contribution to the outcome, accounting for what would have happened anyways?

The RISK: What is the risk to people and the planet that impact does not occur as expected?

The impak Score™ complements the impact statement of a company. It ranges from 0 to 1,000, with a maximum of 307 data points from a total of 3,854 data points collected through impak’s data collection process. Our data collection process can collect from either public or private issuers with the same level of precision and efficiency. 

The score is primarily based on the ZABC impact classification originally proposed by IMP – “C” being the most advanced type of impact organization, with the highest performance both in mitigating its negative impact and generating positive outcomes. The more an organization performs similarly to a C-type company for each selected criterion, the more points it earns scores.