AEX Companies Cost Society More Than They Earn: Study

What Is the Futureproofing Ratio? A New Metric for Societal Impact

A groundbreaking study by Erasmus University Rotterdam, Nyenrode Business University, and strategic consultancy ftrprf reveals that the largest publicly listed companies in the Netherlands and Germany generate significant financial value but also impose enormous social and environmental costs. The research introduces the 'futureproofing ratio,' a metric that compares a company's positive societal contributions to its negative impacts, measured against its market capitalization. For the 23 largest AEX-listed firms, the negative social and ecological balance amounts to approximately 80% of their financial value, meaning that collectively, these companies cost society more than they deliver in financial returns.

The study's lead researcher, Professor Dirk Schoenmaker of Erasmus University, explains: 'Companies have positive effects on employment and create great products. But they also have negative effects on health and emit CO2.' This dual impact is now quantified in a way that allows investors to see beyond traditional financial metrics.

How the Futureproofing Ratio Works

The futureproofing ratio is calculated by dividing a company's positive or negative societal impact in euros by its stock market value. A ratio above 1.0 means the company creates more societal value than its market cap suggests; a negative ratio indicates net societal harm. The study found that two-thirds of AEX companies actually deliver a positive societal contribution, but the overall balance is dragged down by a handful of heavy emitters and health-damaging industries.

Key Findings: Who Scores Green and Who Scores Red

Philips emerges as the clear winner with a futureproofing ratio of 4.86, meaning its societal value is nearly five times its financial value. This is attributed to the company's life-saving medical technologies. Professor Schoenmaker notes: 'This is because the company contributes to saving lives; that is also taken into account in the ranking.'

Heineken, despite being a beloved stock on the exchange, scores red due to the large negative effects of alcohol on society. The study calculates that every glass of beer costs society more than it generates in economic value, when accounting for healthcare costs, lost productivity, and other alcohol-related harms.

Shell and ArcelorMittal are among the worst performers. Shell, with a market cap of around €200 billion, has a ratio of minus 7, implying a negative societal impact of approximately €1.4 trillion. ArcelorMittal's steel production carries heavy CO2 emissions and environmental damage.

Industry Breakdown: Not Just Services Score Well

An unexpected finding is that manufacturing companies can also score positively. Philips, a producer of physical goods, proves that industrial companies can have a net positive impact if their products deliver significant societal benefits. However, the study also highlights challenges: ASML, a key player in the semiconductor industry, faces issues with water pollution from chip cleaning processes.

The research provides a comparison of ESG investing metrics that goes beyond traditional environmental, social, and governance scores. While many ESG ratings focus on policies and disclosures, the futureproofing ratio quantifies actual euro-denominated impacts, making it easier for investors to compare companies across sectors.

Implications for Investors and Policymakers

The study aims to give investors insight into how companies are performing on societal contribution. Professor Schoenmaker hopes the ranking will spur action: 'With this ranking, you can easily see who are the laggards and leaders within, for example, the automotive industry. We hope to spur the laggards and help the leaders do even better.'

For policymakers, the findings suggest that current market prices do not reflect the true cost of doing business. The negative externalities of alcohol, fossil fuels, and heavy industry are effectively subsidized by society. The research could inform debates on carbon pricing, alcohol taxes, and corporate accountability.

The social cost of carbon pricing is a key factor in Shell's negative score, while Heineken's results raise questions about the health impact of alcohol advertising.

FAQ: Understanding the Futureproofing Ratio

What is the futureproofing ratio?

The futureproofing ratio is a metric developed by Erasmus University, Nyenrode, and ftrprf that measures a company's net societal impact (positive minus negative) divided by its market capitalization. A positive ratio means the company creates more societal value than its market value, while a negative ratio indicates net harm.

Why does Heineken score negatively?

Heineken scores red because of the significant negative health and social effects of alcohol consumption, including healthcare costs, lost productivity, and addiction-related harm. These costs outweigh the economic benefits the company generates.

How can Philips have a high ratio despite being a manufacturer?

Philips produces medical technologies that save lives and improve health outcomes. The study quantifies these life-saving benefits as a positive societal contribution that outweighs the environmental costs of manufacturing and product lifecycle.

What is Shell's negative impact?

Shell's negative impact is driven primarily by CO2 emissions from fossil fuel production. With a ratio of minus 7 and a market cap of €200 billion, its net negative societal impact is estimated at €1.4 trillion.

How can investors use this information?

Investors can use the futureproofing ratio to identify companies that are aligned with long-term societal well-being, potentially reducing risk from future regulations, carbon taxes, or consumer boycotts. The metric complements traditional financial analysis.

Sources

This article is based on research conducted by Erasmus University Rotterdam, Nyenrode Business University, and strategic consultancy ftrprf, as reported by BNR Nieuwsradio. The study analyzed the 23 largest AEX-listed companies and major German firms. Professor Dirk Schoenmaker, Professor of Banking and Finance at Erasmus University, provided expert commentary.