30 March 2026

Europe’s new growth engine: rewarding impact strengthens competitiveness 

Europe holds many of the foundations for future competitiveness. It has strong positions in clean tech, circular innovation and sustainable business models. Yet these strengths are not fully translated into market advantage. A new report by the Impact Economy Foundation, developed in collaboration with Singapore Management University and Impact Institute, argues that a crucial next step is needed: pricing impact into the market.  

True Profits

Every company reports a financial profit. But that figure only reflects a part of its overall performance. It does not capture the social and environmental costs that may be shifted into society, such as climate damage, air pollution, biodiversity loss or underpayment, nor the genuine value that companies create beyond financial returns to shareholders.

True Profit is intended to address this gap. It is defined as a company’s financial profit after accounting for its key positive and negative social and environmental externalities. Developed by the Impact Economy Foundation in collaboration with Singapore Management University and Impact Institute, and grounded in the Impact Weighted Accounts Framework (IWAF).

Novo Nordisk provides a clear example of this in the assessment. The company combines strong financial performance with significant positive social value, particularly through employment and health benefits to clients, while showing relatively limited negative environmental and social impacts. This illustrates how True Profits can reveal both where companies are already creating broader societal value and where externalities remain insufficiently priced.

True Profits of Novo Nordisk

True Profit offers businesses, investors and policymakers a new economic compass. It shows which companies are not only financially profitable, but also profitable for society.

What the report shows

The True Profits assessment calculates the True Profits of the 20 largest European companies by market capitalization. On the one hand, total annual positive contributions to society of the 20 companies analysed amount to approximately € 427 billion. These benefits include customer value, employee well-being and financial returns to investors.

At the same time:

• Climate-related costs alone absorb 60% of companies’ reported profits.
• When social and environmental costs are fully accounted for, combined profits of €209 billion would turn into a net loss of €19 billion.
• For every euro of revenue generated, companies generate €0.16 in social and environmental costs, which are not reflected in profits.

The conclusion is clear. Europe’s current market rules still reward companies for externalising harm, while leaving businesses that invest in cleaner and more resilient models at a competitive disadvantage. If Europe wants to strengthen long-term competitiveness, it must start rewarding impact rather than ignoring it.

Total Negative Externalities of all Assessed Companies in relation to Financial Profit

The Profitability Gap

Europe does not lack sustainable solutions. What it lacks is a market that rewards them. Companies that want to lead on sustainability often face a clear Profitability Gap: they create value for society, but that value is not sufficiently reflected in market outcomes. As long as environmental and social harms remain unpriced, sustainable technologies and business models will continue to struggle to scale.

This matters particularly in a context of high energy prices, geopolitical pressure and intensifying global competition. The global economy is increasingly shifting towards clean technologies as a new engine of growth. China’s clean tech sector already accounts for more than 11% of its GDP and over a third of its economic growth.

With more than one-third of all circular economy technology companies globally and around one-fifth of all clean and sustainable technologies being developed there, Europe holds strong positions in sectors that are likely to define competitiveness in a net-zero and resource-constrained economy. This will only succeed if markets begin rewarding positive impact. Today, circular production still struggles against linear production. Green ammonia cannot compete with grey. Sustainable food businesses lose out to conventional alternatives. Not because they are weaker businesses, but because current market rules do not reflect real costs, or societal value.

This misalignment is also visible in how company performance is measured. True Profits offer a direction for future competitiveness in which healthy profits are combined with minimal negative externalities and maximised positive impact. A key metric within this approach is the Societal Cost Margin (SCM), which measures the intensity of a company’s external social and environmental costs relative to its revenue. It shows how much external cost is generated per euro of economic output. When analysed alongside the traditional operating margin, SCM helps clarify the direction of travel for the European economy: lower societal cost intensity, combined with strong financial performance. This also points to the next step: moving from reporting to rewards, so that market incentives begin to support the business models that create long-term value.

From reporting to rewards: making impact profitable

Europe has already built the world’s most advanced sustainability reporting architecture through the CSRD, the EU Taxonomy and related frameworks. But transparency alone does not transform markets. The report argues that Europe must now move from reporting to rewards: using impact data to reshape market incentives and make impact profitable.

Three levers are particularly important:

1. 1. Tax harm and reward positive impact: A True Profit Tax would link corporate tax rates to a company’s net social and environmental impact, based on sustainability data that companies are already required to report. Businesses creating value for society would pay less, while those generating harm would pay more. Alongside this, expanding mechanisms such as the Carbon Border Adjustment Mechanism (CBAM) beyond carbon to include biodiversity damage, pollution and material extraction could help prevent European companies from being undercut by imports that do not bear these costs.
   2. Make sustainable investment cheaper: Impact-adjusted interest rates could lower borrowing costs for companies and projects that generate positive social and environmental returns. Building on existing green finance frameworks, this would help direct capital towards the business models Europe needs to remain competitive in the long term.
   3. Activate impact on the balance sheet: Investments in climate and biodiversity are still too often treated as short-term costs. The report argues that these investments should increasingly be recognised as assets that can be activated on the balance sheet.

A new basis for competitiveness

The broader message of the report is that Europe needs a new basis for competitiveness. Long-term economic strength will not come from preserving a model that rewards short-term cost advantage while externalising harm. It will come from building markets in which the most impactful businesses are also the most competitive.

Rewarding impact would not only improve social and environmental outcomes. It would also help unlock Europe’s clean-tech advantage, strengthen industrial resilience and support a more durable form of prosperity.

The True Profit Alliance  

The True Profit Alliance brings together organisations committed to making impact profitable by aligning market incentives with long-term societal value creation. Through shared insights, practical collaboration and collective advocacy, members help shape the business case for transformation while staying at the forefront of developments in True Profits. Interested in working on making impact profitable?