JIM Methodology
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The main methodology used to estimate a company’s economic and environmental impact is input-output (I/O) modelling. The methodology was to a great extent developed by the Nobel Prize winning economist Wassily Leontief and is commonly used by economists to quantify indirect impacts. The underlying idea of IO modelling is to trace company revenues through an economy revealing linkages between the company and other sectors in the economy.
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This can be done using a statistical representation of an economy, referred to as a Social Accounting Matrix (SAM), which describes the financial flows of all economic transactions that take place within an economy. In other words, it shows, per sector, how much a sector spends – on average – on other sectors in the local economy, on imports, and on salaries, taxes and profits. As shown in the exhibit below, in the SAM the number of columns and rows are equal because all sectors or economic actors (industry sectors, households, government and the foreign sector) are both buyers and sellers. Columns represent buyers (expenditures) and rows represent sellers (receipts).
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A SAM allows us to calculate how revenues (or local/total procurement spending, if available) of a company in a given sector and country translates into output and value added for other sectors. By linking these money flows to data on labour productivity and GHG emissions, the model can quantify the total supply chain value added, employment and GHG emissions related to a company, as well as the induced employment and GHG emissions.
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Complications with estimating total company results arise in the treatment of forward impacts. Forward impacts are impacts related to the provision of previously unavailable goods and services or the improvement thereof, such as financing provided by financial intermediaries or power production. For these types of impacts the model relies on proxy data to quantify the additional company revenues related to these investments. Two types of forward enabling impacts are included in the JIM:
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Finance enabling impacts: to quantify these impacts, one needs to determine how more finance translates into higher revenues (and higher spending) by the companies to which it is provided. To do this, the model uses average asset-turnover ratios, as mandated by the PCAF global carbon accounting standard for financial institutions. Previous versions of the model used marginal ratios, which translated into significantly lower numbers of jobs supported and GHG emissions.
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Power enabling impacts: to quantify these impacts one needs to determine how more power translates into higher economy-wide revenues. To do this, the model uses a power-to-output translation factor which reflect how an increase in a country’s power supply translates into additional company revenues. The model uses a constant power-to-output translation factor of 1:0.02 for all countries and sectors. This means that it is assumed that a 1% increase in a country’s power supply enables companies to increase their sales by 0.02%. The ratio is a straight average of the sector multipliers of 4 case studies (excluding outliers) for which detailed data has been collected (i.e. Uganda, Nigeria, Uruguay and Turkey). It is also in line with the ratio used by IFC.
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Although the JIM can be used to measure the enabling impacts of power and financial services, there are forward impacts from other sectors that are not accounted for in the current version. These include, among others, the impacts of non-power infrastructure projects, such as roads, ports or railways.
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Impact Indicators
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The key economic and environmental impact indicators of the model are:
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Employment: all working age people (15 years and older) who are engaged in any activity to produce goods or provide services for pay or profit, expressed in number of people. Employment is further broken down in:
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Female employment: all working age females (15 years and older) engaged in any activity to produce goods or provide services for pay or profit;
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Formal employment: all working age people (15 years and older) hired by an employer under an established working agreement;
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Informal employment: all working age people (15 years and older) working for an organisation despite not being provided with a working agreement;
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Youth employment: all people, regardless of gender, between 15 and 25 years old who are engaged in any activity to produce goods or provide services for pay or profit.
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Value added: the sum of salaries, taxes and savings, equivalent to gross domestic product, expressed in monetary value;
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Salaries: value of net wages paid to all full-time and part-time employees of the organisation during the reporting period;
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Taxes: all transfers to the government made by a client over the reporting period;
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Savings (profits): value of the organisation's net earnings (profit).
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GHG emissions: the sum of CO2 and non-CO2 emissions, expressed in CO2-eq:
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CO2 emissions: CO2 emitted in the combustion of fossil fuels;
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Non-CO2 emissions: methane (CH4), nitrous oxide (N2O) and fluorinated gases (F-gases) emitted.
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Not included are: CO2 emissions from forestry and other changes in land use (about 11% of GHG emissions worldwide).
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Scope of Impacts
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For these indicators the model covers the following impacts:
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Direct: impacts at the client company/ project;
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Supply chain: impacts at the client company/ project’s suppliers and their suppliers;
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Induced: impacts associated with the spending of wages earned by employees of the client company/ project, its suppliers and their suppliers;
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Finance enabling: impacts at companies, suppliers of companies, and their suppliers associated with the financial intermediary’s lending;
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Power enabling: impacts associated with the additional output created by companies that use the additional power generated by the client company/ project, as well as by non-power using firms in their supply chain (e.g. small-scale agriculture).
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For GHG emissions, the key reference point is the GHG Protocol. The table below shows how the emissions quantified by the JIM relate to the GHG Protocol Scopes. Keeping the limitations described below in mind, the JIM could help users to report on GHG emissions according to the standards set by the Platform Carbon Accounting Financials (PCAF).
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For a detailed discussion of the JIM indicators, please refer to the accompanying Methodology paper.
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