Evaluating a company's impact (the case of Spotify)

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You are reading Green Digest Impact, a weekly newsletter that provides in-depth analyses of companies’ environmental and social impact.

OUR APPROACH

Central to our narrative is the principle of double-materiality, which recognizes that a company's impact is twofold: it affects both the environment and society at large, and in turn, these external factors influence the company's financial and operational performance.

While traditional ESG assessments focus on the latter, we aim to examine companies' direct impacts on these factors. In pursuit of this, we introduce a unique scoring system that quantifies a company's impact.

The insights and analyses presented in Green Digest Impact are brought to you by a partnership between Green Digest and Impaakt, a Swiss-based impact data provider. Contact Impaakt here to explore how they can assist you.

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THIS WEEK’S COMPANY

Spotify

This week we dive deep into Spotify’s environmental and social impact.

Spotify is the world’s most popular audio streaming subscription service.

Some interesting facts:

• Spotify’s streaming model shifted the focus from owning music (through CDs, downloads, etc.) to accessing a vast library of music on-demand through streaming, fundamentally changing how music is consumed.

• The company played a crucial role in reviving the music industry after years of declining revenue due to piracy and declining physical sales. By providing a legal and accessible way to stream music, Spotify helped grow the global music market and brought billions in revenue to artists and labels. However, there is ongoing debate about whether its business model makes it challenging for artists to make a living.

COMPANY’S IMPACT

Spotify’s overall impact score

Spotify has a general impact score of +0.18 (on a scale from -5 to +5). Its impact is spread across 7 UN Sustainable Development Goals (SDGs) and 5 topics, split between positive and negative analyses.

In the socio-economic sphere,

Spotify’s platform revolutionized music listening when it launched in 2008. Today, it is the world’s most popular audio streaming subscription service with more than 626 million users, including 246 million subscribers in more than 180 markets. Its users can listen to more than 100 million tracks, 6 million podcast titles, and 350,000 audiobooks on the platform. Spotify also employs 7,372 people, fostering economic growth and social stability, while offering salaries above the country and industry average. The company reached gender parity in the workforce, executive (C-suite), and Director levels as per the ILO standards, but not yet at the board of director level and VP level.

Conversely, Spotify holds a monopoly in the industry, and its compensation fees are among the lowest compared to its competitors. Out of the largest streaming platforms, Spotify is ranked 6th regarding how much it pays artists per stream. Despite distributing over 70% of its entire earnings to rights holders, only 52,600 artists (0.6% of 8 million artists on its platform), generate over $10,000 annually and only 0.4% of artists can make a living from their streaming income.

Environmentally,

Spotify emits over 280,000 tonnes of CO₂ equivalent annually, equal to the emissions of 55,260 homes’ electricity use for a year. The company doesn’t report other environmental metrics as its impact is minimal due to the nature of its operations.

Spotify has not been evaluated by MSCI for its ESG score, so we won’t have an ESG vs. Impact Score comparison this week. However, Sustainalytics has rated the company as Medium Risk, with a score of 22.3 on its 0-40+ scale.

_{*The impact score is current as of August 2024 and may be subject to changes as it is continuously updated.
**You can find details about the scoring methodology here and the information sources here.}

SCORES BY SDG

Spotify’s impact scores by SDG

Positively (and by weight), the company scores the highest in Reduced Inequalities SDG (+1.78), followed by Good Health and Well-Being (+2.74), and Partnership for the Goals (+2.45).

Negatively, the company scores the worst in Decent Work and Economic Growth SDG (-2.06), followed by Peace, Justice, and Strong Institutions (-2.83), and Gender Equality (-0.54).

*the analysis takes into account the weight of the SDGs

Spotify influences two SDGs both positively and negatively: SDG 8 (Decent Work and Economic Growth), and SDG 10 (Reduced Inequalities). For instance, it positively impacts SDG 8 by contributing to job creation and economic growth, but at the same time, there’s controversy regarding artist compensation.

CONCLUSION

Final words

So, Spotify’s key social and environmental impact lies in …

its role in transforming the way people access and enjoy music, podcasts, and audiobooks globally. With more than 626 million users, Spotify has established itself as the most popular audio streaming service, fostering economic growth and providing competitive salaries to its workforce of over 7,000 employees.

However, Spotify’s dominance in the industry raises significant concerns. Despite its vast user base and financial success, the platform’s artist compensation remains among the lowest in the industry, with only a tiny fraction of artists earning a sustainable income from streaming. This disparity highlights the ongoing debate over the fairness of Spotify’s payment model, which continues to spark criticism from the creative community.

Its positive +0.18 score reflects the balance between its groundbreaking contributions to the music industry and the ongoing challenges related to artist compensation.

If you’d like to delve deeper into Spotify’s impact, you can explore it here.

Next week, we will analyze the impact of one of the world's largest global diversified natural resource companies, Glencore. ⛏️

If you'd like to learn more about the scoring methodology, you can do so here.

Do you have a specific company you'd like us to cover? Send your suggestions to [email protected]