Abstract

This paper explores the intricate relationship between the operations of Multinational Enterprises (MNEs) and environmental sustainability. As entities that often span multiple jurisdictions, MNEs possess the unique potential to significantly influence the environment, both positively and negatively. Identifying emissions in global value chains (GVCs) is key to understanding the impact that MNEs have on the climate. A topic of growing concern within the global community, it is also the focus of work being conducted under the latest phase of the Group of Twenty (G20) Data Gaps Initiative (DGI-3), under its Recommendation 3, which the IMF is leading.

This paper introduces a novel and sophisticated methodology by integrating Foreign Affiliates
Statistics (FATS) with Multi-Regional Input-Output (MRIO) models, which differentiates the intensity of carbon emissions between domestic and foreign-owned firms, providing a groundbreaking perspective on the environmental impact of MNEs' global operations.
Foreign Affiliates Statistics (FATS) are instrumental in shedding light on the complex economic
activities of MNEs around the world, offering insights into trade dynamics, employment
patterns, value-added production, and international investment flows integral to understanding
economic globalization. FATS data are compiled by many national statistical agencies across the globe, with organizations such as the OECD, Eurostat, and UNCTAD also producing regional
and global FATs databases, ensuring the provision of consistent and detailed data across nations.

Integrating FATS with MRIO allows for an accurate estimation of the carbon footprint of MNEs
at an industry-specific level, This novel approach facilitates tracking both direct and indirect
emissions from MNEs, enabling a detailed analysis of how products and services from foreign
affiliates contribute to carbon emissions. It uniquely identifies these emissions by ownership—
distinguishing between domestically owned industries and those owned by foreign MNEs—to
illuminate the environmental impacts associated with global economic activities. Furthermore,
this framework is applied to the G20 countries, with the results and analysis serving as a crucial
input for policymakers and other decision makers. It aims to assist in the formulation and
implementation of targeted policies that balance economic development and globalization with environmental sustainability goals.