Corporate Environmental Impact: Measurement, Data and Information

39 Pages Posted: 6 Apr 2020 Last revised: 22 Jul 2020

See all articles by David Freiberg

David Freiberg

Harvard University - Business School (HBS)

DG Park

Harvard University - Business School (HBS)

George Serafeim

Harvard University - Harvard Business School

Rob Zochowski

Harvard University - Business School (HBS)

Date Written: June 30, 2020

Abstract

As an organization’s environmental impact has become a central societal consideration, thereby affecting industry and organizational competitiveness, interest in measuring and analyzing environmental impact has increased. We develop a methodology to derive monetized environmental impact estimates in a comparable way across companies by applying characterization pathways and monetization factors to organization level environmental outputs, including carbon emissions, water use, and other emission types. The median environmental impact as a percentage of an organization’s sales (operating income), referred to as environmental intensity, is close to 2% (20%) and above 10% (100%) in 11 out of 67 industries suggesting a significant level of ‘hidden liabilities’ and potential for value erosion if environmental impacts are priced. Close to 60% (53%) of the variation in environmental impact scaled by sales (operating income) is driven by industry membership, while approximately 30% (36%) can be attributed to firm specific factors, with the rest of the variation driven by country and more granular industry classifications. Environmental intensity exhibits significant, yet moderate correlation with various environmental ratings across industries and no correlation within industries, and it is associated with lower corporate market valuation, lower stock returns, and higher risk, consistent with investors viewing environmental impacts as financially material and pricing them in some but not all industries.

Keywords: environment, impact, measurement, ratings, valuation

Suggested Citation

Freiberg, David and Park, DG and Serafeim, George and Zochowski, Rob, Corporate Environmental Impact: Measurement, Data and Information (June 30, 2020). Harvard Business School Accounting & Management Unit Working Paper No. 20-098, Available at SSRN: https://ssrn.com/abstract=3565533 or http://dx.doi.org/10.2139/ssrn.3565533

David Freiberg

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

DG Park

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

George Serafeim (Contact Author)

Harvard University - Harvard Business School ( email )

381 Morgan Hall
Boston, MA 02163
United States

HOME PAGE: http://goo.gl/q4cJ5A

Rob Zochowski

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Morgan 270C
Boston, MA 02163
United States

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