Corporate Environmental Impact: Measurement, Data and Information

41 Pages Posted: 6 Apr 2020 Last revised: 1 Mar 2021

See all articles by David Freiberg

David Freiberg

Harvard University - Business School (HBS)

DG Park

Harvard University - Business School (HBS)

George Serafeim

Harvard Business School

Rob Zochowski

Harvard University - Business School (HBS)

Date Written: February 10, 2021

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 comparable and scalable monetized environmental impact estimates 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 2% (22%) suggesting a significant level of ‘hidden liabilities’ and potential for value erosion if environmental impacts are priced. About 60% of the variation in environmental intensity is driven by industry membership, while the rest can be attributed to firm specific factors or to country and more granular industry classifications. Environmental intensity exhibits moderate correlation with various environmental ratings across firms and industries and no correlation across firms within industries. Firms with higher environmental intensity exhibit lower corporate market valuation, consistent with investors viewing environmental impacts as financially material and pricing them in some but not all industries. We document the dynamic materiality of environmental intensity, where the relation between environmental intensity and corporation valuation has become stronger in recent years.

Keywords: environment, impact, measurement, environmental ratings, corporate valuation, financial materiality

Suggested Citation

Freiberg, David and Park, DG and Serafeim, George and Zochowski, Rob, Corporate Environmental Impact: Measurement, Data and Information (February 10, 2021). 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 Business School ( email )

Boston, MA 02163
United States

HOME PAGE: http://www.hbs.edu/faculty/Pages/profile.aspx?facId=15705

Rob Zochowski

Harvard University - Business School (HBS) ( email )

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

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