Measuring Firm Environmental Performance to Inform ESG Investing

53 Pages Posted: 8 Nov 2021 Last revised: 16 Apr 2023

See all articles by Nicholas Z. Muller

Nicholas Z. Muller

Carnegie Mellon University - David A. Tepper School of Business

Date Written: November 2021

Abstract

Investing according to environmental, social, and governance criteria is gaining momentum. Most environmental performance indices focus only on the tonnage of carbon dioxide (CO2) emissions. This paper proposes a new monetary index covering eight pollutants. Inclusion of multiple pollutants reflects a broader range of risks. In the U.S. utility sector from 2014 to 2017, indices which only track CO2 mischaracterize firms’ environmental performance and underestimate its effect on financial outcomes relative to the multipollutant index. Analysts’ earnings forecasts for dirtier firms systematically undershoot actuals. The multipollutant index suggests new financial management strategies relative to those based on carbon intensity.

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Suggested Citation

Muller, Nicholas Z., Measuring Firm Environmental Performance to Inform ESG Investing (November 2021). NBER Working Paper No. w29454, Available at SSRN: https://ssrn.com/abstract=3958641 or http://dx.doi.org/10.2139/ssrn.3958641

Nicholas Z. Muller (Contact Author)

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

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