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  • 2021
  • Working Paper
  • HBS Working Paper Series

Corporate Environmental Impact: Measurement, Data and Information

By: David Freiberg, DG Park, George Serafeim and T. Robert Zochowski
  • Format:Print
  • | Language:English
  • | Pages:42
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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; Sustainability; Environmental Impact; Environmental Strategy; Impact-Weighted Accounts; IWAI; Environmental Sustainability; Corporate Social Responsibility and Impact; Measurement and Metrics; Valuation

Citation

Freiberg, David, DG Park, George Serafeim, and T. Robert Zochowski. "Corporate Environmental Impact: Measurement, Data and Information." Harvard Business School Working Paper, No. 20-098, March 2020. (Revised February 2021.)

Supplemental Information

Corporate Environmental Impact: Executive Summary
Executive Summary
Corporate Environmental Impact: FAQs
FAQs
Impact-Weighted Accounts Recent Research
Data supplement to HBS Working Paper #20-098 Corporate Environmental Impact: Measurement, Data and Information
  • SSRN
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About The Author

George Serafeim

Accounting and Management
→More Publications

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