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    Corporate Environmental Impact: Measurement, Data and Information
    08 May 2020Working Paper Summaries

    Corporate Environmental Impact: Measurement, Data and Information

    by George Serafeim, DG Park, David Freiberg, and T. Robert Zochowski
    This paper proposes a methodology for investors, companies, or regulators to use established environmental resources, reasonably accessible in the public domain, to measure an organization’s environmental impact from operations. These measurements contain information that is different from environmental ratings widely used by investors and other stakeholders.
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    Author Abstract

    As an organization’s environmental impact has become a more important 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 revenues, referred to as environmental intensity, is close to 2% and above 10% in 11 out of 68 industries, suggesting a significant level of “hidden liabilities” and potential for value erosion if environmental impacts are priced. Close to 60% of the variation in environmental intensity is driven by industry membership, while approximately 30% 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. Finally, we find that environmental impact is moderately priced in equity valuation multiples, consistent with investors viewing environmental impacts as financially material and pricing them in some but not all industries.


    Paper Information

    • Full Working Paper Text
    • Working Paper Publication Date: March 2020
    • HBS Working Paper Number: HBS Working Paper #20-098
    • Faculty Unit(s): Accounting and Management
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    George Serafeim
    George Serafeim
    Charles M. Williams Professor of Business Administration
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