Working Paper: NBER ID: w29454
Authors: Nicholas Z. Muller
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.
Keywords: No keywords provided
JEL Codes: G11; G41; Q51; Q53; Q54
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| pollution damages (Q53) | share prices (G12) |
| pollution damages (Q53) | earnings surprises (G14) |
| multipollutant index (Q53) | environmental performance (Q56) |
| environmental performance (Q56) | financial outcomes (G39) |
| pollution damage distribution (Q53) | market participants' assessment of environmental performance (F64) |
| pollution damages (Q53) | analysts' earnings forecasts (G17) |