Screen all Firms' Pollution Costs

Explore how lowering pollution costs could raise equity valuations and reduce credit costs for almost 2600 firms worldwide

Why Focus on the Cost of Pollution?

How much a firm pollutes influences both its equity valuation and cost of debt. Our Maximiser assesses how much cutting pollution could boost a firm’s equity valuation and lower its cost of debt.

One way to measure pollution is to assess the financial cost (“externality”) pollution inflicts on society, as measured by the Harvard Business School (HBS) impact-weighted accounts. This initiative assesses not only a firm’s financial results, but also the financial cost of its pollution.

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The Pollution-Focused Engagement Maximiser involves four steps:

1. Select screens

You can screen the universe by selecting the region and sector.

Applicable screens

2. Visualise potential equity value gains or credit cost reductions

The graphs show the potential (i) increase in equity valuation, or (ii) credit cost reduction associated with cutting pollution in line with best practices [the technical appendix defines “peers”].

In addition, you can visualise the attribution of these potential financial gains to Sustainable Development Goals (SDG). The SDG attribution indicates the potential financial gains of improving specific SDG targets. The attribution is determined upon the SDGs that are relevant for each firm, in proportion to their contribution to the overall pollution cost.

3. Complement with in-depth company analysis

Like all quantitative models, our tool offers a simplified view of firms’ environmental performance. Hence, investors should perform supplementary company analysis to obtain a more accurate estimate of how environmental externalities influence firms’ valuation and cost of debt.

4. Engage

Persuade company management, its board and other shareholders to create shareholder value and lower the cost of debt by lowering pollution.

Our tool allows identifying peers with best practices. Analysing these peers can point companies to actionable solutions. To identify peers, select underneath the graph your preferred scope: sector & region or industry globally. (Our Technical Appendix defines what “peers” are). Some “peers” will be more relevant than others for each firm. Investors should therefore use the “peers” list as a menu to select from.

The “Best Peers” functionality is accessible to ESG for Investors Partners only. Please contact us if you would like to partner with us.

General Approach

How do environmental externalities influence firms’ valuation and cost of debt?

Intuitively, environmental externalities (pollution) can impact asset prices in two ways. First, pollution can hurt corporate outcomes. Clients can walk away from “brown” firms, firms may be exposed to regulatory and legal risk, and hiring and motivating staff can prove harder. Second, investor demand for ESG firms can lower the cost of capital of “greener” companies.

We investigate empirically how pollution impacts firms’ equity valuation and cost of debt. We use the Harvard Business School (HBS) dataset on environmental externalities. It covers almost 2600 listed firms from 2010 to 2019. The HBS team developed a new methodology to measure an organisation’s environmental impact. They express a firm’s impact as the financial cost of its pollution. Such an approach allows to express impact and financial performance in a common unit (dollars), paving the way for “impact-weighted accounts”. Our analysis uses the price-to-book (P/B) for firm valuation and the cost of debt.

The HBS dataset also splits the environmental intensity (i.e., the cost of pollution) in terms of the United Nations Sustainable Development Goals (SDGs). They map the environmental impact of a company’s operations to 17 relevant SDG targets (see list and definitions below). We use such split to attribute potential shareholder value gain (or decrease in cost of debt) to achieving each SDG.


  • “Peers” are firms in the same sector (GICS level 1) and region, or in the same industry (GICS level 2) globally.
  • “Best practice” is typically a peer group’s 10th percentile.

Relevant UN Sustainable Development Goals Targets

List of SDG targets