Carnegie Mellon Professor Launches ESG Index
The ESG Index will serve as the go-to resource for accurate data in monetary pollution
Investing according to environmental, social, and governance (ESG) criteria has gained considerable momentum in recent years. While most existing metrics focus on physical emissions rather than their monetary damage, there is an opportunity to consider monetization, which facilitates aggregation of the impacts of pollution emissions across pollutants, source locations, and time.
Leveraging this opportunity and years of research, Nicholas Muller, the Lester and Judith Lave Professor of Economics, Engineering, and Public Policy at Carnegie Mellon University’s Tepper School of Business, created the ESG Index to serve as a credible, reliable source for accurate data on national trends in monetary pollution damage.
This multipollutant index will help investors and asset managers make investment and capital allocation decisions, as well as assist financial and securities regulators in standardizing ESG disclosure requirements, a recent goal of the Securities and Exchange Commission.
“This new index stands in stark contrast to most products that track firms' environmental performance,” said Muller.
“First, it relies on monetized damage from pollution emissions. Second, it aggregates damages across eight pollutants to provide investors, policymakers, activists, and the public with a more complete measure of companies' environmental impact.”
This index uses rigorous quantitative modeling techniques to compute the monetary damages from five local air pollutants and three primary greenhouse gasses (GHGs) produced by firms on the S&P 500. Firms are scored according to their contribution to pollution damage, relative to firm value.
The index uses the Air Pollution Emission Experiments and Policy analysis (APEEP) model, an integrated assessment tool that links emissions of air pollution to exposures, physical effects, and monetary damages in the contiguous United States, which was also developed by Muller.
Funded by alumni of the Tepper School and the Heinz Endowments, the ESG Index allows users to compare pollution damage across the U.S. economy, in the 10 largest cities, by U.S. Census regions, and among sectors and firms. The index is based on a mix of publicly available and proprietary, and peer-reviewed models. Users can freely download the data and the indices.
The ESG Index is another example of how the Tepper School continues to look toward a more intelligent future, with a strong acknowledgment that sustainability is an essential part of this vision.
“The Intelligent Future of business ought to include sustainability as a core component,” said Isabelle Bajeux-Besnainou, Dean of the Tepper School of Business. “We are proud to champion and house the new ESG Index as leaders in this important trajectory of the business landscape.”
Muller will work with Tepper School and College of Engineering Ph.D. students to update the data quarterly.