Environmental and Financial Footprints of Corporations

Matthias Breuer, Visiting Associate Professor of Accounting
Maximilian Muhn, Assistant Professor of Accounting
Thomas Rauter, Assistant Professor of Accounting and IBM Corporation Faculty Scholar 

Recent advances in spatial environmental monitoring and modeling allow tracking environmental issues globally with high local resolution. We leverage these advances to measure corporations’ environmental and financial footprints, combining spatial environmental data with information on the locations and financials of millions of corporations. We first create independent, comprehensive, and localized measures of corporations’ contributions to environmental issues. Then, based on these measures, we study the extent, determinants, and consequences of corporate environmental impacts, focusing on the spatial overlap (“congruence”) between financial returns and environmental impacts, examining how this congruence influences corporate behavior and investor decisions. This approach acknowledges the geographical discrepancies between where financial benefits are enjoyed and where environmental costs are incurred. High congruence firms, or those whose investors are directly affected by firms’ environmental footprints, are more likely to internalize environmental costs, making certain regulatory measures like disclosure mandates potentially unnecessary. In contrast, low congruence firms, often distanced from the direct environmental repercussions of their operations, are less likely to consider these impacts without regulatory intervention. For these firms, more stringent measures (e.g., carbon taxation) may be necessary, as disclosure alone might be insufficient, particularly if the affected regions lack the leverage to influence corporate behavior.