Investing according to environmental, social and governance (ESG) criteria has gained considerable momentum in recent years. While most existing metrics focus on physical emissions, there is opportunity to consider the monetary costs. This requires the collection and analysis of pollution emissions across pollutant type, source locations and time.

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," Muller said.

"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(opens in new window) developed prior by Muller, an integrated assessment tool that links emissions of air pollution to exposures, physical effects and monetary damages in the contiguous United States.

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 data, and peer-reviewed models. Users can freely download the model and indices.

The ESG Index is another example of how Muller's interdisciplinary research is helping to align the behavior of financial market participants with more socially beneficial environmental outcomes.

"The Intelligent Future(opens in new window) of business ought to include sustainability as a core component," said Isabelle Bajeux-Besnainou(opens in new window), 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 Engineering and Public Policy Ph.D. students in the College of Engineering to update the data quarterly.