Measuring Environmental Exposure Beyond ESG Ratings: A Transparent Sector-Based Carbon-Exposure Measure and Firm Profitability Across Six Developed Markets

Environmental, social, and governance (ESG) ratings are now central to how firms’ sustainability is assessed, yet leading providers disagree sharply, injecting measurement error and uncertainty into any rating-based decision. This study proposes and applies a transparent, fully reproducible alternative for the environmental pillar: an ordinal, sector-based carbon-exposure measure constructed solely from firms’ publicly observable industry classifications, free of vendor scoring choices and reconstructable at zero cost. The measure captures structural, between-sector carbon exposure; it is not a firm-level environmental-performance score and does not use reported emissions. Using 3067 firm-year observations on 1049 listed non-financial firms that carry an observed sector classification across six developed markets (the United States, the United Kingdom, Australia, France, Italy, and Spain) over fiscal 2021–2025 (with a small number of early fiscal-2026 period-ends), we assess the measure’s informativeness by estimating its association with accounting profitability in high-dimensional fixed-effects models. Descriptively, more carbon-intensive sectors are less profitable (a monotone brown tilt), but this association is not robust: once firm controls and country-by-year fixed effects are absorbed, carbon exposure is not significantly related to return on assets, return on equity, or net margin, and there is no evidence of a concave (inverted-U) pattern. The measure does recover a real operating difference, higher asset turnover among carbon-intensive sectors, but this is offset by margins and does not translate into a profitability premium. A within-firm design detects no differential effect of mandatory non-financial reporting. The contribution is a transparent, rule-based environmental measure that sidesteps rating divergence; the honestly reported null on profitability cautions that apparent effects are sensitive to sample construction and sectoral composition, and positions the measure as a complement to, rather than a substitute for, proprietary ESG ratings.