The Missing Dimension in Climate Finance: Constructing and Validating the Decarbonization Monetization Index

The global transition toward a net-zero economy represents not only an environmental imperative but also one of the largest economic transformations in modern history (Suhrab et al., 2025). While prior research has extensively examined carbon emissions, environmental performance (Suhrab et al., 2024), and green innovation (Porter & van der Linde, 1995; Cohen & Tubb, 2018; Friede et al., 2015), a fundamental gap remains in understanding how effectively firms monetize decarbonization efforts. Existing metrics, including ESG scores, carbon intensity, and green patent counts, measure environmental or technological performance (Suhrab et al., 2024) but fail to capture the economic value generated from decarbonization activities. This chapter introduces the Decarbonization Monetization Index (DMI), a novel composite index designed to quantify the extent to which firms convert decarbonization efforts into measurable financial value. We develop a theoretical framework linking decarbonization, technological innovation, financial integration, and market monetization to firm value creation, drawing on Resource-Based Theory (Barney, 1991) and Dynamic Capabilities (Teece et al., 1997). The chapter formalizes the mathematical structure of the DMI, proposes empirical implementation strategies using Principal Component Analysis (PCA) and panel data econometrics, and illustrates its application with a comprehensive firm-level dataset. The proposed framework establishes a new paradigm for evaluating decarbonization not as a compliance cost, but as a driver of competitive advantage, financial performance, and economic transformation in an era of technological disruption and climate finance expansion. This chapter provides the foundational theory, methodology, and empirical validation necessary for researchers, investors, and policymakers to assess the economic returns on decarbonization investments.