Does superior environmental performance indicate increased shareholder value? An emerging body of evidence suggests it may, according to a report from the Assabet Group.
Assabet says that, after a generation of experience with environmental issues, regulations, and management efforts, a debate has emerged over whether environmental activities are value-adding or value-destroying. The debate divides into two theories: the cost centre and value creation. The former argues that environmental issues represent increased cost and offer little positive potential for shareholders. The latter view is that the environment presents a new lens through which companies can identify and realise new sources of competitive advantage.
Against this backdrop, studies from academia and by analysts show a consistent but weak body of evidence to support the value creation view. Examination of a variety of “green” and “non-green” portfolios suggests that companies with outstanding environmental performance generally out-perform financially. Additionally, a review of nine investment funds yields a similar conclusion. Of four funds that have operated for more than a year, three have significantly beaten their relative benchmarks over three and five year periods (five other funds performed well but their results are too short-term for meaningful analysis).
While these results suggest a directional relationship between superior environmental performance and shareholder returns, Assabet says that they are far from conclusive.
Copies of the full report, “The Emerging Relationship Between Environmental Performance and Shareholder Wealth” may be ordered by contacting Assabet at info@assabetgroup.com
