LONDON - In an attempt to help pension plan trustees see the forest for the trees in socially responsible investing, the World Wildlife Fund has published research that draws a positive correlation between good environmental management and stock market performance by forestry companies.
While the findings are not yet conclusive, as they are based on a small sample of companies, they show forest product companies that carry Forest Stewardship Council certification tend to provide better returns to investors than companies that aren't FSC-certified.
According to the WWF's report, FSC-certified Swedish forestry companies achieved a 62% greater return on investment than non-certified Finnish companies between 1994 and 1998, said Frank Dixon, managing director for Innovest Strategic Value Advisors, New York, which carried out the research.
Mr. Dixon admitted the sample was small, comparing four Swedish companies with four Finnish companies, and the results could be skewed by country-specific factors. But, he added, "Even if it is too early to identify the specific benefits of FSC certification, it gives an indication that companies adopting progressive and environmental standards tend to perform well in the financial market."
Direct potential benefits of FSC certification include being able to sell products at a premium, an improvement in the company's image in the marketplace and the assurance that a forestry company has healthy and sustainable forest stock.
But it can be difficult to see an immediate positive impact on returns after FSC certification.
It took forestry group Assi- Dom"n AB, Stockholm, two years to get FSC certification, and the firm has experienced increased costs as a result of changing its practices, according to company spokeswoman Katarina Sivander. These costs arose from training staff; setting aside reserve forestry areas - amounting to between 10% and 15% of the company's entire plantation - that cannot be harvested; and the actual costs of being certified that, while considered marginal, work out to between 1 Swedish kroner and 5 Swedish kroner ($1.17 to $5.85) per hectare.
Nonetheless, the research showed the short-term costs could be justified in the face of the long-term benefits FSC certification can have on shareholder value.
As a result the WWF is trying to encourage pension plans, and U.K. plan sponsors in particular, to use FSC certification as one of their criteria for investment decisions.
Starting in July, U.K. pension plans will be required to declare their social and environmental policies for investment.
