Multinational companies that do a better job of protecting the environment earn higher returns, according to a new study by Glen Dowell, Stuart L. Hart and Bernard Yeung, all professors.
"The authors have convincingly demonstrated that high environmental standards are consistent with profitability," said Steve Schueth, director of the Social Investment Forum and president of First Affirmative Financial Network LLC, Colorado Springs, Colo., an organization of financial advisers promoting socially responsible investments.
Their independent study - "Do Corporate Global Environmental Standards Create or Destroy Market Value?" - examined 89 companies from the S&P 500 that were involved in manufacturing or extractive industries; all operated in countries that are potential pollution havens. The authors found that companies adopting stringent global environmental standards (as assessed by the Investor Responsibility Research Center's Corporate Environmental Profile survey), rather than the weaker standards of the countries in which they do business, had a higher market valuation during the 1994 to 1997 time period of the study.
"This ground-breaking study shows that corporations that do a better job of protecting the environment earn higher returns and higher valuations from Wall Street," Mr. Schueth said. "What is so impressive about this study is its rigorous methodology." The study shows that multinational companies employing strict environmental standards have higher valuations than comparable companies using less stringent or no "green" standards. By valuation, the authors mean the price-earnings ratio.
Mr. Dowell is assistant professor at the Mendoza College of Business, University of Notre Dame. Mr. Hart is a professor at the Kenan-Flagler Business School, and director, Center for Sustainable Enterprise, both at the University of North Carolina. Mr. Yeung is a professor at the Stern School of Business, New York University.
For their study, the three were awarded the 2001 Moskowitz Prize of the Social Investment Forum, whose members include money managers involved in social investing. They will share the $2,500 award.