DOES IMPROVING A FIRM™S ENVIRONMENTAL · PDF fileDOES IMPROVING A FIRM™S...

© 1996 ICF Kaiser International, Inc. All rights reserved.

Some believe that improved environmen-tal management practices and perfor-mance are good for the firm as well as forsociety, while others believe that environ-mental improvements and their costs are adrag on the bottom line and should beminimized. So who is right? Both sidesprovide theory and facts in their favor, butneither has delivered a compelling answer.

We believe that sound environmentalmanagement leads to reduced risk to thefirm, and that this risk reduction is valuedby financial markets. Investments in envi-ronmental management lead to bettershort-term environmental performance aswell as the prospect of further improve-ments in the future. These improvementsconfer a reduction in the firm’s risk,which is the key factor that investors con-sider when deciding upon the return thatthey will require for making a particularinvestment. Lower risks mean lowerrequired returns, and therefore, lowercosts for financing the activities of thefirm.

We have developed a conceptual modelthat links together the environmentalactivities and performance of the firm, theways in which these are communicated toinvestors and others, the firm’s riskiness,and its cost of equity capital. This modelprovides a framework for understandinghow corporate environmental activitiesultimately are translated into changes inthe market value of the firm.

We have just completed a thorough evalu-ation of our ideas using real-world data onmore than 300 of the largest public com-panies in the U.S., and have producedresults that validate our hypothesis. Assuggested by financial theory, we havecomputed changes in systematic risk foreach firm over two time periods, andrelated these to a number of financial andenvironmental variables using multipleregression analysis. We constructed ouranalysis to explain as much of the vari-ability in observed systematic risk as pos-sible using factors suggested by financetheory and empirical observation. Usingthis approach, we were able to isolate and

DDOOEESS IIMMPPRROOVVIINNGG AA FFIIRRMM��SS EENNVVIIRROONNMMEENNTTAALL MMAANNAAGGEEMMEENNTTSSYYSSTTEEMM AANNDD EENNVVIIRROONNMMEENNTTAALL PPEERRFFOORRMMAANNCCEE RREESSUULLTT IINN AA

HHIIGGHHEERR SSTTOOCCKK PPRRIICCEE??

Stanley J. Feldman, Peter A. Soyka, and Paul Ameer

ICF Kaiser International, Inc.

SSUUMMMMAARRYY


quantify the effects of several environ-mental management and environmentalperformance measures that have bothpractical and statistical significance.

Our work suggests that environmentalimprovements such as those we have eval-uated might lead to a substantial reductionin the perceived risk of a firm, with anaccompanying increase in a public compa-ny’s stock price, of perhaps five percent.

These findings suggest that investments inenvironmental management and improvedperformance can be justified, in manycases, on purely financial grounds, andthat the net financial impact of prospec-tive environmental investments can nowbe evaluated more fully than before. Ourresults show that firms will increaseshareholder value if they make environ-mental investments that go beyond strictregulatory compliance. How much furtherthey should go will vary by company,though this question also may beaddressed empirically.

Companies can capture more opportuni-ties to improve both their environmentaland financial performance by performinga strategic assessment of their operations,building or upgrading an explicit environ-mental management system, further devel-oping their environmental infrastructure(i.e., tools, methods, and procedures),undertaking knowledge and skill buildingwithin their workforce, and enhancingtheir information managementcapabilities.

Investments in environmental manage-ment and performance may be costly.Nonetheless, when appropriately evaluat-ed, many of these investments may beshown to provide substantial, positivereturns and lasting value to the firm.


DDOOEESS IIMMPPRROOVVIINNGG AA FFIIRRMM��SS EENNVVIIRROONNMMEENNTTAALL MMAANNAAGGEEMMEENNTTSSYYSSTTEEMM AANNDD EENNVVIIRROONNMMEENNTTAALL PPEERRFFOORRMMAANNCCEE RREESSUULLTT IINN AA

HHIIGGHHEERR SSTTOOCCKK PPRRIICCEE??

by

Stanley J. Feldman, Peter A. Soyka, and Paul Ameer

November, 1996


II.. IInnttrroodduuccttiioonn

A vigorous debate1 is now occurringaround the question of whether initiatives toimprove the environmental performance ofcorporations, either compliance-driven or vol-untary, have consistent impacts on the finan-cial performance of these firms.

The traditional view holds that expendi-tures on environmental improvement repre-sent costs that (generally) confer nocorresponding benefits to the firm,such asimproved product quality, productivity, easeof manufacturing, distribution, or use, orother desirable attributes. If this is true, thenthe rational behavior on the part of corporatemanagers is to minimize and delay environ-mental costs as much as possible, so as toreduce their impact on the bottom line. Fromthe perspective of the corporate shareholder(i.e., owner), managers should uphold theirfiduciary duty by seeking to maximize share-holder wealth. This means, among otherthings, minimizing discretionary costs, whichin the minds of some, includes environmentalexpenditures that are not explicitly requiredby law. In other words, managers are expect-ed to make investments in environmentalactivities only to the extent that their benefits(pecuniary and non-pecuniary) exceed theircosts. The evidence (i.e., deeds rather thanwords) suggests that the senior managers ofmost American corporations currently sub-scribe to this view.

This is not surprising. Notwithstandingthe arguments that have strenuously beenadvanced by a number of influential membersof industry and academia, the traditionalview of environmental activities and their

costs continues to reflect a rational (albeitlimited) perspective in many corporations.

Adherents of the major opposing schoolof thought maintain that environmental per-formance is fully compatible with superiorfinancial performance, and that emergingenvironmental controls often provide a stimu-lus for process enhancements, product refor-mulations, and other improvements in thecost-effective manufacture and delivery of thefirm’s products and services. A large numberof case studies support the existence of thisphenomenon. Nonetheless, proponents of theidea that well-crafted environmental controlregulations help to spur innovation and thus,competitiveness in the global marketplace,have yet to demonstrate that the well-publi-cized examples that they cite represent a sub-stantial or even meaningful proportion of therange of outcomes that occur when firms areconfronted by new environmental regulatorycontrols or market expectations.

Indeed, a brief review2 and analysis of thepast 25 years of development of and reactionto laws designed to protect human health andthe environment produces incomplete andsomewhat ambiguous results. On the onehand, the process of internalizing (throughregulation) the environmental impacts of cor-porate activities almost necessarily imposesshort-term costs on the affected entity;longer-term regulatory effects, on the otherhand, are strongly influenced by numerousfactors, many of which are under the controlof the people managing the affected firms.A sampling of the literature, for example,reveals large numbers of success stories asso-ciated with individual pollution preventioninitiatives, product life cycle analyses, recy-cling programs, and other forward-looking

1 This debate involves a number of academicians, consultants, regulators, and executives from private industry.Many of the key arguments and supporting facts are articulated in several recent articles by Michael Porter andClaas van der Linde, and on the opposing side, by Paul Portney and colleagues (see the accompanyingBibliography for examples).

2 The literature in this regard is well summarized in a recent report entitled “Do Environmental Regulations ImpairCompetitiveness? A Critical Review of Economic Studies” prepared for U.S. EPA by ICF Kaiser and theEconomics Research Group.


environmental management activities. Theseexamples suggest that additional“low hang-ing fruit” remains to be harvested withinmany corporations. In a few instances,companies have taken their activities in thisregard to their logical conclusion by estimat-ing the total costs, savings, avoided costs, andrevenues associated with their corporate envi-ronmental programs, and some have shownthat their programs serve to improve the netbottom line of the firm. Because the ownersof the firm gain from these activities and theincreases in earnings that they may confer,shareholder wealth and corporate environ-mental objectives need not be viewed asmutually exclusive.

Despite these noteworthy success stories,at a larger, more general level,there has beenlittle empirical evidence or analysis regard-ing the overall impacts of corporate environ-mental activities on the business success ofthe firm as a whole, and virtually no mean-ingful theory or evidence linking wide-spec-trum environmental improvement initiativesto either expected or actual enhancements inthe firm’s sales, earnings, competitive posi-tion, investment risk profile, or market value.3

Until now.

In this paper, we articulate a conceptualmodel that establishes some of these linkages,and provide the results of a quantitative appli-cation of this model to a large and representa-tive sample of the most prominent publiccompanies in the U.S. (more than 300 of the500 companies within the Standard & Poor’sindex). Our results suggest thatadopting amore environmentally proactive posture has,in addition to any direct environmental andcost reduction benefits, a significant andfavorable impact on the firm’s perceived

riskiness to investors and, accordingly, itscost of equity capital and value in the mar-ket place.

To test these posited relationships and ourconceptual approach, we developed andapplied an empirical model. Our results,which are discussed in the sections that fol-low, strongly suggest that firms that improveboth their environmental management systemand environmental performance can increasetheir stock price by as much as five percent.That is, if a firm’s stock price is currently$100 per share, improvements in both envi-ronmental management activities and perfor-mance can boost the firm’s stock price to asmuch as $105 per share. If the initial capi-talization of the company were $1 billionprior to the environmental improvement,after such improvement, stockholder wealthcould increase by as much as $50 million.

Naturally, these values are intended to beillustrative rather than definitive. The ulti-mate gain accruing to any individual firmdepends on many factors, including whatactivities are actually performed, the amount,distribution, and timing of investments in theenvironmental management function, and themode and quality of communications to theinvestor community. The importance of theseissues, and how they may be addressed, arediscussed in greater depth at the conclusion ofthis paper.

The remainder of the paper presents ageneral description of the substance of ourwork. Section II provides an overview of themodel framework. Section III defines what ismeant by improved environmental manage-ment practice and improved environmentalperformance. Section IV describes the con-cept of signaling and the importance of this

3 Nonetheless, several studies have been performed using event methodologies that generally show discernibleshort-term changes in the market value of publicly traded companies as a function of disclosure of particular envi-ronmentally-related phenomena, such as emissions of toxic chemicals, large oil or chemical spills, or receipt ofenvironmental awards. Recent examples of such studies are provided in the Bibliography.


activity in articulating the extent to which afirm’s environmental risk profile is improv-ing. Section V addresses how firm risk ismeasured while section VI discusses the rela-tionship between a firm’s risk, its cost of cap-ital, and its share price. Section VIIsummarizes the empirical results that stronglysupport our contention that firms that improvetheir environmental management system andtheir environmental performance will berewarded with a lower cost of capital and ahigher share price. Finally, a summary, con-clusions, and implications for decision mak-ers are presented in Section VIII. Furtherinformation on our empirical model is provid-ed in an attached appendix.

We believe that our work provides a radi-cally new and different position from whichto join the debate on the financial implica-tions of corporate investments in environ-mental performance, and for that matter, onthe implications of new environmental regula-tory initiatives. Perhaps most importantly, wehope that this work will stimulate further dis-cussion, debate, and analysis on this topicwithin academia, government, the financialmarkets, and the board room.

IIII.. CCoonncceeppttuuaall FFrraammeewwoorrkk

Our model links the evaluation of corpo-rate environmental management systems andenvironmental performance to the marketvalue of publicly traded corporations. Themodel consists of five causally linked compo-nents:

• Corporate Environmental Management Systems

• Environmental Performance

• Environmental Signaling

• Firm Risk, including Environmental Risk

• Firm Value, including Shareholder Wealth Gains (or Losses) Resulting from Changes in Environmental Risk

The schematic below shows how the vari-ous components are related and the variouselements that comprise each individual com-ponent. The model framework indicates thatin order to obtain the benefits of greatershareholder wealth gains, the firm mustimprove its environmental management sys-tem and/or performance. Improvements are

Conceptual Model Linking Corporate Environmental Management and Performance with Firm Value


then made public through a series of carefullytargeted environmental communications to allstakeholders, but specifically to the financialcommunity. This information becomes thebasis for the financial community to assessthe extent to which the firm’s environmentalrisk profile has improved. If the assessmentis positive, then the firm will be accorded alower cost of capital because it is now lessrisky overall. Because a lower cost of capitalmeans that investors are willing to pay morefor the firm’s future cash flows, its stockprice will rise and shareholder wealth willincrease. How much the firm’s stock priceactually rises will depend on the size of theinvestment necessary to improve the firm’sperceived environmental risk, and the magni-tude of the resulting risk reduction.

In addition to the benefit produced whenan improvement in environmental manage-ment and/or performance is clearly signaledto the investment community, shareholdersalso benefit when the firm’s environmentalperformance continues to improve over timebecause of the upgrades to its environmentalmanagement system. Again, once this out-come is clearly signaled to the investmentcommunity, another increase in share pricewill result because there is clear evidence thatthe firm’s environmental risk (i.e., probabilityof one or more adverse outcomes) has beenfurther reduced.

IIIIII.. CCoorrppoorraattee EEnnvviirroonnmmeennttaall MMaannaaggeemmeenntt SSyysstteemmss aannddPPeerrffoorrmmaannccee

What is corporate environmental man-agement/performance?The term environ-mental management as used in this paperextends far beyond the traditional focus oncompliance with environmental control law.Instead, the elements of a state-of-the-artenvironmental management program areinextricably linked with fundamental corpo-rate activities, such as product design,process engineering, marketing, and supplychain management. The adjacent schematiclists several key elements of this type of com-prehensive environmental managementsystem.

First and foremost is whether the compa-ny has developed a corporate environmentalpolicy and demonstrated a commitment tocarrying out the policy. Evidence of theextent of this commitment can take the formof several key indicators: a senior corporateofficial has been assigned to implement thepolicy; lines of responsibility and account-ability have been identified; goals have beendefined that are measurable; and adequateresources have been allocated to implementthe program. A related key program elementis whether the corporation has developed sys-tems to assist in implementing the programand measuring performance, such as environ-mental accounting systems and monitoringsystems that track emissions and dischargesof pollution as well as the usage of raw mate-rials, energy, and other inputs to production.

Implementation of the environmentalmanagement system requires a range of activ-ities: training to ensure that workers operateequipment and production processes correctly


and are proactive with respect to addressingenvironmental risks; product design anddevelopment approaches (e.g., Design forEnvironment or DfE) that reduce the usage ofraw materials, generation of hazardous waste,and environmental risks throughout the prod-uct life cycle; monitoring to ensure that man-ufacturing operations are in compliance withpollutant emission standards and other regula-tory requirements; and the creation of a cor-porate culture in which awareness of andperformance related to environmental issuesis valued and rewarded.

The quality of a corporation’s environ-mental management system matters. Ourresearch on corporate disclosures of environ-mental management systems and their effec-tiveness indicates that companies that attainedrelatively high scores using ICF Kaiser’s pro-prietary rating system obtain greater benefitsin terms of lower investment risk, as com-pared to corporations that appear to havedesigned and implemented programs primari-ly to obtain public relations benefits. Ourenvironmental rating system methodologytakes into account a wide range of factors,such as how the environmental policy isstructured, the level of detail provided by theimplementation plan, including lines ofresponsibility and accountability, the range ofactivities undertaken to achieve improve-ments in environmental performance, thelevel of resources committed to the program,and the extent to which environmental perfor-mance is measured and analyzed. We devel-oped the scoring methodology based on ourmany years of consulting experience onbehalf of corporations, government agencies,and international organizations on a range ofcomplex environmental issues.

Even though corporations may havedeveloped superior environmental manage-ment systems, ultimately, it is critical thatthese efforts lead to improvements in

environmental performance. Firms must beable to demonstrate that they are makingprogresstoward reducing pollutant generationand releases and minimizing liability expo-sure. At a general level, producing data doc-umenting waste generation, effluentdischarges, spills of hazardous substances,and the like is both analytically tractable and,increasingly, required by regulatory agenciesand company stakeholders. The best firms inthis regard set and achieve goals that aremore stringent than those explicitly requiredby law. In an interesting parallel with corpo-rate financial reporting, some firms have evenmoved toward obtaining independent auditsto enhance the credibility of their stated envi-ronmental performance.

Finally, both improved environmentalmanagement and improved environmentalperformance need to be clearly articulated tothe investment community. This brings us tothe next important component of our model— environmental signaling.

IIVV.. EEnnvviirroonnmmeennttaall SSiiggnnaalliinngg

A vital link between a corporation’s envi-ronmental management activities and perfor-mance and its investment risk, which isdetermined by the capital markets, is what weterm “environmental signaling.” When con-ducted most effectively, such communicationconstitutes strategic environmental commu-nications,because it is performed deliberate-ly in support of well defined corporateobjectives, rather than randomly or as part ofgeneral public relations activities. Indeed,although companies may have implementedrobust environmental management programsand are achieving significant and sustainedreductions in pollution levels and liabilityexposure, these efforts may not be fullyaccounted for in terms of lower perceived risk


because they are not widely known amongparticipants in the capital markets, such asinstitutional investors and equity analysts.

It is well accepted that capital marketsoperate more efficiently as the level and relia-bility of information available to investorsincreases. When there is significant uncer-tainty in the markets, such as the prospect offuture increases in inflation, investors demandadditional compensation as a result of thisuncertainty. As new information becomesavailable to market participants that reducesthis uncertainty, such as an unemployment orprice report, investors are able adjust theirexpectations appropriately and the effects ofthis uncertainty on the firm’s value arereduced.

As with industry or macroeconomic data,the availability of information about the envi-ronmental management/performance of acompany also will affect an investor’s percep-tion of the firm’s risk. Our research indicatesthat firms that communicate relevant andcomprehensive information about both theirenvironmental management programs andperformance are generally perceived byinvestors as having a lower risk compared tosimilar firms that provide no information inthis area.

How do firms engage in strategic environ-mental communications? Firms have a rangeof options for communicating environmentalmanagement activities and performance to thecapital markets, including but not limited tothe following: periodic press releases, sum-maries in annual SEC filings, stand-aloneenvironmental reports, television commercialsand newsprint advertisements, and participa-tion in industry-wide programs.

As with financial reporting, the quality ofthe information that is communicated by thefirm will affect investors’ perceptions of itscredibility and overall usefulness for assess-ing firm risk. Corporations that provide rele-vant, detailed, and reliable information ontheir environmental programs and perfor-mance on an on-going basis are more likelyto be rewarded with a perceived lower risk ascompared to corporations that provide onlyqualitative information on a few aspects oftheir program.

How do the investment markets evaluatethese strategic communications, and morespecifically, how do they incorporate thisinformation into their assessment of the riskprofile of the firm? These are questions towhich we now turn.

VV.. WWhhaatt iiss MMeeaanntt BByy FFiirrmm IInnvveessttmmeenntt RRiisskk aanndd HHooww iiss iitt MMeeaassuurreedd??

A firm’ s risk profile can be divided intotwo components. The first is termed system-atic risk and the second specific risk, or riskthat is unique to the firm. Financial portfoliotheory concludes that investors require areturn for accepting systematic risk4 (and onlysystematic risk) because firm-specific risk canbe diversified away. This means that firmsthat reduce their systematic risk are rewardedwith a lower cost of financial capital, and fora given cash flow, a higher stock price.

A firm’ s systematic risk is measured byits “Beta.” Beta is a measure of a givenstock’s volatility relative to the overall mar-ket, with the market’s Beta being assigned avalue of 1. The higher a firm’s Beta, thegreater its systematic risk; stocks with a Betagreater than 1 are more volatile than the

4 Systematic, or market, risk reflects factors that affect all firms in the market simultaneously. These factorsinclude inflation, changes in interest rates, recessions, wars, and the like. Because all firms participating in themarket are affected by these factors, the risks that they pose cannot be eliminated by investing in a more diversi-fied portfolio.


market, while those with a Beta of less than 1are less volatile.5 Both theoretical develop-ments and empirical evidence (i.e., historicalmarket returns) suggest that Beta is not con-stant, but changes over time. These changesare related to a number of factors, includingchanges in the firm’s debt to asset ratio(financial leverage), fixed cost base of opera-tion (operating leverage), customer marketsserved, and product lines, as well as mergersand acquisitions, to name a few. Our empiri-cal model adds to this list another set of vari-ables, described briefly below, designed tomeasure environmental risk. Thus, as afirm’s environmental risk declines (increases)for example, we should expect its Beta, allelse equal, to decline (increase).

VVII.. TThhee RReellaattiioonnsshhiipp BBeettwweeeenn tthhee CChhaannggee iinn EEnnvviirroonnmmeennttaall RRiisskk,, CChhaannggee iinn tthhee CCoosstt ooff CCaappiittaall,, aanndd tthhee FFiirrmm��ss SSttoocckk PPrriiccee �� AAnn IIlllluussttrraattiioonn

To demonstrate the linkages betweenchanges in environmental risk and a firm’sstock price, let us consider the case of anationally known beer company. The compa-ny has a market capitalization of one billiondollars and earns a steady annual profitstream of $100 million which is available toshareholders. The firm has publicly alignedits overall business mission with a set of envi-ronmental objectives and publicly acknow-ledges that its excellent business reputation isin part due to its environmental performance.To further enhance its national reputation as agood environmental citizen, the firm hasdecided to upgrade its environmental

management system with the intention ofsignificantly reducing toxic chemical releasesinto ambient air and water.

To publicly acknowledge the importanceof these environmental activities, the CEOhas created a senior environmental officerposition. The person filling this positionreports to him and also is a member of theBoard of Directors. In addition to conductingan audit of the firm’s current environmentalmanagement system, the senior officer ischarged with both creating a set of environ-mental principles that will broadly define anupgraded environmental management systemand, once approved, disseminating this newenvironmental information to customers, sup-pliers, employees, and investors.

The senior management team understandsthat signaling that the corporation has allocat-ed resources to improve its environmentalmanagement and environmental performanceis critical to the success of the firm’s newenvironmental strategy. As such, the CEOinstructs the firm’s investment relations offi -cer to prepare a series of announcementsalong with several press briefings to articulatewhat the firm plans to do and how theseactivities are intended to significantlyimprove its future environmental perfor-mance. Environmental performance will bemeasured by reductions in hazardous wastegeneration, and regulated emissions of air andwater pollutants.

Prior to these announcements, the firm’scost of equity capital as measured by its cor-porate finance department using the wellknown Capital Asset Pricing Model (CAPM)was 10 percent. As information about thefirm’s new environmental policies is dissemi-nated to various stakeholders and the public

5 In practice, company-specific Beta values are computed from a regression line relating total historic returns (divi-dend yield plus market gain or loss) of the company’s stock to the returns of the overall market. The slope of theline of best fit (regression parameter value using least squares techniques) is defined as the Beta. Beta also may becalculated as the covariance between the returns of the company’s stock and the market divided by the variance ofmarket returns.


generally, the financial markets begin toprocess this new information. More specifi-cally, investors conclude that the firm’s newenvironmental policies will likely result in thefirm being less prone to environmental acci-dents, and that it is well positioned to be incompliance with any new and more stringentenvironmental regulations. As a result, thefinancial markets accord the firm a lower per-ceived risk in the form of a reduced Beta.

When the firm’s corporate finance depart-ment inputs this lower Beta into the CAPM,a new lower cost of equity capital of nine per-cent results. The beer firm’s CFO estimatesthat it will cost about $50 million annually toachieve the desired environmental results.Given this cost and the new lower cost ofcapital, the CFO informs the CEO that thevalue of the firm will increase by $61 millionor $6.10 per share.6

The CFO notes further that this may beonly the initial gain in increasing shareholderwealth. If the new environmental manage-ment system is as successful as expected, thefirm’s future environmental performance willmeet and perhaps exceed the objectives artic-ulated in the firm’s environmental policy. Ifthis occurs, shareholders may be rewardedagain as it becomes more clear to investorsthat the new environmental management sys-tem has indeed created a far less risky firm.That is, as evidence begins to build that thefirm’s upgraded environmental managementsystem is in fact creating the benefits thatwere initially envisioned, the investment mar-kets will be more certain that the firm’s newenvironmental management system works asplanned and further reductions in the firm’sBeta and its cost of capital can be expected.More importantly, these reductions will resultin an additional share price increase in thefuture.

VVIIII.. DDooeess IImmpprroovviinnggEEnnvviirroonnmmeennttaall MMaannaaggeemmeenntt aanndd EEnnvviirroonnmmeennttaall PPeerrffoorrmmaannccee RReeaallllyy PPaayy??

It is one thing to develop the logic of howimproved environmental management sys-tems and improved environmental perfor-mance affect shareholder wealth and toprovide an illustration such as the foregoing,but it is clearly another to actually measurethese impacts. Because we believe that theinternal logic of our argument is persuasive,we decided to attempt to measure the impactsdirectly. What we report below are the resultsof a preliminary but detailed and rigorousanalytical application. Our results support thebasic tenets of our model. A description ofthe research design and a summary of theempirical results are presented in theAppendix.

To illustrate the likely impact on Beta andstock price arising from a reduction in envi-ronmental risk, we simulate below our empir-ical model. The simulation shows themagnitude of the Beta decline and the shareprice increase that result from a 50 percentimprovement in a firm’s environmental man-agement system and a 50 percent improve-ment in a firm’s environmental performance.The table on the next page reflects three sepa-rate impacts--the independent impact of eachindicator on Beta and the cost of equity capi-tal, and then their combined influence. Thiscombined effect assumes that the firm’s envi-ronmental performance registers a 50 percentimprovement two years after the firmimproves its environmental management sys-tem rating by 50 percent.

6 The $61 million is calculated by first capitalizing the firm’s $100 million profit stream by the new lower cost ofcapital ($100 million/.09 = $1.111 billion) and subtracting the $50 million cost of the investment. Because thereare 10 million shares outstanding, the share price improvement is $6.10 ($61 million/10 million shares ).


As the table illustrates, both an improvedenvironmental management system andimproved environmental performance resultin significant reductions in a firm’s Beta. Thecombined effect indicates that systematic riskcan be reduced by a significant amount, about13 percent, resulting in a reduction in thefirm’s cost of capital from 13 percent to 12.34percent.

The table on page 10 demonstrates howdeclines in the cost of capital may result in ahigher stock price and an increase in share-holder wealth. Prior to any improvement inthe firm’s environmental management systemrating or improvement in its environmentalperformance, the firm has a $10 million annu-al cash flow, 10 million shares of commonstock outstanding, and a cost of capital of 13

percent. The value of the firm, assuming thatthe $10 million annual cash flow can be gen-erated in perpetuity, is $76.9 million and itsshare price is $7.69 ($76.9 million/10 millionshares).

Let us now consider the combined effecton the firm’s share price as a result of a 50percent improvement in its environmentalmanagement system followed two years laterby a 50 percent improvement in its environ-mental performance. Under these conditions,we should expect the value of the firm priorto any investment costs to increase by 5.3percent. This means that if investment costsassociated with making the indicatedimprovements are small relative to cashflows, the stock price should increase from$7.69 to $8.10.

IMPACT ON BETA AND COST OF CAPITAL RESULTING FROM A50% IMPROVEMENT IN A FIRM’S ENVIRONMENT ALMANAGEMENT SYSTEM AND ITS ENVIRONMENT AL

PERFORMANCE

-8.5% 1.0 .915 13% 12.57%

-6.5% 1.0 .935 13% 12.67%

-13.2% 1.0 .868 13% 12.34%

(a) In this example, we have assumed that the significant improvements in environmental performance occur inyear 2. Accordingly, the combined effect on Beta is computed by discounting using the cost of capital (12.57%)that results from the initial improvement in environmental management in year 0.

50% IMPROVEMENT

IN VARIABLENAMED AT LEFTWILL RESULT INA BETA DECLINE

OFVARIABLE NAME

INITIALBETA

BETA AFTERCHANGE

INITIALCOST OFCAPITAL

COST OFCAPITALAFTER

CHANGE

ENVIRONMENTALMANAGEMENT

SYSTEM

ENVIRONMENTALPERFORMANCE

COMBINED EFFECT(a)


It is unlikely, however, that the cost ofthe required environmental upgrades will besmall. To the contrary, they may well bequite large. To see how this will affect thestock price, let us assume for the moment thatenvironmental investment costs are two per-cent of annual revenue, or $2.0 million peryear. This is equivalent to what many manu-facturing firms have historically spent annual-ly on “pollution abatement capitalexpenditures,” according to U.S. Department

of Commerce data. Thus, if the investment is$2.0 million annually, the share price wouldrise from $7.69 to $7.90 {$7.69 +[($4.1mil-lion- $2.0)/10 million shares]}. It is worthyof note that this increase in share price doesnot reflect any additional revenue that mightaccrue to the firm as a result of any incremen-tal goodwill that its improved environmentalreputation might confer. Moreover, this cal-culation does not reflect any additional com-petitive advantage that would accrue from

IMPACT ON FIRM V ALUE AND SHARE PRICE RESULTING FROMA FIRM IMPROVING ITS ENVIRONMENT AL MANAGEMENT

SYSTEM AND ITS ENVIRONMENT AL PERFORMANCE

Initial Position• # of shares = 10 million• Annual Revenue = $100 million/year• Cash flow = $10 million/year• Risk Free Rate = 8%• Risk Premium = 5%• Beta = 1.0

• Cost of capital = 8% + 1.0 (5%) =13%

Independent Effect of a 50% Improvement inEnvironmental Management System

• New Beta = .915

• New Cost of Capital = 12.57

Independent Effect of a 50% Improvementin Environmental Performance

• New Beta = .935

• New Cost of Capital = 12.67

Combined Effect• New Beta = .868• Cost of Capital = 12.34%

Maximum FirmValue (Millions)

MaximumStock Price(Value per

share)

PercentIncr ease

fr om InitialPosition

$76.9 $7.69 0%

$79.6 $7.96 3.5%

$78.9 $7.89 2.6%

$81.0 $8.10 5.3%


allowing the firm to make additional non-environmental strategic investmentsthatmight not be possible if its cost of capitalwere higher, nor does it capture any operatingcost savings (increases in earnings) that mightresult from its investments in improved envi-ronmental performance.

VVIIIIII.. SSuummmmaarryy,, CCoonncclluussiioonnss,, aanndd IImmpplliiccaattiioonnss

This paper sets out a conceptual frame-work that can guide senior managers as theygrapple with decisions regarding whether andhow best to deploy corporate resources toupgrade their environmental management sys-tems, with the objective of improving thefirm’s environmental performance. Whileothers have presented anecdotal evidence thatmay suggest that efforts to improve environ-mental performance are likely to yield a vari-ety of secondary, even unexpected, benefits(e.g., new products and more efficient pro-duction processes), one cannot reasonablyexpect senior managers to commit sizablecorporate resources to improved environmen-tal performance based simply on the hope thatthey may encounter such serendipity.

Although many have asserted that corpo-rate environmental activism makes good busi-ness sense and/or that a positiveenvironmental image provides a certaincachet in terms of improving publicperceptions and stockholder relations, theempirical evidence supporting these ideas has

largely been absent. We believe that corpora-tions that are environmentally sound createadditional value for stockholders throughbeing less risky business entities and there-fore, being accorded a lower cost of capital.In this paper, we have explained and mea-sured this phenomenon and shown that firmsthat improve their environmental managementsystem and their future environmental perfor-mance will be able to increase shareholderwealth by perhaps as much as five percent.In short, improving corporate environmentalperformance pays.

Our findings also lead to the question ofhow best to seek out, identify, evaluate, andimplement the enhancements to the firm’senvironmental management system that willproduce better environmental performancewhile optimizing use of company resources.Each firm confronts a unique set of environ-mental and business management challenges,and possesses its own specific complement oftechnological, financial, human, and othercapital. Nonetheless, there are a number ofgeneral activities that may be employed togood effect by virtually any organization.These are briefly highlighted below.

An important implication of our researchthat is reflected in numerous ongoing initia-tives7 to improve environmental performanceis that environmental management should beapproached systematically. That is, definingwhat one wishes to accomplish and howobjectives will be attained, through a formalstrategy development exercise, is necessary to

7 Efforts to bring consistency of approach, terms, and practice to the discipline of environmental management maybe seen in the form of industry codes of conduct (e.g., the Chemical Manufacturers Association’s Responsible CareProgram and the American Forest and Paper Association’s Sustainable Forestry Initiative). In addition, severalnoteworthy domestic and international consortia have been formed that cut across industries, such as the GlobalEnvironmental Management Initiative, and the International Chamber of Commerce’s Business Council forSustainable Development, respectively. Many of these organizations and programs not only promote the develop-ment and dissemination of standardized approaches to environmental management, they also embrace the conceptsof sustainability and eco-efficiency, in which industrial activities are critically examined in terms of raw material,water, energy, and non-renewable resource use, as well as relative to more conventional aspects such as toxic pol-lutant emissions and waste generation. Finally, the nascent ISO 14000 series of environmental management stan-dards represents a serious attempt to promote global consistency and adherence to a set of forward-lookingprinciples, such as preventing pollution and continual improvement.


lay the groundwork for any successful EMS.Because, however, it is difficult to define astrategy and measure progress toward goals inthe absence of a clear baseline, a strategicassessmentof key environmental issues is anappropriate place to start for many organiza-tions.

In most companies, a thorough strategicassessment of environmental issues will iden-tify areas of weakness in the environmentalmanagement function, which can beaddressed through targeted EMS development/improvementinitiatives. These initiatives areby their nature firm- and context-specific, butoften include an assessment and analysisphase and a development and improvementphase, the latter of which is focused on for-mulating missing elements (e.g., policies, pro-cedures), integrating important EMSprinciples and tools, and establishing strate-gies for achieving desired patterns of internaland external information flow.

During the course of EMS developmentor improvement, several distinct and impor-tant EMS functions that are not being per-formed well or at all may be identified.These deficiencies may be addressed throughspecific environmental infrastructureenhancements, or through investments in thecapabilities of the organization’s human orinformation management resources.Conducting a purposeful knowledge/skillbuilding initiative is often a critical activityon the path toward improved environmentaland business performance. Similarly, effec-tive environmental management systemsrequire timely and high quality information,so information management analysis/improvementactivities can play a pivotal rolein helping the organization to meet its envi-ronmental improvement goals, andcommunicate its accomplishments efficiently,

clearly, and credibly to all interested stake-holders.

The corporate financial and otherresources needed to undertake these activitiesand enhancements to the environmental man-agement function are likely to be non-trivialfor most corporations. As we have shownabove, however, the expected return oninvestment for deploying these resources inthis way can be positive and substantial, par-ticularly if financial returns and impacts onshareholder (owner) wealth are evaluated inan appropriate and suitably broad manner.


AAPPPPEENNDDIIXX

RReesseeaarrcchh DDeessiiggnn

We developed an empirical model designed toestimate whether both environmental managementand environmental performance influence a firm’sfinancial risk. This was done in two separatestages. In the first stage, we estimated the Betafor about 330 firms that are included in the S&P500 stock index. This was done for two separatetime periods, 1980-1987 and 1988-1994. Thechoice of time frames reflected the need to havesufficiently long subperiods to both measure tem-poral changes in Beta and to accommodate vary-ing availability of corporate financial data for alarge number of firms across a broad cross-sectionof industries. The distinction between the twoperiods also reflects the emergence of corporateenvironmental management as a distinct activity,

as well as a pronounced increase in the quantityand quality of available data on the environmentalperformance of corporations (e.g., through report-ing under the U.S. EPA’s Toxics ReleaseInventory (TRI) program).

The Betas were estimated by regressing continu-ally compounded daily returns over quarter-yearperiods against like returns on a stock index madeup of all companies trading on the New York andAmerican Stock exchanges. In the second stage,the change in Beta between the two subperiodswas calculated for each company and these obser-vations were then regressed against indicators ofenvironmental management, environmental per-formance, and non-environmental variables.These non-environmental variables included mea-sures of firm financial and operating leverage,variability in operating income, variability in pro-ductivity, and other firm performance variablesthat are designed to capture all known and

TTHHEE RREEGGRREESSSSIIOONN MMOODDEELL

Change in Beta for firm(s) = c1* change in financial leverage(s) +

c2* change in operating leverage(s) + c3 * change in productivity (s) +

c4*change in coefficient of variation of firm revenue(s) +

c5* change in coefficient of variation of firm operating income(s) +

c6* change in standard deviation of operating leverage(s) +

c7* change in correlation between the return on the market portfolio and firm costs (s) +

c8* change in change in operating income(s) +

c9*B(s) [ Beta for firm “s” during 1980-87 period ] + cis*D(is) +

c10 * environmental performance(s) + c11* environmental management system rating(s) +c0(s) + e(s)

where:

c0(s) = regression constant term for firm “s”

D(is) = industry dummy which equals unity if firm(s)’s primary business is in a particulartwo digit SIC code and zero otherwise.

e(s) = error from regression for firm(s)


quantifiable factors of firm risk unrelated to theenvironment.

The environmental variables are of two types.The first is a qualitative environmental variabledesigned to measure the presence and quality ofthe firm’s environmental management system.This variable was developed by ICF Kaiser staffand was based on a detailed review of each firm’senvironmental management practices and philoso-phy as articulated in the firm’s annual environ-mental reports and other public environmentalcommunications. Each company reviewed wasgiven a score from 1 (poor environmental man-agement system) to 35 (best environmental man-agement system). The second environmentalvariable was designed to measure actual firmenvironmental performance. This variable isdefined as the average annual change in TRIreleases per unit of firm capital (value of property,plant, and equipment). These variables alongwith the others noted below were included in theregression model.

The coefficients of the above model were estimat-ed using multiple regression techniques. A sum-mary of the results of this exercise are shownbelow.8

The coefficients of the model suggest that thechanges are in the hypothesized direction, and areclearly material in a financial sense. Statistically,the results indicate that the regression model hassignificant explanatory power as indicated by thesize of the adjusted R-squared and the signifi-cance of the equation’s F statistic. The environ-mental coefficients have the correct signs and alsoare significantly different from zero. The envi-ronmental management rating variable indicatesthat as the firm improves its environmental man-agement system, the firm’s financial risk declines.Also, as actual environmental performanceimproves, as measured by the decline in TRI perunit of capital, firm risk declines.

SSUUMMMMAARRYY SSTTAATTIISSTTIICCSS FFOORR RREEGGRREESSSSIIOONN MMOODDEELL• R-squared = 28%

• Adjusted R-squared = 24%

Probability that Coefficient

• Coefficient Name t statistic Equals Zero @ 99% Confidence Level

1) Environmental

Management -2.86 0

2) Environmental

Performance 2.62 0

• Most non-environmental coefficients were statistically significant, although several of theindustry dummy variables were not.

• F-statistic = 6.73 ; Probability that the coefficients of the model are zero = 0

• Durbin-W atson Statistic= 1.87

• Probability of Heteroskedasticity Using White’s Test = 2%

8 Because the model is proprietary to ICF Kaiser, the coefficients are not shown, though the t -statistics of the envi-ronmental coefficients are provided. For further information on the model, please contact ICF Kaiser.


BBIIBBLLIIOOGGRRAAPPHHYY

Bailey, Paul E. and Peter A. Soyka.“Environmental Accounting—MakingIt Work for Your Company.” TotalQuality Environmental Management.Vol. 5, No. 4 Summer 1996. 13-30.

Barth, Mary E. and Maureen F. McNichols.“Estimation and Market Valuation ofEnvironmental Liabilities Relating toSuperfund Sites.” Journal ofAccounting Research. Vol. 32,Supplement 1994. 177-209.

Beirman, Harold, Jr. and George S. Oldfield,Jr. “Corporate Debt and CorporateTaxes.” The Journal of Finance. Vol.34, September 1979. 951-6.

Birchard, Bill. “Making EnvironmentalReports Relevant.” CFO. June 1996.79-80.

Blacconiere, Walter G. and Dennis M. Patten.“Environmental Disclosures,Regulatory Costs, and Changes inFirm Value.” Journal of Accountingand Economics. Vol. 18, no. 3,November 1994. 357-77.

Blacconiere, Walter G. and W. DanaNorthcut. “EnvironmentalInformation and Market Reactions toEnvironmental Legislation.” Version2.5. August 29, 1995.

Blume, Marshall. “Betas and TheirRegression Tendencies.” Journal ofFinance. Vol. 30, no. 3, June 1975.785-95.

Bowen, Robert M., Richard P. Castanias, andLane A. Daley. “Intra-IndustryEffects of the Accident at Three MileIsland.” Journal of Financial andQuantitative Analysis. Vol. 18, no. 1,1983. 87-106.

Bowman, E.H. and M. Haire. “A StrategicPosture Toward Corporate SocialResponsibility.” CaliforniaManagement Review. Vol. 18, no. 2,1975. 49-58.

Brenner, and Seymour Smidt. “AssetCharacteristics and Systematic Risk.”Journal of Financial Management.Winter 1978. 33-9.

Callahan, Carolyn M. and Rosanne M. Mohr.“The Determinants of SystematicRisk: A Synthesis.” The FinancialReview. Vol. 24, no. 2, May 1989.157-81.

Chen, K.H. and R.W. Metcalf. “TheRelationship Between PollutionControl Records and FinancialIndicators Revisited.” AccountingReview. Vol. 55, January 1980.168-77.

Cohen, Mark A., Scott A. Fenn, and JonathanS. Naimon. “Environmental andFinancial Performance: Are TheyRelated?” Investor ResponsibilityResearch Center: EnvironmentalInformation Service. April 1995.

Conine, Thomas E., Jr. “Corporate Debt andCorporate Taxes: An Extension.” TheJournal of Finance. Vol. 35, no. 4,September 1980. 1033-7.


Dirks, H. John. “Accounting for the Costs ofEnvironmental Cleanup - WhereThings Stand Today.” EnvironmentalFinance. Spring 1991. 89-92.

Dominy, Garrett L. “Accounting forEnvironmental Contingencies andLosses.” Environmental Finance.Spring 1991. 45-51.

Dowdell, Thomas D., Suresh Govindaraj andPrem C. Jain. “The Tylenol Incident,Ensuing Regulation, and StockPrices.” Journal of Finance andQuantitative Analysis. Vol. 27, no. 2,June 1992. 283-301.

Duvel, William A., Jr. “How to UseEngineering Estimates ofEnvironmental Contingencies andLiabilities.” Environmental Finance.Spring 1991. 53-63.

Felton, James, Douglas Hearth, and Pu Liu.“The Information Content of SecurityAnalyses: Evidence from Standard &Poor’s Common Stock QualityRanking Changes.” Journal ofBusiness Finance & Accounting. Vol.22, no. 7, October 1995. 975-89.

Fisher, Anne B. “Corporate Reputations:Comebacks and Comeuppances.”Fortune. March 4, 1996. 90-8.

Freedman, Martin and Charles Wasley. “TheAssociation Between EnvironmentalPerformance and EnvironmentalDisclosure in Annual Reports and10Ks.” Advances in Public InterestAccounting: A Research Annual.Vol. 3, 1990. 183-93.

Fuller, Russell J., George W. Hinman andThomas C. Lowinger. “The Impact ofNuclear Power on the Systematic Riskand Market Value of Electric UtilityCommon Stock.” The EnergyJournal. Vol. 11, no. 2, April 1990.117-33.

Gahlon, James M. and James A. Gentry. “Onthe Relationship Between SystematicRisk and the Degrees of Operatingand Financial Leverage.” Journal ofFinancial Management. Summer1982. 15-23.

Garber, Steven and James Hammit. “DoesSuperfund Liability Increase the Costof Capital?” September 1996.

Global Environmental Management Initiative(GEMI). “Environmental Reportingin a Total Quality ManagementFramework: A Primer.” 1994.Washington, D.C.

Guthrie, James and Lee D. Parker.“Corporate Social Disclosure Practice:A Comparative InternationalAnalysis.” Advances in PublicInterest Accounting: A ResearchAnnual. Vol. 3, 1990. 159-752.

Hamilton, James T. “Pollution as News:Media and Stock Market Reactions tothe Toxic Release Inventory Data.”Journal of Environmental Economicsand Management. Vol. 28, 1995. 98-113.

Harris, Trevor S. and James A. Ohlson.“Accounting Disclosures and theMarket’s Valuation of Oil and GasProperties.” The Accounting Review.Vol. 62, no. 4, October 1987. 651-70.


Healy, Paul M. and Krishna G. Palepu. “TheEffect of Firms’ Financial DisclosureStrategies on Stock Prices.”Accounting Horizons. Vol. 7, no. 1,March 1993. 1-11.

Hill, Joanne and Thomas Schneeweis. “TheEffect of Three Mile Island onElectric Utility Stock Prices: ANote.” The Journal of Finance. Vol.38, no. 4, September 1983. 1285-92.

Ingram, Robert W. and Katherine BealFrazier. “Environmental Performanceand Corporate Disclosure.” Journalof Accounting Research. Vol. 18, no.2, Autumn 1980. 614-22.

Investor Responsibility Research Center(IRRC). “Corporate EnvironmentalProfiles Directory 1995.” 1995.Washington, D.C.

Johnson, Scott David. “An Analysis of theRelationship Between CorporateEnvironmental and EconomicPerformance at the Level of theFirm.” Doctoral Dissertation 1995.University of California, Irvine.

Karpoff, J.M. and J.R. Lott, Jr. “TheReputational Penalty Firms Bear fromCommitting Criminal Fraud.” Journalof Law and Economics. Vol. 36,1993. 757.

Klassen, Robert D. and Curtis P. Mclaughlin.“The Impact of EnvironmentalManagement on Firm Performance.”Management Science. Vol. 42, No. 8,August 1996. 1199-1214.

Koutmos, Gregory and Reza Saidi. “TheLeverage Effect in Individual Stocksand the Debt to Equity Ratio.”Journal of Business Finance andAccounting. Vol. 22, no. 7, October1995. 1063-75.

Lambson, Val Eugene and Farrell E. Jensen.“Sunk Costs and the Variability ofFirm Value Over Time.” The Reviewof Economics and Statistics. 1995.535-44.

Lang, Mark and Russell Lundholm, “Cross-Sectional Determinants of AnalystRatings of Corporate Disclosures.”Journal of Accounting Research. Vol.31, no. 2, Autumn 1993. 246-71.

Lev, Baruch. “On the Association BetweenOperating Leverage and Risk.”Journal of Financial and QuantitativeAnalysis. September 1974. 627-41.

Mahapatra, S. “Investor Reaction toCorporate Social Accounting.”Journal of Business Finance andAccounting. Vol. 11, no. 1, Spring1984. 29-40.

Mandelker, Gershon N. and S. Ghon Rhee.“The Impact of the Degrees ofOperating and Financial Leverage onSystematic Risk of Common Stock.”Journal of Financial and QuantitativeAnalysis. Vol. 19, no. 1, March 1984.45-57.

McGuire, J., A. Sundgren and T. Schneeweis.“Corporate Social Responsibility andFirm Financial Performance.”Academy of Management Journal.Vol. 31, December 1988. 854-72.


Muoghalu, Michael I., H. David Robison, andJohn L. Glascock. “Hazardous WasteLawsuits, Stockholder Returns, andDeterrence.” Southern EconomicJournal. October 1990. 357-70.

Palmer, Karen, Wallace E. Oates, and Paul R.Portney. “Tightening EnvironmentalStandards: The Benefit-Cost or theNo-Cost Paradigm?” Journal ofEconomic Perspectives.Vol. 9, no. 4,1995. 119-132.

Patten, Dennis M. “Exposure, Legitimacy,and Social Disclosure.” Journal ofAccounting and Public Policy. Vol.10, no. 4, Winter 1991. 297-308.

Porter, Michael E. “America’s GreenStrategy.” Scientific American. April,1995. 168.

Porter, Michael E. and Claas van der Linde.“Green and Competitive.” HarvardBusiness Review. September-October1995. 120-34.

Porter, Michael E. and Claas van der Linde.“Toward a New Conception of theEnvironment-CompetitivenessRelationship.” Journal of EconomicPerspectives. Vol. 9, no. 4, 1995.97-118.

Price Waterhouse. “A Survey of CorporateAmerica’s Accounting forEnvironmental Costs.” EnvironmentalAccounting: The Issues, TheDeveloping Solutions. 1995.

Rabinowitz, Daniel L. and Margaret Murphy.“Environmental Disclosure: What theSEC Requires.” EnvironmentalFinance. Spring 1991. 31-43.

Rosenberg, Barr and James Guy. “Predictionof Beta from InvestmentFundamentals.” Financial AnalystsJournal. Vol. 32, no. 3, May-June1976, 60-72, and no. 4, July-August1976. 62-70.

Rosenberg, Barr. “Prediction of CommonStock Betas.” Journal of PortfolioManagement. Vol. 11, no. 2, Winter1985. 5-14.

Rosenberg, Barr. “Prediction of CommonStock Investment Risk.” Journal ofPortfolio Management. Vol. 11, no. 1,Fall 1984. 44-53.

Rubinstein, Mark E. “A Mean-VarianceSynthesis of Corporate FinancialTheory.” The Journal of Finance.Vol. 28, March 1973. 167-80.

Sandoval, Ricardo. “How Green are theGreen Funds?: Fiscal andPhilosophical Ups and Downs ofEnvironmental Investing.” TheAmicus Journal. Spring 1995. 29-33.

Statman, Meir. “Betas Compared: MerrillLynch vs. Value Line.” Journal ofPortfolio Management. Vol. 7, no. 2,Winter 1981. 41-44.

Spicer, B.H. “Investors, Corporate SocialPerformance and InformationalDisclosure: An Empirical Study.”Accounting Review. Vol. 53, no. 1,1978. 94-111

Sullivan, Timothy G. “The Cost of Capitaland the Market Power of Firms.” TheReview of Economics and Statistics.Vol. 60, no. 2, May 1978. 209-217.


Surma, John P. and Albert A. Vondra.“Accounting for Environmental Costs:A Hazardous Subject.” Journal ofAccountancy. March 1992. 51-5.

U.S. Environmental Protection Agency. “DoEnvironmental Regulations ImpairCompetitiveness? A Critical Reviewof Economic Studies.” Prepared byEconomics Research Group, Inc. andICF Kaiser Consulting Group forOffice of Policy Analysis and Review,Office of Air and Radiation.September 1995.

Vance, Stanley. “Are Socially ResponsibleCorporations Good InvestmentRisks?” Management Review. No.64, 1975. 18-24.

Verrecchia, Robert E. “DiscretionaryDisclosure.” Journal of Accountingand Economics. Vol. 5, no. 3,September 1983. 179-94.

Warner, Langdon S. “Making Money on theEnvironment.” B&E Review.October-December 1995. 3-8.

Young, P.J. “Environmental Influences onCompany Valuations.” Journal of theChartered Institute of Water andEnvironmental Management. Vol. 10,no. 1, February 1996. 41-46.

Zuber, George R. and Charles G. Berry.“Assessing Environmental Risk.”Journal of Accountancy. March 1992.43-8.

Staff and Resources The research described in this paper was performed by staff within and under contract with ICF Kaiser Consulting Group, now an independent company known as ICF Consulting. ICF Consulting is a leading management, technology, and policy consulting firm. We draw on extensive industry knowledge, credentialed professionals, and innovative analytics to develop solutions to complex energy, environment, emergency management, community development, and transportation challenges. ICF Consulting successfully implements strategies and analyses in these areas through our expertise in information technology, organizational improvement, and communications. Since 1969, ICF Consulting has been serving major corporations, government at all levels, and multinational institutions from key business centers in North America, Europe, and the Pacific Rim. For more information, please contact: Paul Bailey ICF Consulting 9300 Lee Highway Fairfax, VA 22031 USA Telephone: 703.934.3225 Fax: 703.934.3740 E-mail: [email protected] www.icfconsulting.com

mailto:[email protected]

DOES IMPROVING A FIRM™S ENVIRONMENTAL · PDF fileDOES IMPROVING A FIRM™S...

Documents

Transcript of DOES IMPROVING A FIRM™S ENVIRONMENTAL · PDF fileDOES IMPROVING A FIRM™S...