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November 02, 2000
EPA Study Highlights Financial Link to Environmental Performance
Report encourages overcoming the barriers to integrating the value of environmental strategies into
financial analyses.
SocialFunds.com --
Social investors and environmental advocates have long argued that sound environmental performance
is part of responsible business practice and can add to a company's profitability. A recent report
from the U.S. Environmental Protection Agency (EPA) confirms this positive relationship, and could
help the concept gain wider acceptance in the business and financial community.
 "Green Dividends? The Relationship Between Firms'
Environmental Performance and Financial Performance" is a product of EPA's Environmental Capital
Markets Committee, which is mandated to study this relationship. The Committee, composed of experts
from publicly traded firms, financial firms, business schools, financial regulators, and
environmental organizations, produced the report after soliciting diverse views from the financial
services community.
"The report synthesizes the findings of a broad range of research on
the relationship between firms' environmental performance and financial performance," said Mark
Joyce, EPA Senior Policy Advisor for Environment, Finance & Trade. As EPA's official representative
on the Committee, Joyce was responsible for management of the project.
The EPA report
concludes that there is indeed a moderate positive relationship between the two, but that the
strength of this correlative relationship varies widely by firm and by sector and exact causation
has yet to be determined. According to the report, analysts still don't have methodologies to
accurately value firms' environmental strategies, and the general correlation may be of little
direct value to inform specific investment decisions.
"Green Dividends?" delves deeply
into the barriers that have prevented investors from incorporating environmental information into
their investment selection processes. Chief among these barriers is the lack of clear and
consistent definition for environmental performance, and the inability of many companies to
demonstrate links between environmental strategies and future financial returns.
"Traditionally, both financial analysts and corporate managers have by-and-large thought of
environment strategies in terms of liabilities and risks rather than upside potential," said Joyce.
"Environmental professionals and financial analysts also have different professional lexicons and
different points of reference that have impeded translating environmental issues into financial
terms."
The report concludes with key recommendations to the EPA which could help remove
some of these barriers, such as promoting industry-specific environmental performance benchmarks
and corporate environmental accounting. These suggestions would represent a drastic change in
strategy by the EPA, recognizing the importance of financial services to the environmental
management of corporations.
"EPA gathers, processes, and disseminates vast quantities of
data and information, but it doesn't currently view the financial services industry as a key
constituent," said Joyce. "EPA can benefit investors, progressive companies, and ultimately the
environment by enhancing the utility of the information that it provides."
The EPA report
shows that environmental performance is material to financial performance, confirming the findings
of research by Innovest Strategic Value Advisors, Sustainability Asset Management (SAM), and the
World Resources Institute (WRI). As this message reaches a wider range of investors, perhaps with
the EPA’s help, identifying and capitalizing on environmental trends will grow in importance
for the financial services industry.
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SRI World Group, Inc. All Rights Reserved.
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