More Proof in Favor of Sustainability Investing

A study published in the August issue of Management Science reports a statistically significant and positive correlation between company adherence to the most rigorous global environmental standards and higher corporate market value.

Selecting 89 mining and manufacturing firms from the S&P 500 during the period of 1994-97, authors Dowell, Hart and Yeung compared companies that demonstrated consistently strong environmental practice to those that met different standards at each location, as established by the varying regulations of local governments.

The prevailing wisdom argues that operations in less demanding countries enables companies to:

1) save costs by avoiding expensive pollution controls and by continuing to use old equipment that would otherwise have been upgraded; and 2) generate revenue by continuing to manufacture products that are no longer acceptable in the more developed world.

The authors instead found, using Tobins “q” as a measure (market value/replacement cost of tangible assets), that the companies that applied the same stringent standard throughout their operations had higher market values. Possible explanations include:

1) state-of-the-art technology, with the best environmental practices embedded in it, is also the most productive;
2) global standardization provides consistent processes and products worldwide;
3) companies do not have to make incremental investments every time a country increases its environmental standards;
4) companies enjoy intangible benefits like a positive corporate reputation.

From Winslow Environmental News, a SustainableBusiness.com Content Partner.


The Capital Missions Company asks: if increasing evidence demonstrates that socially responsible investing generates returns at least comparable to traditional investing, then why are not more investors shifting their portfolios in this direction?

To help institutional investors overcome the barriers – reluctance to experiment given their fiduciary responsibility for other peoples’ money – Capital Missions came up with the Triple Bottom Line Simulation. This software program enables investors to get hands on experience without risking a cent. The user creates portfolios of socially responsible investments and tracks how they would actually perform in the real market.

The Simulation was designed by investors and treasurers at a May 2001 conference in New York. It will be reviewed at this year’s June 10 conference there.

Triple Bottom Line Simulation posts quarterly results; treasurers can compare these results with their existing conventional portfolios. “All five simulations so far are outperforming the financial benchmarks,” notes Susan Davis, Capital Missions CEO.

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