When and why does it pay to be green?

Environmental policy; innovation; Porter hypothesis; environmental regulation; pollution; capital market; green products.

When and why does it pay to be green ?

The conventional wisdom about environmental protection is that it comes at an additional cost on firms imposed by the government, which may erode their global competitiveness. However, during the last decade, this paradigm has been challenged by a number of analysts. In particular, Porter (Porter, 1991; Porter and van der Linde, 1995) argues that pollution is often associated with a waste of resources (material, energy, etc.), and that more stringent environmental policies can stimulate innovations that may compensate for the costs of complying with these policies. This is known as the Porter hypothesis. In fact, there are many ways through which improving the environmental performance of a company can lead to a better economic or financial performance, and not necessarily to an increase in cost. To be systematic, it is important to look at both sides of the balance sheet.First, a better environmental performance can lead to an increase in revenues through the following channels: i) a better access to certain markets; ii) the possibility to differentiate products and iii) the possibility to sell pollution-control technology. Second, a better environmental performance can lead to cost reductions in the following categories: iv) regulatory cost; v) cost of material, energy and services (this refers mainly to the Porter hypothesis); vi) cost of capital, and vii) cost of labour. Although these different possibilities have been identified from a conceptual or theoretical point of view for some time (Reinhardt, 2000; Lankoski, 2000, 2006), to our knowledge, there was no systematic effort to provide empirical evidences supporting the existence of these opportunities and assessing their “magnitude”. This is the objective of this paper. For each of the seven possibilities identified above [i) through vii)], we present the mechanisms involved, a systematic view of the empirical evidence available, and a discussion of the gaps in the empirical literature. The objective of the paper is not to show that a reduction of pollution is always accompanied by a better financial performance, it is rather to argue that the expenses incurred to reduce pollution can sometime be partly or completely compensated by gains made elsewhere. Through a systematic examination of all the possibilities, we also want to identify the circumstances most likely to lead to a “win-win” situation, i.e., better environmental and financial performance.ENVIRONMENTAL POLICY;INNOVATION;PORTER HYPOTHESIS;ENVIRONMENTAL REGULATION;POLLUTION;CAPITAL MARKET;GREEN PRODUCTS

Social responsibility in the UK top 100 companies

School of Managemen

Economic Implications of Environmental Sustainability for Companies: A Case Study of 3M

As awareness of sustainability grows, firms are being pressured to adopt social and environmental practices to keep pace with ethical standards and consumer demand. Firms must adapt to a changing marketplace, and new management strategies are being developed. Our central purpose in this paper is therefore to explore the economic implications of enhanced environmental sustainability through a case study of 3M, a chemical company that has been implementing sustainable solutions for over 30 years. We begin our case study by analyzing the effectiveness of the lifecycle management approach (LCM) currently advocated to businesses in search of sustainability. Although the LCM methodology is still developing at this stage, it has yielded great results for 3M when combined with employee expertise. We will then go on to analyze why these increases in sustainability have increased profits, and what effect tighter environmental legislation would have on competitive markets. The final section of this paper will analyze the performance of environmentally responsible firms on the stock market to determine whether increased sustainability makes firms more desirable to investors. Our critical analysis of the multi-faceted economic implications of enhanced environmental sustainability will therefore allow us to determine 1) the effectiveness of current approaches to sustainability; 2) the economic implications of enhanced corporate responsibility and legislation, and 3) the impact of enhanced sustainability on the performance of companies on the stock market

The Evaluation of Green Banking Practices in Bangladesh

Whilethe traditional banking mostly focused only on the economic motive, the Green Banking(GB) highlighted on economic, social and environmental motives simultaneously. This study consists the key concept of Green Banking activities.Continuing along, the report covers almost all the important information regardingBangladesh Bank’s initiatives, banks’ policy formulation and governance, bank’sannual budget allocation and utilization for their green finance, climate risk fund,Composition of the Green Banking Unit (GBU), Pin Points of Green Office Guide, Dataon Environmental Risk Rating (EnvRR), and Data on Green Finance (amount disbursedfor ETP, amount disbursed for the projects having ETP, bio-gas plant, solar/renewableenergy plant, Hybrid Hoffman Kiln, and others.).Keywords: Green Banking, EnvironmentalRisk Rating, Green Finance

ESSAYS ON THE VALUE OF A FIRM’S ECO-FRIENDLINESS IN THE FINANCIAL ASSET MARKET

This dissertation presents three different closely related topics on the value of eco-friendliness in the financial market. The first essay attempts to estimate hedonic stock price model to find a contemporaneous relationship between stock return and firms’ environmental performance and recover the value of investor’s willingness to pay of eco-friendliness. This study follows stock and environmental performances of the 500 largest US firms from 2009 to 2012. The firms’ environmental data come from the Newsweek Green Ranking, both aggregate measures: green ranking (GR) and green score (GS), and disaggregate measures: environmental impact score (EIS), green policy and performance score (GPS), reputation survey score (RSS), and environmental disclosure score (EDS). The results show a non-linear relationship between environmental variables and stock return, i.e. upside down bowl shape or increasing in decreasing rate. That means for low green ranking firms the marginal effect is positive while for high green ranking firms the marginal effect is negative. The investor’s willingness to pay (WTP) for a greener stock for firms in the lowest 25 green ranking, on average, is 0.0096% higher stock price. The second essays attempt to determine if a firm’s environmental performance affects future systematic risk. Systematic risk measures an individual stock’s volatility relative to the market price. This study also uses the Newsweek Green Ranking’s environmental variables. The results show significant evidence of a non-linear relationship between green variables and systematic (market) risk, but the shape is not unanimous for all environmental variables. The shape of the relationship for green ranking (GR), for example, is U-shape. This means that for the firms in the bottom rank, improving rank will lower systematic (market) risk, and for the firms in the top rank improving rank will increase systematic (market) risk. On average the marginal effect for the firms in the bottom and top 25 firms are -0.2% and 0.09% respectively. The third essay is the effect of a firm’s environmental performances on a firm’s idiosyncratic risk. Idiosyncratic risk measures an individual stock’s volatility independent from the market price. This study also uses the Newsweek Green Ranking’s environmental variables. The results show significant non-linear relationships between environmental variables and idiosyncratic risk, even though there is no unanimous shape among the environmental variables. In the case of green ranking, for example, it has U-shape; for the firms in the bottom rank, improving green ranking will lower idiosyncratic risk and for firm in the top green ranking, improving green ranking will increase idiosyncratic risk. On average the marginal effect for firm in bottom and top 25 firms are -0.4% and 0.2% respectively

Do Socially Responsible Investment Indexes Outperform Conventional Indexes?

The question of whether more socially responsible (SR) firms outperform or underperform other conventional firms has been debated in the economic literature. In this study, using the socially responsible investment (SRI) indexes and conventional stock indexes in the US, the UK, and Japan, first and second moments of firm performance distributions are estimated based on the Markov switching model. We find two distinct regimes (bear and bull) in the SRI markets as well as the stock markets for all three countries. These regimes occur with the same timing in both types of market. No statistical difference in means and volatilities generated from the SRI indexes and conventional indexes in either region was found. Furthermore, we find strong comovements between the two indexes in both regimes

ESG disclosure and emerging trends in responsible investments: how asymmetric information may impact stability again

Environmental and social sustainability together with sound governance have increasingly attracted interest from consumers and investors, paving the way for the so called ESG finance. ESG criteria seem to reshape the way companies, investors and consumers behave. While laudable, the acceleration of ESG finance may raise concerns relating to the robustness underpinning this new set of financial products, as well as the reliability of ESG-related in formation released by companies to design their public profile. A new breed of ESG ratings and rankings is enriching the metrics used by investors and consumers to make informed financial and investment decisions. Nevertheless, such ratings and rankings depend on the individual disclosure strategies adopted by companies. The scope of this article is to complement available data about individual emissions declared by companies with their ESG disclosure level, particularly focusing on the Environment. This leads the authors to build a new metric, deputed to reduce asymmetric information hopefully, and to favour responsible investment. Starting from ESG related information publicly available, a new disclosure adjusted pollution index (namely the “GHG Scope-1 DAdj index”) is built. The empirical analysis performed in the second part of the contribution, based on this new index, suggests that the rush to ESG finance may possibly be generating leeway for new forms of asymmetries and potential distortions in investment decisions as well as providing ground for speculative approaches in financial product development that heighten concerns and new risks for investors. A handful of companies from our sample become less obvious choices for responsible investors once their environmental record is assessed through the GHG Scope-1 DAdj index

EMPIRICAL STUDY OF SOCIALLY RESPONSIBLE MUTUAL FUNDS

The investment of socially responsible mutual funds has been practiced and questioned for more than a century. Many investors share the concern that the social and environmental criteria would probably hurt the investment returns, and as a result of that, returns of SRI would be lower than conventional investments. Being aware of this, we will correct people’s common sense in this paper by empirically testing whether socially responsible mutual funds have lower excess return or not. We used return and risk indicators to examine the indexes and mutual funds performances in the latest time period. Also we collect the data both of US and Canada socially responsible mutual funds so as to get much broader and more general idea. Except for comparing the indexes performances, it is also necessary to analyse the performances between the SRI mutual funds and conventional mutual funds. According to the results, we find that the socially responsible criteria do not necessarily have a negative effect on investment performance