Printech Archives, July, 1998: Effects of Corporate Envir. Performance on Stock Price

Effects of Corporate Envir. Performance on Stock Price

Wayne Pferdehirt (
pferdehi@epd.engr.wisc.edu)
Sun, 26 Jul 1998 20:07:16 CST


From: "Wayne Pferdehirt" <pferdehi@epd.engr.wisc.edu>
To: printech-and-printreg@great-lakes.net
Date: Sun, 26 Jul 1998 20:07:16 CST
Subject: Effects of Corporate Envir. Performance on Stock Price

This article appeared recently in the New York Times. Some
interesting correlations between environmental performance and stock
performance. Thoughts, reactions?
-Wayne

>--------
>>INVESTING IT; For Wall Street, Increasing Evidence that Green Begets Green
>>
>>By CLAUDIA H. DEUTSCH
>>
>>FOR years now, environmentalists have tried to persuade investors to
>eschew putting money into companies that pollute. Not surprisingly, Wall
>Street has sneered, insisting that a good way to maximize shareholder
>wealth is to minimize environmental costs.
>>
>>But now the do-gooders are confronting the money folk with evidence that
>they are wrong, couched in the language that Wall Street knows best:
>numbers. They are showing, through real and phantom portfolios, that
>eco-efficient companies -- those that recapture raw materials from waste,
>for example -- reward stockholders with more than clean consciences.
>>
>>''Analysts who don't respond to talk about emissions understand if you say
>that such measures lower risks,'' said Linda Descano, vice president for
>environmental affairs at Salomon Smith Barney.
>>
>>The new eco-investors do not suggest that environmental performance is
>more important than financial indicators of a stock's prospects. They avoid
>environmentally sound companies whose stocks seem fully valued. And few
>will put more than 5 percent of their holdings into even the greenest
>company.
>>
>>Nor are they investing only in ''clean'' industries -- service firms, say,
>or solar energy and windmill companies. Instead, they are buying the ''best
>of class'' stocks in basic industries like steel or paper.
>>
>>Few posit a direct cause-and-effect relationship between environmental
>performance and stock price. Instead, they say investors would do well to
>include environmental criteria when picking stocks.
>>
>>''Wall Street sees environment as irrelevant, or bad news waiting to
>happen,'' said Matthew J. Kiernan, chief executive of Innovest Strategic
>Value Advisors, a Toronto-based firm specializing in finance and the
>environment that has a formula for tying environmental performance to stock
>price. ''We say it is a robust proxy for financial performance.''
>>
>>Confirming evidence is pouring in from Europe. Two years ago Storebrand, a
>big Norwegian insurance company, and Scudder Kemper Investments jointly
>created the Storebrand Scudder Environmental Value fund. Scudder screens a
>company's financials; Storebrand checks environmental factors. Only the
>stocks that pass both screens -- Sony, Du Pont and 3M, for example -- are
>included.
>>
>>The fund, which started with $10 million of Storebrand's money, has
>appreciated about 51 percent since its inception, outperforming the Morgan
>Stanley Capital International World Index by more than eight percentage
>points.
>>
>>Storebrand will offer the fund to European institutional investors this
>summer and expects to offer it later in the United States. ''We will not
>market this as a green fund, but as a good financial returns fund with
>limited risk,'' said Jan-Oluf Willums, a Storebrand senior vice president.
>>
>>That is the approach at UBS Brinson in Switzerland. On June 16, 1997, as
>part of Swiss Bank, the group began offering two funds composed of 101
>companies, including Johnson & Johnson, British Telecommunications and
>Bristol-Myers Squibb, that showed superior financial and environmental
>performance. A year later the two eco-efficiency funds, which are
>distributed only in Europe, had increased in value by 24 percent, compared
>with 22.4 percent for the Morgan Stanley index.
>>
>>''An eco-efficient company is making efficient use of its resources, and
>that's probably a strong signal that it is well-managed as a whole,'' said
>Ingeborg Schumacher, an associate director of UBS Brinson.
>>
>>Now, North American environmentalists-cum-financiers are buying into that
>idea. In January, Innovest put together a phantom portfolio that included
>all the Standard & Poor's 500 companies but was overweighted in the stocks
>of 65 companies with high scores on environmental factors, including
>Boeing, Weyerhaeuser and Xerox, and underweighted in those with low scores.
>In the first half of 1998 the environmentally weighted portfolio
>outperformed the S.& P. by 2.8 percentage points.
>>
>>That does not surprise Jackson W. Robinson, president of the Winslow
>Management Company, the environmentally focused division of Eaton Vance,
>the mutual fund management company. Winslow pumped money into KTI Inc., a
>Guttenberg, N.J., company that uses a relatively clean method to burn waste
>to generate electricity. KTI also extracts aluminum and other metals for
>recycling. Its stock is up 45 percent this year, vastly outperforming the
>S.& P.
>>
>>''Some of the best investment opportunities are environmentally sensitive
>companies in otherwise 'dirty' industries,'' Mr. Robinson said.
>>
>>Still, for most of Wall Street, that idea remains a hard sell. ''You say
>'environment' to a bunch of analysts, and they go, 'Ugh, risk, negative,'
>'' said Lisa Laff, an asset manager at Salomon Smith Barney who is a
>chairwoman of the New York Society of Securities Analysts' social
>investment working group.
>>
>>Part of the problem is that environmental data are hard to get. ''It's a
>lot easier to check out a company's margins than to figure how they manage
>their waste,'' said Jack L. Kelly, a conglomerate analyst at Goldman,
Sachs.
>>
>>Still, proponents of environmental investing are building a compelling
>case for making the effort. The Alliance for Environmental Innovation, a
>nonprofit group in Boston, recently reviewed 70 research studies and
>concluded that companies that outperform their peers environmentally will
>also outperform them on the stock market, by as much as two percentage
>points. They found no studies that documented a negative relationship
>between financial and environmental performance. ''You can't find them,
>because the facts just don't support that concept,'' said Ralph Earle 3d,
>the group's director.
>>
>>In another study, released last year, the ICF Kaiser Consulting Group
>found that companies with high scores on environmental criteria were
>''lower-beta stocks,'' financial jargon for less risky investments, and
>would thus enjoy a lower cost of capital and, ultimately, a higher stock
>price. In fact, the study, which looked at 327 of the S.& P. 500 companies,
>indicated that companies can push up their stock price 5 percent by
>improving their environmental performance.
>>
>>ICF Kaiser, however, is not claiming a definite cause-and-effect
>relationship between environment and stock price. ''What we've done,'' said
>Peter A. Soyka, an ICF Kaiser vice president, ''is give executives
>something they can use to persuade their own boards that it makes sense to
>run an environmentally friendly operation.''
>~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>For More Information, go to: http://www.innovestgroup.com/
>
>INNOVEST GROUP INTERNATIONAL
> New York Toronto London
>
>Mr. Hewson Baltzell Dr. Matthew Kiernan
>Managing Director Chairman
>1255 Fifth Avenue 178 Main Street
>New York, NY Unionville, Ontario
>10029 L3R 2G9, Canada
>T - 212-996-7775 T - 905-470-2383
>F - 212-427-0060 F - 905-477-4745
>E-mail - hewson@pipeline.com E-mail - innovest@passport.ca
>
>~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
>RR 1 Box 105A
>Canton MN 55922
>(507) 743-8350
>woodhous@means.net
>
>

**********************************************************
Wayne P. Pferdehirt, P.E., AICP
U. of Wis., Solid & Hazardous Waste Education Center
610 Langdon Street, Room 532, Madison, WI 53703-1195
Phone: 608/265-2361 Fax: 608/262-6250
pferdehi@epd.engr.wisc.edu
**********************************************************


 

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