Monday, 6 June 2011

High Carbon Emitters Have Lower Market Value

Research has suggested a link between financial success and sustainability success for years. And, last month another study punctuated this fact once more; the market cares if your company is actively measuring and reducing carbon emissions.

A study undertaken by researchers at the University of Wisconsin, University of Notre Dame and Georgetown found a negative correlation between emissions and the values of companies in the S&P 500. In fact, they estimated that for every additional ton emitted by a company, company value declines by approximately $200,000 USD.

The research is derived from a review of S&P 500 companies that reported to the CDP between 2006 and 2008.

That the market attaches an implicit cost to carbon (despite that an explicit cost does not exist) is not new.

Over the past few years a strong link has been made in studies between companies who have transparent CSR (Corporate Social Responsibility) practices and positive stock ratings. For example, a collaborative study by scholars at Harvard and the London Business School found that after surveying 4,100 publicly traded companies over the course of 13 years (1997 to 2009) a clear trend emerged. That trend was that equity analysts increasingly view a company’s CSR strategies as value creation strategies that reduce uncertainty about future profitability. As a consequence, analysts have more favorable ratings to companies that have sustainability strategies in place.

Beyond meeting investor expectations, managing and reducing your emissions internally can result in operational cost savings, new revenue opportunities, and enhanced brand reputation.

All this begs the question, is your company actively curbing carbon emissions, and thus generating stronger market value? If no, why not? You’re missing out on valuable business opportunities and soon your investors will take notice.