Does Environmentalism Improve Shareholder Value?
February 29, 2008 Environment

Many claim that environmentalism is good business. This paper suggests that this is not the case. I am sure it will be accused of focusing on short-term effects only and all sorts of other sordid things. But its findings need to be considered seriously.

The abstract follows:

Researchers debate whether environmental investments reduce the firm’s value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary environmental initiatives. Companies announcing membership in Climate Leaders and Ceres – two voluntary environmental programs related to climate change – experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that green expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.

The paper is from KAREN FISHER-VANDEN and KARIN S. THORBURN of Dartmouth College. I have not read the paper, but if it is true that green spending crowds out growth related investments, on net, then perhaps people need to pay more attention to the idea that a little wealthier is a lot safer.

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