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32 Trends 1 (2000-2001)

handle is hein.journals/trends32 and id is 1 raw text is: !ptember/October 2000 )Iume 32, Number 1 Taking stock: New methods emerge to assess financial gains by envronmenta BY WILLIAM L. THOMAS A s investor interest in relative corporate envi- internal and external stakeholders and analyzing ronmental performance grows, more compa- nontraditional performance indicators. Managers es are seeking to improve their investment effectively addressing this high level of complexity attractiveness by undertaking benchmarking studies implicitly have the sophistication to excel in other and other customized analyses to enhance overall parts of the business and thereby earn superior returns and make decisions concerning investments returns. in operational and management improvements. Aside from being an indicator of superior man- Counsel inside and outside the corporation can use agement. environental leadership can provide similar techniques to assess and demonstrate the many financial benefits. Typical benefits include: value of application of legal expertise to specific reduced disposal, materials and energy costs; environmental problems, areas and opportunities. It enhanced product quality and market share: reduced is a trend that bears watching and one that reflects regulatory burden; improved community relations the increasingly multi-disciplinary character of con- often yielding expedited siting and other regulatory temporary environmental law practice. approvals; reduced risk exposure leading to lower Being a strong proxy for ianagement quality, insurance and financing costs; as well as enhanced relative environmental performance is increasingly ability to attract and retain high quality employees. used to project stock market returns. At present, These benefits can now be calculated with greater more than $2 trillion of assets under management precision than ever before, though the actumen to do are invested in the United States through some type so is not widely dispersed. See Seb Beloe, Looking of environmental or social screen. This amount is to the future of SRLU ENVIRONMEN TAL F1\ANCE, growing rapidly as investors realize that investing in March 2000, at 28. a way that helps the environment has a high proba- Innovest was established to meet the growing bility of increasing financial returns. Even main- financial sector demand for high quality analysis of stream investors with no stated objective of helping corporate environmental performance. It sells the environment are using environmental screening EcoValue'21 ratings (environmental ratings intended mechanisms, such as the EcoValue'21 product to project stock market performance) and research developed by Innovest Strategic Value Advisors, a on companies and industry sectors,. It also provides financial services firm with offices in New York, asset management and advisory services to clients London and Toronto (see http://www.innovest- such as Dreyfus, Mellon Capital Management, group.con/), to enhance overall returns. In addition, Neuberger Berman, Fidelity, Scudder Kemper, as more young investors enter the market, many are Morgan Stailey, Schroders and many others. In concerned that their retirement funds not be invest- January, Innovest, along with partnersl Dreyfus and ed in a way that contributes to damaging the envi- Mellon, launched an asset management strategy ronment into which they will retire. based on EcoValue'21. Empirical evidence that environmental leaders In the financial sector, Innovest is widely rec- outperform in the stock market is growing. Over the ognized as the leader in assessing corporate envi- past 10 years, nearly 20 academic and business ronmental performance. Working with strategic studies have analyzed the relationship between ben- partners including Morgan Stanley and Price- eficial environmental goals and stock market per- waterhouseCoopers, the company developed the formance. Most found a positive correlation. The EcoValue'21 model that analyzes more than 60 main reason for the correlation is that environmen- aspects of environmental risk exposure, manage- tal performance is an excellent proxy for manage- ment strategy and systems and business develop- ment quality, the primary determinate of stock mar- ment. Innovest analysts base company rankings on ket returns. It turns out that the environment is one a review of literature from government, NGO, of the most complex challenges facing manage- financial and company sources, as well as inter- ment, especially in resource-intensive sectors. The views with senior corporate executives. challenge involves a high degree of regulatory, mar- Weightings are applied to measurement factors ket and technical uncertainty, dealing with many based on which has the highest correlation to stock price. From this analysis, bottom-line scores **............***............ • are derived and best-in-class ratings are assigned William L. Thomas vs an assouate in rhe Wash ranging from AAA to CCC, which are intended to ginon office of° Winthrop, Simson Putnam & Roberts project stock market returns. and co-chair o; the .non sntei national g-(Continued on page 6) taa Law norecycltd p 0t Printed on reqycled paper

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