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)
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