Study Shows Environmental Responsibility Can Be Profitable

Study Shows Environmental Responsibility Can Be Profitable

A new study by Winslow Management Company adds to the evidence that companies that are good to the environment are also good to their shareholders.

Since it was created four years ago, the Winslow Green Index (WGI), an equally weighted index of 100 “green-screened” companies, has had a cumulative increase in value of 98.5%. In comparison, the S&P 500 has had a cumulative decrease in value of -10.69%, while the Russell 2000 had a cumulative return of 32.77%. The annualized return for the period was 16.78% for the Winslow Green Index, in spite of the bear market of 2000 through 2002, while the annual return for the S&P 500 was -2.53% and for the Russell 2000 was 6.62%.

These performance returns cover the period August 1999 through December 2003. As always, past performance is no guarantee of future results.*

“Green stocks aren’t likely to outperform their benchmark by a factor of more than three-to-one in all cases, but our study provides further evidence that green begets green,” said President Jackson W. Robinson. ”That is, we believe companies that care about the environment are well positioned to produce better returns than companies that don‚t.”

“We believe companies that take advantage of environmental opportunities can gain a competitive advantage over their peers through cost reductions, quality improvements, increased profitability, and access to new and growing markets,” Robinson added. “Environmentally responsible companies also have less risk of environmental liability, which could have a major impact on future stock prices.”

Robinson’s conclusions are not only supported by Winslow Management’s latest study, but also by previous studies that evaluate the connection between environmental and financial performance:

  • ”The Emerging Relationship Between Environmental Performance and Shareholder Wealth”, by Ralph Earle, Assabet Group (2000). Perhaps the most comprehensive study to date, this study researched more than 70 articles, research papers and books discussing the link between companies‚ environmental behavior and its financial performance, as well as the performance of nine green funds. Based on the total body of evidence, author Ralph Earle III says that, ”the direction of the results paints a potentially compelling picture of a marriage between environmental excellence and investment performance.” Assabet also found no evidence concluding that environmental performance had a negative impact on stock performance.

  • ”New Alpha Source for Asset Managers: Environmentally-Enhanced Investment Portfolios,” by Innovest Strategic Value Advisors (April 2003). This study investigates the effects of incorporating environmental and social analysis as part of the investment decision-making process. The study is based on live, real time simulations for six investment portfolios of a major pension fund during 2002. In five of the six portfolios, the results indicated that Innovest’s social and environmental ratings had a positive impact on performance. The study provides further evidence that positive environmental performance can add value to a portfolio.