Institutional investors, led by the large pension funds, have begun to evaluate corporate environmental performance beyond the standard SEC 10-K requirements. Due to the typically wide distribution of a global corporation's stock (i.e. no controlling stockholder), the emergence of institutional investors that select corporate stock based on the view that better value is found among lower risk, strong environmental performance companies, deserves corporate attention. Environmentally screened funds, while a small portion of total funds, are consistently outperforming the S&P 500.
Given these trends, SLC recently initiated a study to investigate environmental programs and strong financial performance in the food and beverage industry. The study was conducted by Environmental Resource Services, Inc. (ERS) to aid roll out of SLC's global environmental program. Specifically, the study evaluated the reported positive correlation between 'beyond compliance' environmental performance (e.g., auditing, waste minimization) and strong financial performance. Our hypothesis was that companies with the following environmental management system (EMS) components in place would have stronger financial performance:
- Demonstrated management commitment to the environment.
- Regular internal auditing of compliance and/or EMS conformance.
“Beyond compliance” programs, such as pollution prevention, eco-efficiency & sustainability.
Regular reporting of program results to stakeholders.
ERS developed an additive environmental performance index based on the presence or absence of these four equally weighted components and applied it to each company in the sector. Financial variables evaluated included earnings per share, price: earnings ratio, and increase in stock price over time.
The study showed that those companies with “beyond compliance” environmental programs experienced the greatest increase in stock price, as measured by the percent change in stock price over the last 10 years. Future analysis of environmental costs and benefits will provide a sound basis for development of sustainable environmental programs into the millennium.