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The Emerging Relationship between Financial & Environmental Performance

A Research Study for Business in the Environment

Foreword This study is intended to add to the debate surrounding an important aspect of the business case for environmental action. It has been prompted by the BiE Leadership Team members and, in particular, by some preliminary work at Severn Trent into possible methodologies.

BiE set out to test the hypothesis that there are financial benefits from achieving high environmental standards and that these can be observed and measured in the workings of the financial markets. We drew on our growing body of data from the BiE Index as an environmental indicator and mapped this against a range of mainstream financial indicators. We took every care to ensure that the statistical analysis was thorough, credible and robust and we are grateful to City University Business School for providing this check. The following paper draws on the final report produced by Viktor Lysyuk, who conducted the research.

Our findings provide a mixed picture. We could not prove a positive correlation between environmental management and financial returns, although the negative proposition was not proven either. But we did find a statistically significant negative correlation between high environmental standards and stock price returns volatility.

This latter result is intriguing and one that we consider to be an important development - but we need to remain dispassionate and not to over sell its importance. We believe that we have identified an area where more long-term research is needed so that an irrefutable body of evidence can be built up to support the financial business case.

Derek Higgs
Chairman, Business in the Environment

February 2002

download the research paper.

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