|
A Global Corporation's Findings:
The Link Between Environmental & Financial Performance
By: George D. Johnson, Director, Corporate Environmental
Affairs, Sara Lee Corporation
Susan Graff, Principal, Environmental Resource Services,
Inc
Reprinted from the International EHS Roundtable meeting
September 6, 2000 -
Crystal City, Virginia
Sara Lee Corporation (SLC) believes social
responsibility is an important part of its business
philosophy that has value in the global community. A
significant opportunity receiving increased attention
from multinational companies is added corporate value
from strategic investment in environmental management
programs.
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 Global) 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 Global 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.
Contacts:
George D. Johnson, Director, Corporate Environmental
Affairs, Sara Lee Corporation
Susan Graff, Principal, Environmental Resource Services,
Inc.
|
