GES Newsletter
September 27, 2007

If a company in a high risk industry improves its environmental performance, there is a possible investor premium. This is the conclusion of a unique study from Umeå School of Business in Sweden and Åbo Akademi University in Finland. Others have previously indicated there might be such a correlation, but this is the first time it has been possible to prove with a study based on genuine risk data, says Professor Lars G. Hassel.

The study has been conducted within the Sustainable Investment Research Program, with financial support by MISTRA. GES Investment Services has provided environmental risk ratings for 534 US companies obtained in 2003-2006. Each company rating consists of both an industry specific risk and a company specific risk, the latter based upon the company’s preparedness and performance. Financial performance is measured by operating performance by using return on assets (ROA) and market value by using Tobin’s Q.

The key question for the study was: Does extra-financial information have direct or indirect consequences for the market value and/or operating performance of a company?

Three of the main findings are:

  • If a company in a high risk industry increases its environmental preparedness and performance by e.g. investing in environmental management, this will in the short term lower their ROA however increase the market value.
  • If a company in a low risk industry increases its environmental preparedness and performance by e.g. investing in environmental management, both its ROA and market value will increase.
  • Since companies in high risk industries generally have a lower market value, there is a possible investor premium in these provided that environmental preparedness and performance is improved.

“The practical implications are that investors should target profitable companies in industries with inherent risk whose market value can be improved through environmental preparedness and performance”, concludes Professors Lars G. Hassel and Natalia Semenova with teams.

“We are very pleased with the findings of this study, which supports the normative position that companies that take care of their environmental risks and opportunities will be able to provide a value added to their owners. Through our existing Engagement process we are exceptionally well-positioned to engage in dialogue with companies that have an opportunity for improvement in their risk ratings”, says Magnus Furugård, President and Managing Director of GES Investment Services.

The study can be accessed at