GES Newsletter
April 10, 2008

European companies lose market value when caught with environmental violations. Companies with poor risk ratings lose more than others. These are some of the main findings in a new study from Umeå School of Business in Sweden, based upon GES Investment Services’ well-established Alert Service.

The study has been conducted within the Sustainable Investment Research Program, with financial support by MISTRA. Just like the previous study, which was presented in September 2007 and has gained immense attention, it has been based upon data from GES Investment Services. However, this time it is not the value of processed risk ratings that has been assessed but the value of the premature information that form basis for the subsequent analysis.

The results were published March 31 in the report “How bad is bad news?” by Associate Professors Tommy Lundgren and Rickard Olsson. In their research they have studied all 142 environmental incidents reported upon in GES’ weekly Alert Service since its inception in 2003 until 2006 – “a unique global data-set” according to the authors – as well as possible coinciding changes in the market values of the concerned companies.

The main findings are that environmental incidents are generally associated with negative returns, but not all are statistically significant, except for incidents involving companies in Europe.

“The European results support our prediction that incidents cause goodwill to decrease and, as a consequence, company value also decreases. When we compared this with the GES Risk Rating of each company, we also found that the loss was larger for companies with poor ratings”, says Tommy Lundgren.

“We welcome the results of this study as they confirm what we believed when we started our Alert Service five years ago, that there was an uncovered value for clients in being to promptly notified when information entered our analysis process and not only at the end of it. This has enabled clients to take precautionary measures much earlier in order to minimize the financial risk, especially by initiating an engagement process with the company concerned”, says Magnus Furugård, President and Managing Director of GES Investment Services.

In the next part of the MISTRA programme, the team at Umeå School of University will study the possible financial impact of human rights risk ratings and incidents.

The reports can be accessed at