Are companies that actively manage their environmental impacts worth more?

Waste heat is invisible to the naked eye but costly.

In short – yes.  They’re worth more money than those that don’t.  Regardless of your feelings about the environment, as long as you care about money, then you should be more willing to invest it in a firm that manages its impacts.

Some of you will say that of course, that’s because such companies know about regulations and meet them, so they face lower risk of fines or emergency costs.  That is certainly true, but it is not the main reason such companies are worth more.  Even without any fines or emergencies, those companies are likely to grow faster than their peers.

This is the finding of a recent piece of research from academics at the University of California.  They don’t look at why this would be so, but they do demonstrate that it works.  Companies that disclose their emissions aren’t just being “good citizens”, they’re also doing smart business.

In fact, there are two likely reasons for this – and both point to a conclusion that managing your environmental impacts will boost the value of your business. 

First, the group is self-selecting.  Those that benefit from reporting will do so.  That means the reports will almost always come from those companies that a) measure their impacts already, so there’s little extra cost in reporting, and that also b) will suffer no great embarrassment – in particular, it will be those for whom impacts are falling, or rising slower than the business as a whole is growing.

Second, the old saying “what gets measured, gets managed” is true, and this is especially true for cost areas like energy and materials.  Business leaders hate seeing cost per unit of output go up, because it means that they either need to accept less profit or charge more money.  When impacts are reported, they are usually directly connected to the use of resources – for example Greenhouse Gas Emissions relate to the use of fuel and power.  If the measures of consumption per unit of output go down, it’s good news – but no one will be working hard on the process of making that happen if there is no one measuring the result.

Should your firm report its emissions, or other environmental impacts?  My view is that this is the wrong question.  Yes, the research showed that this was associated with growth and value, but in my view it is not the reporting itself that generated this – it is the act of measuring impacts and thinking about cost-effectiveness that led to these firms outperforming the markets.  Because they were in a position to manage their costs down, they thrived.  Companies that measure their impacts will manage them better.  Managing impacts drives company value.  The reporting was just a signal to the market.

Would you like to explore how managing your firm's impacts could boost your growth and increase value?  Contact Julia at julia@jlsbm.co.uk, or (07766) 333864.