LINKING ENVIRONMENTAL PERFORMANCE 

TO BUSINESS VALUE: 

A North American Perspective 

Written by: 

John T. Ganzi 

Eric Steedman 

Stefan Quenneville 

September 2004 
This background paper was prepared for the Secretariat of the Commission for Environmental 

Cooperation (CEC) and Environment Canada. The views and opinions expressed in this report do not

necessarily state or represent the views, opinions or the stated policies of any of the project participants

identified above, nor does mention of those project participants, their trade names or logos imply nor 

constitute an endorsement of the views expressed in this report. 

Reproduction of this document in whole or in part and in any form for educational or nonprofit purposes 

may be made without special permission from the CEC Secretariat, provided acknowledgement of the 

source is made. The CEC would appreciate receiving a copy of any publication or material that uses this 

document as a source. 

For more information: 

Commission for Environmental Cooperation 

of North America 

393, rue St-Jacques Ouest, bureau 200 

Montréal (Québec) Canada H2Y 1N9 

Tel: (514) 350–4300 • Fax: (514) 350–4314 

http://www.cec.org • info@ccemtl.org

© Commission for Environmental Cooperation, 2004 

Cite as: Ganzi, John T., Eric Steedman and Stefan Quenneville. Linking Environmental Performance to 

Business Value: A North American Perspective. Commission for Environmental Cooperation, Montreal. 

September 2004.

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TABLE OF CONTENTS 

I. ACKNOWLEDGEMENTS.....................................................................................................................................6

II. EXECUTIVE SUMMARY ....................................................................................................................................7

KEY FINDINGS..........................................................................................................................................................8

Status of the Business Value Case........................................................................................................................8

Communication and Language Barriers..............................................................................................................9

North American Engagement in the Business Value Case...................................................................................9

Role of the Public Sector....................................................................................................................................10

III. INTRODUCTION...............................................................................................................................................11

METHODOLOGY .....................................................................................................................................................12

Structure of the Report.......................................................................................................................................14

IV. LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE..............................................14

A. CURRENT STATE OF EVIDENCE LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE..............14

Qualitative Research Context ............................................................................................................................15

Quantitave Research—Moving to Macro-level and Indices Studies..................................................................16

Summary ............................................................................................................................................................21

B. INDUSTRY SECTOR RESPONSE TO THE BUSINESS VALUE CASE.......................................................................23

Environmental Performance and Business Value ..............................................................................................23

Measuring, Communication and Disclosing......................................................................................................24

Connecting the Corporate and Financial Sectors..............................................................................................26

C. FINANCIAL SECTOR RESPONSE TO THE BUSINESS VALUE CASE.....................................................................28

Mainstream Equity Analysts ..............................................................................................................................28

Creditors............................................................................................................................................................29

Socially Responsible Investment ........................................................................................................................29

D. PUBLIC SECTOR RESPONSE TO THE BUSINESS VALUE CASE: GEOGRAPHIC PERSPECTIVES.........................30

V. CONCLUSIONS: BARRIERS, GAPS AND OPPORTUNITIES ....................................................................35

A. RESEARCH AND ANALYSIS ................................................................................................................................35

B. MEASUREMENT, COMMUNICATION AND DISSEMINATION...............................................................................36

C. PUBLIC POLICY .................................................................................................................................................37

VI. RECOMMENDATIONS FOR FURTHER DEVELOPMENT OF THE BUSINESS VALUE CASE........40

ANNEX A: LIST OF INTERVIEWEES................................................................................................................43

ANNEX B: COMMENTS FROM EXPERT REVIEWERS.................................................................................44

GENERAL ASSESSMENT:..........................................................................................................................................47

I. ACKNOWLEDGEMENTS...................................................................................................................................48

II. EXECUTIVE SUMMARY........................................................................................................................................48

Key Findings......................................................................................................................................................48

III. INTRODUCTION ..................................................................................................................................................49

Methodology ......................................................................................................................................................49

IV. LINKING ENVIRONMENTAL PERFORMANCE TO BUSINESS VALUE ......................................................................50

A. Current State of Evidence..............................................................................................................................50

B. Industry Sector Response to the Business Value Case...................................................................................50

C. FINANCIAL SECTOR RESPONSE TO THE BUSINESS VALUE CASE ..........................................................................52

D. PUBLIC SECTOR RESPONSE TO THE BUSINESS VALUE CASE: GEOGRAPHIC PERSPECTIVES.................................52

V. CONCLUSION: BARRIERS, GAPS AND OPPORTUNITIES ......................................................................53

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VI . RECOMMENDATIONS FOR FURTHER DEVELOPMENT OF THE BUSINESS VALUE CASE.......53

ANNEX C: AUTHORS’ RESPONSE TO EXPERT REVIEWERS....................................................................66

ANNEX D: TIMELINE OF MAJOR EVENTS RELATED TO THE BUSINESS VALUE CASE.................68

BIBLIOGRAPHY......................................................................................................................................................71

 

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I. Acknowledgements

One of the conclusions of the CEC meeting Financing and the Environment: Disclosure of 

environmental information in North America, held in New York in 2002, was that there is a need 

to work with experts from finance and business to analyze the business value case for taking 

environmental issues into account in financial and business decisions. In a follow-up meeting 

organized jointly with UNEP-FI in New York City in 2003, the identification of this need was 

repeated. In response, Environment Canada and the CEC forged a partnership to develop a 

baseline analysis of the current state of the business value case (i.e., the profitable financial 

performance for specific companies, industries, and the people who invest in and extend credit to 

these companies) for environmental performance. Conscious of the need for broader partnership 

on this issue, a network of organizations and individuals coordinated by Environment Canada 

and made up of experts and practitioners from the finance, business, academic and 

nongovernmental sectors was asked to participate in the development of the project, review the 

results of the study and provide recommendations on how to communicate the findings. 

The CEC and Environment Canada would like to thank the network for its support and review of 

this report. We would also like to thank all of the participants in the expert review process for 

their comments and guidance, which have increased the relevance and credibility of this report. 

The CEC and Environment Canada would like to thank the authors, John Ganzi of Environment 

and Finance Enterprise, and Eric Steedman and Stefan Quenneville of Metamorphoses 

Consulting, for their contribution to examining and distilling this information on the business 

value case for environmental performance. Finally, we would like to acknowledge and thank our 

three countries’ ministers of the environment (the CEC Council) for carefully listening, taking an 

interest in and supporting this line of work at the North American level. 

Chantal Line Carpentier, 

Head, Environment, Economy and Trade Program 

Commission for Environmental Cooperation 

Supporters 

Commission for Environmental Cooperation 

Environment Canada 

Terasen Inc.

Expert Reviewers 

Marc J. Epstein, Jesse H. Jones Gradute School of Management, Rice University 

Carmine Nappi, Alcan Inc. 

Sandra Odendahl, Royal Bank of Canada 

Ken Ogilvie, Pollution Probe 

Brenda Riddick, Bank of Nova Scotia 

Andrew Winston, School of Forestry and Environmental Studies, Yale University 

6
II. Executive Summary1

The Commission for Environmental Cooperation (CEC) of North America and its Parties, the 

governments of Canada, Mexico and the United States, are working strategically to influence all 

sectors of the economy to improve environmental performance and move toward sustainable 

development. Demonstrating the relationship between environmental and financial performance 

(the “business value case”) is a critical first step to supporting the work in this direction. The 

“business value case” refers to the financial bottom line impact of environmental issues and 

variables—in laymen’s terms, how a company’s environmental performance affects its financial 

performance. Previous work by the CEC, Environment Canada (EC) and their partners in the 

business and financial sectors suggests that engaging business and the financial sector in 

integrating environmental information into financial market decisions hinges on identifying, 

measuring, analyzing and communicating how and where improved environmental performance 

can lead to increased business value. A research study was therefore undertaken to review and 

analyze international research examining the linkages between environmental performance and 

business performance, with an emphasis on the North American context. This report 

communicates the findings of the study and is intended for individuals and organizations from a 

variety of sectors that have an interest in understanding how environmental performance 

contributes to business value and financial performance. This report also recommends where 

further research and analysis is required on this issue, and it is hoped that it will contribute to 

additional engagement. 

The report blends a review of existing research on the business value case with interviews with a 

small group of recognized experts2

 in order to establish a baseline of business value case 

information, enhanced by the experience of expert practitioners. The report was also enriched 

through being reviewed by experts from the financial sector, nongovernmental organizations and 

industrial corporations.3

 It is hoped that this extensive review process with practitioners will help 

refine the understanding of the business value case for environmental performance and move 

forward from debating whether the business value case exists to measuring where and how it is 

established and engaging in areas where more work is needed. 

As a review of existing business value case literature, the findings of this report capture a broad 

spectrum of analytical and conceptual approaches and indicators for environmental and financial 

performance. While this approach to the research precludes broad definitive conclusions about 

the business value case for environmental performance, it provides valuable direction on where 

future efforts are needed. Indeed, among the key findings of this report is that there is a need for 

a clear conceptual framework to more systematically link indicators of environmental and 

financial performance and thereby enable companies to integrate environmental information into 

management, operation and capital investment decisions and to communicate the risks and 

benefits to stakeholders in the financial sector. 

 

1

 If you wish to review the full report please contact Chantal Line Carpentier at clcarpentier@ccemtl.org or Andrea 

Moffat at andrea.moffat@ec.gc.ca. 2

 A list of interviewees is available in Annex A. 3

 A list of expert reviewers and their unedited comments is attached as Annex B. 

7
Key Findings 

Status of the Business Value Case 

• A large part of the research reviewed suggests a positive correlation between 

environmental and financial performance; however, a rigorous conceptual 

framework to systematically link environmental and financial indicators is needed.

Overall, the business value case research indicates a positive or, at minimum, neutral 

correlation between environmental and financial performance. The strength of observed 

correlations depends on timing, sample set and which financial and environmental 

variables are examined. Business value case research is strongest when aggregating 

information at the sector and portfolio level and weakest at linking specific environmental 

performance metrics with specific financial value metrics (e.g., emissions to return on 

investment). In either case, the specific mechanisms behind observed correlations are not 

yet documented and causal links have not been established. A conceptual framework to 

systematically capture statistically rigorous relationships between specific environmental 

and financial indicators is needed to improve understanding of the appropriateness of 

specific indicators and to identify where correlations are strongest at the sector, firm and 

issue level. 

• Documenting the financial implications of specific environmental initiatives at the 

company level is needed to facilitate corporate measurement, integration and 

communication of environmental performance information into financial decisionmaking, internally and by external stakeholders.

Most companies are not disclosing and may not be gathering environmental information 

and data in a fashion that is usable for making financial decisions.4

 The interviews, 

literature review and expert review carried out as part of this research suggest that most 

companies do not have the measures of their environmental impacts needed to allow them

to quantify the related costs and/or benefits to their business. This lack of information 

could be potentially significant to both companies and the financial sector, as suggested 

by some research indicating that companies can face divergent levels of financial exposure 

to the environmental issues relevant to their sector. Business value case research must 

establish specific measures that can be integrated into management, operational and 

capital investment decisions and facilitate the communication of risks and benefits to 

stakeholders in the financial sector. 

 

4

 Business value case data may be gathered internally and not published.

8
Communication and Language Barriers 

• Poor communication and dissemination of research on the business value case are 

barriers to financial sector engagement; where links between environmental and 

financial performance are found, they must be presented in a more consistent, 

coherent and coordinated way.

While the quality and sophistication of research and analysis on the business value case 

have improved, infiltration of the information into mainstream business and finance 

communities continues to be inhibited by poor documentation, communication and 

dissemination. Interviewees and expert reviewers note the overall lack of compatibility

and comparability of environmental data and difficulty in demonstrating a causal link 

between disparate environmental and financial performance metrics as key 

communication barriers. However, most financial analysts, particularly in North America, 

are not actively looking at the business value case, even where research demonstrates that 

one exists. This is in part a result of a lack of consistent, coherent and coordinated 

communication of links between environmental and financial performance and because 

the communication of environmental risks, liabilities and opportunities has generally not 

been aligned with the lexicon of mainstream finance. In addition to addressing these 

issues, some have suggested that there is a need to ensure that information on the business 

value case is disseminated through business and financial channels, rather than 

environmental and corporate responsibility outlets. 

• Business value case researchers may not be examining the right questions.

Financial sector engagement and interest in the business value case is not just a question 

of terminology and communication, it is also a matter of whether researchers are asking 

the questions that meet financial analyst and investor information needs. For example, 

most business value case research is backward-looking (asking whether past stock price 

movements are correlated with past TRI releases, for example) and therefore does not 

respond to the forward-looking needs of financial analysts. More research is needed to test 

whether observable environmental variables can predict superior or inferior future 

financial performance. More research is also needed to identify financial analyst and

investor information needs. 

North American Engagement in the Business Value Case 

• Despite pockets of leadership, North American financial institutions, industrial firms 

and governmental agencies are, by and large, not proactively supporting the link

between environmental and financial performance. 

European leadership in corporate social responsibility has resulted in the support of 

banking and institutional investors, who are actively working on the development and 

application of environmental business value metrics. The same cannot be said in the North 

9
American context. While there is a growing and increasingly well-coordinated private and 

public sector effort to enhance understanding, development and communication of the 

business value case in the North American context, coordination is limited to specific 

environmental (most notably, climate change) and corporate governance (most notably, 

transparency and disclosure) issues rather than the integration of the full range of

environmental issues into overall business strategy. 

• In North America, the socially responsible investment (SRI) community has been one 

of the key drivers of analyses and communication of the business value case.

The SRI community has been particularly effective in identifying areas and cases where 

there is a direct correlation between business value and environmental and social issues. 

However, SRI represents only about 3.3 percent of total combined retail and institutional 

assets in Canada (Social Investment Organization 2002) and 11.3 percent of assets in the 

US (Social Investment Forum 2002). 

Role of the Public Sector 

• Governments have an important role to play in supporting the development and 

communication of the business value case. 

An integrated and coordinated approach across a number of departments and agencies, 

specifically including industry, finance and commerce ministries, is needed. The main

roles for governments identified in this review are:

 supporting efforts to identify and address research and communication gaps; 

 increasing use of market mechanisms and tax incentives and disincentives; 

 supporting the availability of transparent and comparable environmental information; 

 effecting stronger regulatory control and better enforcement of current environmental 

laws and regulations, with stiffer penalties for noncompliance; 

 setting and enforcing corporate governance standards; 

 through strengthened securities regulators, enforcing and increasing disclosure of 

environmental risks, costs and liabilities, as well as other aspects of environmental 

performance; 

 catalyzing and leveraging partnerships, especially with financial and business/industry 

departments, agencies and nongovernmental organizations in order to engage effectively 

the financial sector; and 

 in the case of environmental agencies in particular, working on making environmental 

information available to the financial community in useful formats, and cooperating more 

effectively with securities regulators and accounting oversight bodies. 

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III. Introduction 

The Commission for Environmental Cooperation (CEC) of North America and its Parties, the 

governments of the United States, Mexico and Canada, are working strategically to influence all 

sectors of the economy to improve environmental performance and move toward sustainable 

development. Demonstrating the relationship between environmental and financial performance 

(the “business value case”) is a critical first step to supporting the work in this direction. The 

“business value case” refers to the financial bottom line impact of environmental issues and 

variables—in laymen’s terms, how a company’s environmental performance affects its financial 

performance. Previous work by the CEC, Environment Canada (EC) and their partners in the 

business and financial sectors suggests that engaging business and the financial sector in 

integrating environmental information into financial market decisions hinges on identifying, 

measuring, analyzing and communicating how and where improved environmental performance 

can lead to increased business value.

A research study was undertaken to review and analyze international research examining the 

linkages between environmental performance and business performance, with an emphasis on 

the North American context. It focuses on identifying where the business value case is solidly 

established, where it is weak and where there are gaps in knowledge and practice. This report 

communicates the findings of the study and is intended for individuals and organizations from a 

variety of sectors that have an interest in understanding how environmental performance 

contributes to business value and financial performance. The report also recommends where 

further research and analysis is required on this issue and it is hoped that it will contribute to 

additional engagement. 

As this report presents a review of the existing business value case literature, its findings capture 

a broad spectrum of analytical and conceptual approaches to the business value case, particularly 

in terms of their use of a variety of measures of environmental performance and financial value. 

For example, environmental performance may be measured as a function of company-reported 

emissions data or, alternatively, based on whether a company has an environmental management 

system in place. Similarly, share price performance, net income, and return on investment have 

been used as proxies for financial performance. While this wide variety of approaches to 

measuring both environmental performance and financial value makes broad definitive 

conclusions problematic, evidence as well as the experience of practitioners in business and 

finance suggests that, in certain circumstances, improved environmental performance will lead to 

improved financial performance, either through tangible (e.g., eco-efficiency) or intangible (e.g., 

reputation) business value effects. 

Taken as a whole, the large and growing volume of business value case research generally shows 

a positive or, at minimum, neutral correlation between a firm’s environmental performance and 

its financial performance. Notwithstanding this generally positive evidence from the research and

consulted practitioners, however, it is not always explicit how and to what extent environmental 

information is integrated into mainstream financial decisions. 

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Research and the interviews with experts suggest a number of explanations for this lack of 

integration: 

• industry may not be gathering environmental performance data in a manner that facilitates 

their integration into management, operational and capital investment decisions or the 

identification and communication of concordant financial risks and benefits; 

• whatever data industry is gathering on the business value case are generally not being 

distributed outside the firm; 

• where data are disclosed, companies are not effectively linking this information with risks 

or performance in their communications to financiers; 

• research linking environmental and financial performance is either framed inappropriately 

to capture the interest of mainstream financiers, or the research questions being asked are 

not those that mainstream financiers are interested in; 

• business value case research results have not been presented in a coherent or comparable 

way that is understandable or usable by mainstream financiers; and 

• financiers do not have easy access to business value case information or do not see its 

material relevance to firm performance in terms of direct impact on profitability or

competitive position relative to sector peers. 

It should be noted, however, that important information on the business value case, particularly 

as it relates to the use of environmental information by financial analysts, may not be captured in 

the publicly available research used in this report. As interviewees pointed out, some of the most 

sophisticated research on the link between environmental and financial performance is being 

held on a proprietary basis within various institutions. 

While the inherent limitations of this approach to the research may preclude broad definitive 

conclusions about the business value case for environmental performance, the approach does 

provide valuable direction on where future efforts are needed. By balancing analytical research 

with interviews with recognized experts and then having practitioners critically review the 

conclusions and recommendations, the report establishes a baseline context to help guide future 

research and engage stakeholders in further work on the business value case for environmental 

performance within a North American context. It is hoped that this extensive review process with 

practitioners will help refine our understanding of the business value case for environmental 

performance and move us forward from debating whether the business value case exists to 

measuring where and how it is established and engaging in areas where more work is needed. 

Methodology 

The development of this report took place in three major phases: (i) a detailed review of business 

value case literature identified by the researchers and a network of experts and practitioners 

coordinated by Environment Canada; (ii) interviews with a select group of experts (30% of the 

selected individuals declined to participate, which included most of the Canadians and Mexicans 

selected); and (iii) an expert review of a draft version of the report by practitioners and other 

stakeholders. 

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The first phase included an extensive review and analysis of approximately one hundred research 

studies related to the business value case, focused on the following topics: business and 

sustainability, environment as a value driver, corporate social responsibility, the roles of 

investors and fiduciaries, climate change risk and the roles and responses of the many 

stakeholders engaged in the business value case (i.e., government, investors, customers, 

creditors, companies and nongovernmental organizations). The literature was gathered in 

October of 2003; papers published after September 2003 were not included in the literature 

review. All additional bibliographical references and citations provided by the expert reviewers 

are included in a supplemental bibliography at the end of this report. 

In phase two of this report, interviews were conducted with twenty recognized experts in the 

field, drawn primarily from the financial services industry and academic communities.5

 The 

interviews were conducted either in person, by e-mail or by telephone. The interviewees were 

asked five questions related to their: 

• general opinion on the current status of the business value case, including in leading 

sectors or companies; 

• recommendations on specific documents on the business value case that should be 

reviewed as part of the research for this report; 

• perceptions of equity analysts’ response to the business value case; 

• thoughts on engaging mainstream financiers on the business value case, and; 

• ideas on how the Commission for Environmental Cooperation (CEC) and 

Environment Canada should disseminate the completed research findings/report. 

The interview results were integrated into the report and inform its analysis of the current state of 

the business value case for environmental performance. 

Finally, in phase three, this research was subject to an expert review process. The expert review 

helped to ensure that the report correctly reflects the current thinking and evidence on the 

business value case and that it is relevant to experts from a range of sectors. Six practitioners 

from the financial sector, nongovernmental organizations, industrial corporations and academic 

institutions participated in the review process. The reviewers were asked to critically review the 

report, confirming that key pieces of research had been considered in the analysis and that the 

report presents a comprehensive and balanced assessment of the business value case from the 

perspective of identifying where future research and engagement are needed. Reviewers were 

also asked to identify gaps in the business value case analysis and provide recommendations to 

address these gaps and strengthen the business value case. They were also asked to recommend 

how to communicate and disseminate this work. The expert reviewers’ comments that fall within 

the scope of this paper have been distilled and incorporated into this report. 6 In addition, the 

specific comments of the reviewers and the authors’ response to the overall comments are 

included as annexes to the report (see Annex B and C). 

 

5

 A list of interviewees is available in Annex A. In the text, their contributions are acknowledged with the reference 

“expert interviewees.” 

6 They are acknowledged in the text with the reference “expert reviewer.”

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Structure of the Report 

The first section of the body of this report (part IV-A) provides an analysis of the current state of 

the evidence concerning the business value case through a detailed review of qualitative and 

empirical studies. The subsequent three sections (parts IV-B to IV-D) divide the research 

according to industry, finance and public sector engagement and action related to the business 

value case. Section V synthesizes the results presented in the previous sections to identify gaps, 

barriers and opportunities to deepen understanding of and engagement in the link between 

environmental and financial performance. Analysis of these gaps, barriers and opportunities is 

the basis for the recommendations presented in the final section of the report. 

IV. Linking Environmental Performance to Business Value 

A. Current State of Evidence Linking Environmental Performance to

Business Value 

The most predominant sign of the growing interest in the business value case is the explosion of 

research over the last decade. Mainstream research in this area began in the late 1980s as a result 

of the negative financial performance of companies that improperly managed asbestos and thus 

acquired Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) 

liabilities. Since then, and especially since 2000, the volume of research on the link between 

environmental and financial performance has increased exponentially (see Annex D for a 

detailed timeline). 

Today, available information on the business value case spans a wide range of approaches, from

quantitative analytical research (i.e., statistical analysis, financial methodologies) to more 

conceptual work (i.e., surveys and interviews) and from cross-sectoral analyses to specific 

company- and sector-level case studies. When aggregated, this body of research indicates that, in 

most situations, integrating a wide range of environmental criteria (from both a risk and 

opportunity perspective) into financial decision-making processes (both by the industrialist 

investing in plant, equipment and systems, and the investor investing in specific pooled 

investment vehicles) leads to improved financial performance or, at a minimum, does not hurt 

financial performance. From a risk perspective, environmental criteria can add value by, for 

example, ensuring that the management systems are in place to decrease costs of environmental 

compliance and incidents. From an opportunities perspective, environmental criteria can add 

value to a company by, for example, ensuring stakeholder support for the building of a new 

facility. 

Despite this general conclusion, the research itself reveals that conclusive evidence on the 

business value case is scarce. The wide variety of approaches and variables used to assess both 

environmental performance and financial performance make the establishment of a universal 

business value case problematic. This is in part due to the lack of a common framework to 

analyze these relationships and identify the most appropriate indicators. In addition (and likely 

also a result of the lack of a common framework), even where correlations between 

14
environmental and financial performance have been established, causation remains elusive. For 

example, do profits cause companies to invest in improving their environmental performance or 

does environmental performance lead to future financial success (expert reviewer)?

Given the complexities of potential variables, both on the environmental performance side and 

financial valuation side, a universal business case may ultimately be impossible to establish. In 

addition, the research draws attention to a number of research gaps. For example, micro-level 

analyses that draw strong and comparable conclusions from specific valuation approaches are 

lacking. Even where the evidence is relatively strong, the key environmental performance 

metrics required to make it relevant to mainstream financiers are virtually non-existent. 

Qualitative Research Context 

Early research on the business value case is principally qualitative and focused primarily on the 

reputation and risk avoidance aspects of corporate social responsibility. More recently this work 

has expanded its focus to examine environmental and social performance as drivers of business 

and financial value. This expansion has included work on a broader understanding of value 

creation, drawing linkages to corporate governance issues and tracking external drivers (e.g., 

government actions) of the business value case. The increase in research has been driven by a 

combination of factors, including the growth and maturation of the socially responsible 

investment (SRI) industry, increased academic attention to the issue and, to a lesser extent, 

government interest. However, because many of the business value effects of environmental 

performance are intangible and/or have no agreed-upon metric to measure them, a direct 

valueion correlation, let alone causation, remains elusive. 

There are differences in approach and focus on the business value case between Europe and 

North America. The United Kingdom is clearly a leader in the production of qualitative research. 

Some of these studies have examined the impetus for voluntary corporate leadership in the 

United Kingdom and how legislative, investor and larger societal pressures have driven this 

process. These studies have also helped to define the limitations and barriers in existing legal, 

fiduciary and financial systems, explaining how these could change to create rewards for and 

thus motivate improvements in corporate environmental performance. For example, case studies 

of corporate environmental initiatives have shown that employees, customers, nongovernmental 

organizations and investors/investment advisors are important drivers of corporate behavior and 

that many firms have derived financial and business value from a wide range of environmental 

actions. However, these same studies also indicate clearly that research has so far failed to 

demonstrate conclusively that “responsible” businesses necessarily deliver improved shareholder 

value (Little 2003; Cowe and Porritt 2002; and James et al. 1998). It is uncertain whether this 

failure to demonstrate a conclusive link between responsible business practices and shareholder 

value is because the research is unable to discern the correlation or whether the correlation is 

simply not there. For example, a specific question that has yet to be effectively answered is, how 

can one recognize that a company may “go too far” or “invest too much” in environmental or 

sustainability actions, to the detriment of profits and financial success?

15
While qualitative studies from Europe and the United Kingdom focus on a comprehensive 

societal-level view of sustainability (economic, environmental, social), research coming out of 

the US tends to be much more specific and quantitative in its approach. Among the most noted of 

this body of work is The Environmental Fiduciary: The case for incorporating environmental 

factors into investment management policies (Goodman et al. 2002), which reviews the 

significant body of academic and anecdotal evidence on the business value case. The review 

found that “hidden” environmental liabilities and risks have in some cases depressed earnings 

and shareholder value and that investment managers should be paying more attention to 

environmental issues in their policies and investment decision making. Fiduciary-oriented issues 

raised by the report include the potentially significant risks of environmental mismanagement as 

well as macroeconomic environmental factors, such as global climate change, that threaten 

portfolio value (see also Environmental Capital Markets Committee 2000; Emerson, Bonini and 

Brehm 2003; Repetto and Austin 2000; Innovest 2002). 

There is also an increase in work being undertaken to examine long-term aspects of the business 

value case. The Australian-based Mays Report suggests that the business value case is deserving 

of greater prioritization by investors seeking sound long-term investments, and by companies 

seeking to attract long-term capital. In the case of investment analysts, environmental 

considerations benefit investors by providing a deeper understanding of long-term business risks. 

In parallel, companies can benefit by using environmental information to improve investor 

insight into their management skills with a view to improving the total worth (market 

capitalization levels) of the company (Mays 2003).

Quantitave Research—Moving to Macro-level and Indices Studies7

There are a growing number of well-constructed macro- and index-level research efforts that 

quantify the business value case at an aggregate level. These studies examine portfolios of 

companies across a spectrum of industries. Most are US-focused, perhaps in part because of the 

public availability of mandated Toxic Release Inventory (TRI) data for a large number of firms 

in several industries. The availability of TRI data has allowed these US studies to capture some

of the only research available based on quantitative emissions data.8

 In the EU, the 

incompatibility of country- and sector-level corporate environmental emission data has inhibited 

the development of this type of research (Wagner 2001). Environmental emissions data have 

helped to support some quantitative research; however, good emissions data are not a panacea. 

Strong micro-level analysis of the link between environmental and financial performance 

requires broader management data, including data on the processes and mechanisms a company 

uses to identify and assess environmental opportunities and risks. 

The first studies reviewed in this section of the report examine research comparing firms within 

the same country that face similar regulatory and disclosure requirements. The second set of 

 

7 A more in-depth examination of the quantitative research has been provided in the report because of the interest in 

the North America markets in the quantification of the link between environmental performance and financial

performance. 8

 Canada’s National Pollutant Release Inventory (NPRI) captures similar emissions data as the US TRI system;

however, even on a North American level, emissions data are not fully comparable (CEC 2003).

16
studies make intra-firm comparisons for multinationals with operations in multiple countries 

with differing regulatory requirements. 

A number of emission-based studies provide some of the most convincing empirical evidence 

demonstrating the financial value of environmental performance. Key recent examples of this 

work are reviewed below.

 

A recent study by Bagozzi, Epstein and Wisner (2003) found a specific correlation between 

management strategy and environmental performance at 179 large US companies in a variety of 

industries. Management commitment, strategic planning and proactive programs could explain 

approximately one-third of environmental performance, according to the study, which applied a 

rigorous multi-trait and multi-method statistical approach. The authors draw a clear link between 

these “policy variables” and overall firm performance, making the assertion that environmental 

performance has a positive and significant association with financial performance through return 

on investment and earnings growth (Bagozzi, Epstein and Wisner 2003). 

 

An analysis of emissions data from 652 US manufacturing firms between 1987–1996 found 

evidence of an association between pollution and financial performance, noting that companies 

with good environmental performance, as measured by total Toxic Release Inventory (TRI) 

emissions per company, tended to experience superior financial performance9

 relative to their 

industry peers (King and Lennox 2001). Some of the issues one should consider when looking at 

any study that relies heavily on TRI data is that: a) TRI aggregates emissions of varying toxicity 

by weight; b) TRI aggregates releases by destination; c) many industries, such as intensive 

animal farming, are highly polluting, but not through toxic releases, and would be given an 

unrealistically “good” ranking by the TRI; and d) firms within the same industry may differ in 

TRI releases for reasons unrelated to environmental management, such as product mix or age of 

plant, which could lead to misinterpretation of statistical associations (expert reviewer). Another 

related study in the late 1990s examined the economic and environmental performance of 243 

companies (all members of the Fortune 500 and variously located in industrial sectors) over a 

two-year period (Russo and Fouts 1997). This study found that companies with superior 

environmental performance10 had higher returns on investment compared to their competitors, 

even after accounting for other contributors to profitability, such as sales growth and market 

position. 

Separately, financial accounting measures such as return on equity (ROE) and return on assets 

(ROA) have been shown to improve with better environmental performance, while the 

inadequate disclosure of environmental liabilities has been found to have a compounding 

negative effect on the financial results of poor environmental performers; when environmental 

disclosure is understated, investors cannot adequately assess future earnings or share value, and, 

 

9 The dependent variable for the analysis is financial performance as reflected by Tobin’s q. Tobin’s q measures the 

market valuation of a firm relative to the replacement costs of tangible assets. Essentially, it reflects what cash flows 

the market thinks a firm will produce in the future. 10 The study applies a resource-based view related to environmental performance, considering resources and 

capabilities in the following combinations: (1) physical assets and the technologies and skills required to use them; 

(2) human resources and organizational capabilities, which include culture, commitment, and capabilities for 

integration and communication, and (3) the intangible resources of reputation and political acumen.

17
when risks are eventually revealed, “not only does the true cost of the liability drive down 

corporate value, but trust is eroded, and management may have difficulty attracting capital. In 

this way, undisclosed environmental liabilities create a double drag on shareholder value and 

should be of special concern to fiduciaries” (Blake-Goodman, Kron and Little 2002, 28). 

While the above research provides support for a connection between environmental and financial 

performance, few studies establish a direct causal link between emissions and financial 

performance (and those that do are challenged as not valid), highlighting a need for further 

statistically rigorous micro-variable analysis. 

Other work broadens this research to examine the business value case in the context of US-based 

multinationals operating in countries with relatively weaker environmental standards. This 

research sampled 89 S&P 500 US-based multi-nationals in the manufacturing or extractive 

industries with production facilities in developing countries, which for the most part have weaker 

environmental standards and often significantly weaker enforcement activity. Analysis of the 

environmental and financial performance of this sample found that adoption of global 

environmental standards by multinational enterprises did not constitute a liability that depressed 

market value and suggested that positive market valuation is associated with the adoption of a 

single stringent environmental standard around the world. This finding has a clear message for 

governments that the race to lower environmental standards as a competitive advantage does not 

equate to increased company value (Dowell, Hart et al. 2000; Epstein and Roy 2003).

There is also evidence that regulated pollution reduction has a positive impact on financial value. 

For example, Konar and Cohen (1997) conclude that a 10% reduction in emissions of toxic 

chemicals resulted in an average US$ 31 million increase in market value. The study also relates 

the market value of firms in the S&P 500 to objective measures of their environmental 

performance, showing that environmental performance had a significant effect on the intangible 

asset value for publicly traded firms in the S&P 500. Firms that had a poorer environmental 

performance track record also had lower intangible asset values, after controlling for other 

standard variables known to affect firm financial performance. The average “intangible liability” 

for firms in the sample was US$ 360 million, or approximately 8.4 percent of the replacement 

value of tangible assets. 

Using real-world data on more than 300 of the largest public companies in the US, Feldman et al. 

(1996) evaluated the hypothesis that improved environmental management practices and 

performance result in higher stock price.11 Their work suggests that environmental improvements 

might lead to a substantial reduction in the perceived risk of a firm, with an accompanying 

increase in a public company’s stock price of perhaps five percent. The study concludes that 

investments in environmental management and improved performance can be justified, in many 

 

11 The study uses a conceptual model that links the evaluation of corporate environmental management systems and 

environmental performance to the market value of publicly traded corporations. The model consists of five causally 

linked components: corporate environmental management systems; environmental performance; environmental

signaling; firm risk, including environmental risk; and firm value, including shareholder wealth gains (or losses) 

resulting from changes in environmental risk. 

18
cases, on purely financial grounds, and that the net financial impact of prospective environmental 

investments can now be evaluated more fully than before. 

There have also been a number of aggregate analyses of the available research on environmental 

and financial performance that further substantiate a positive correlation between environmental 

performance and business value. Murphy (2002) summarizes twenty of the leading empirical 

studies conducted in the past ten years correlating the relationship between environmental 

management and corporate profitability. These studies tested a wide variety of environmental 

performance indicators against a range of financial measures and found that positive 

environmental performance was linked with positive financial results, and that negative 

environmental performance led to negative results. Taken together, these studies also suggest 

that no single environmental criterion or financial measure can be isolated as the sole indicator of 

the environment/finance relationship, reinforcing the observation that the evidence of the links 

between environmental and financial performance becomes weaker as the scale of examination, 

or number of variables, becomes smaller. This evidence reveals that, at a micro-level, the 

research done to date is still inadequate to support a solid, universally accepted business value 

case for environmental performance. It also indicates that macro-level analysis must be 

multivariate in nature, with well thought-out dependant and independent variables based in 

theory. To capture intangible value, business value case research could draw upon marketing and 

advertising theories, which are also focused on identifying intangible value drivers such as 

brand and reputation. 

Measuring Environmental Performance and Financial Value: 

Research12 Approaches 

To illustrate how the business value case has been established, the following table lists a small 

sample of the measures of environmental/financial performance reviewed for this report.

Proxies of 

Financial 

Value

Proxies of Environmental Performance Source of 

Information

Stock Price • The original research and follow-up 4 years later broke the S&P 500 into 

two groups, based on 4 specific environmental criteria. Those seen as best 

environmental performers outperformed others by 70 BPs over the 22-

year back test period. 

Snyder and

Collins 1993;

Clough 1997 

Stock Price • Based on an assessment of the effect of the passage of the Superfund

Amendments & Reauthorization Act (SARA), the study analyzed

different chemical firms viewed as leaders and laggards in the industry. It 

confirmed that leaders in disclosure suffered much less negatively.

Blacconiere and 

Northcut 1995 

Stock Price • This was an event study that looked at 6 specific environmental events 

(e.g., Valdez, passage of CERCLA, etc.) and their effects on share prices 

of major US-based insurance firms. In general, it showed either no

difference between environmental leaders and laggards in effect from

positive events or a material difference from negative events. 

Ganzi and 

Neubert 1995

Stock Price • Based on impact of Valdez accident. Showed proactive firms suffered less

than those seen as laggards. 

White 1996

 

12 This table attempts to provide a high-level synopsis of the financial and environmental linkages reviewed in the 

research studies. The lack of detail regarding the description of the metrics is a reflection of the complexity and 

difficulty of communicating the results of business value case research in a concise manner. This points to the need

for the development of comparable information and metrics. 

19
Stock 

volatility 

• Sample of 327 Fortune 500 firms studied for their approach to

environmental management (EMS, environmental measures, and TQM). 

Volatility of price reduced significantly for leaders. 

Feldman, et al. 

1996

Return on

Investment

(ROI) 

• An evaluation of 243 firms from the S&P 500 over a two-year period

showed a greater ROI for firms with superior environmental performance, 

according to a set of criteria established by the researchers. 

Russo and Fouts 

1997

Return on

Equity (ROE) 

and Return on

Assets (ROA) 

• Business value was shown to improve with better environmental 

performance, by driving down costs and thereby increasing future 

earnings. In contrast, a compounding negative effect on the financial

results of poor environmental performers was seen. 

Blake-Goodman, 

Kron, & Little 

2002

Stock Price • Group of indicators used on breaking S&P into two groups to evaluate

share price return. Showed a modest positive correlation.

Kessler and 

Gottsman 1998 

Net Income • By looking closely at TRI data in the US, the researchers found a clear 

link between cleaner firms in the same industry and higher net income. 

King and Lennox

2001

Stock Price • The study (looking at 89 of the S&P 500) showed that firms with a global 

environmental standard that exceeds most nations’ own regulatory 

regimes actually generated a higher stock price. 

 Dowell, Hart, 

and Yeung 2000

Net Income • An evaluation of the pulp and paper industry that looked at differences 

across firms (leaders and laggards) in the sector as to their exposure to 

future financially material environmental risks.

Repetto and 

Austin 2002

Net Income • 179 USA-based firms in a range of industries were evaluated on systems 

and organizational design relative to environmental issues. The

researchers found that a strong focus on these issues enhanced net income. 

Bagozzi, Epstein 

and Wisner 2003 

Despite these sample findings (and well over a 100 other examples are available), drawing 

overall conclusions on the relationship between environmental performance and business value 

remains difficult, at least partially due to the limitation of or gaps in the research. Examples of 

these gaps and limitations include the following: 

• Event studies show that the influence environment-related events (positive or negative) 

have on stock market performance of firms is only short-term in nature, which suggests 

that analysts should not be including environmental performance as part of their longterm valuations. (Murphy 2002; Knight and Pretty 2001). 

• Earlier studies generally suffer from problems such as small sample size, unclear 

differentiation in companies’ approaches to environmental performance, and a lack of 

controls for larger economic issues (Murphy 2002; Konar and Cohen 1997; Russo and 

Fouts 1997). 

• It is difficult to assess to what degree the variability encountered in the results is due to 

methodological artifacts (i.e., whether portfolio studies, event studies or regression 

analysis were used to scrutinize the relationship) or other factors, such as the 

environmental performance measures used, the sectors analyzed, the countries covered, 

or the economic performance measures applied (Wagner 2001). This is primarily because 

no common analysis framework based in economic, financial and marketing theory has 

been developed to guide research and the testing of business value case hypotheses. 

 

Some of the most recent work on the business value case has begun to address these concerns 

through the development of forward-looking company-level environmental risk assessments. For 

example, Repetto and Austin (2000) have developed a scenario-based methodology, consistent 

with established financial valuation techniques, to assess companies’ prospective financial 

exposure to environmental risks. This methodology has been applied to the pulp and paper sector 

20
(Repetto and Austin 2000), oil and gas sector (Austin and Sauer 2002), utility sector (Repetto 

and Henderson 2003) and the automotive sector (Austin et al. 2003). 

Key findings include the following (Repetto and Austin 2000): 

• Pending environmental issues could markedly influence companies’ input costs, 

revenues, asset values and, hence, shareholder value, but financial exposure to pending 

environmental issues varies considerably among companies. One company is likely to see 

shareholder value enhanced by pending environmental issues, while other companies face 

probable losses in market value of at least ten percent. Therefore, environmental issues 

can create winners and losers within the same industry. 

• Undisclosed information about companies’ environmental performance and exposure 

could be of significant value for investors. Though environmental issues can affect 

financial performance, company reporting falls short of the full and adequate disclosure 

required for material issues, as set out in US Securities and Exchange Commission (SEC) 

rules and guidelines. This finding applies both to companies that stand to benefit and 

those that stand to lose from environmental disclosure. 

Summary 

The review of the research points to a connection between company environmental and financial 

performance—i.e., a business value case for environmental performance. The business value 

case is empirically strongest when aggregated at the portfolio or sector level. This “macro-level” 

evidence captures a range of approaches to measuring both environmental performance and 

financial value. The business value case becomes harder to determine when the scope of 

environmental and financial variables being examined is narrowed. Indeed, this challenge and 

the general lack of such “micro-level” variable analyses or a theory-based macro-level 

framework means that existing research on the business value case for environmental 

performance is weakest when attempting to correlate specific measures of environmental 

performance to specific measures of financial value. 

The experts interviewed as part of the development of this report consistently mentioned that the 

principal reason for the lack of an established business value case is that no accepted standard of 

environmental value-driver(s) exists. The literature generally supports this point. For example, 

Cowe and Porritt (2002, 19) note: 

The evidence for a link between improved corporate responsibility and financial 

out-performance is also mixed. Studies suggesting a universal correlation—that 

Corporate Social Responsibility (CSR) always pays—have not been supported by 

later research. But there is growing evidence that, in certain companies, and at 

certain times, improving CSR in certain ways will lead to financial outperformance. 

 

While the analytical data and studies done in the last five years usually show a positive or, at 

minimum, neutral correlation between environmental criteria and financial performance, there 

has not been a related increase in the effectiveness of dissemination, due in part to 

21
inconsistencies in the use and understanding of terminology related to the issues. One reason for 

this is that almost all the research done to date is backward-looking, but financial markets and 

analysts are forward-looking. Even if past environmental and financial performance are 

positively correlated, it does not imply that future environmental and financial performance 

would be predictably related—in reality, efficient capital markets theory would hold that they 

would not. 

Europe leads in terms of looking at the business value case, but the absence of harmonized 

requirements for reporting corporate environmental emission release data, along with 

methodological weaknesses, has prevented the development of empirical backup to support the 

strong qualitative work that is being produced (Wagner 2001). The US has produced perhaps the 

most solid body of empirical evidence regarding the business value case, which nonetheless must 

be improved substantially if it is going to have an impact. What currently exists in the US must 

be more effectively distilled and disseminated to the North American capital markets in a 

language that analysts understand. Overall, improved quantity and quality of environmental and 

financial performance information and better integration of this information into business 

strategy and risk communication would be of assistance to environmentally oriented investors in 

both Europe and North America. 

Overview of Support for the Business Value Case: 

Top 20 Documents Reviewed13

The following table lists the most relevant papers reviewed in producing this report, and whether a paper supports a

positive, negative or neutral correlation between environmental and financial performance. Note that these papers do

not necessarily use the same measures of environmental performance or financial value.

Author Date Title of Report Supports Business 

Value Case (Positive, 

Neutral, Negative,

N/A) 

Austin, D. et al. 2003 Changing Drivers: The impact of climate change on

competitiveness and value creation in the automotive 

industry

Positive 

Blake-Goodman, 

S., J. Kron and T. 

Little 

2002 The Environmental Fiduciary: The case for incorporating 

environmental factors into investment management policies 

Positive 

Bowers, R. and 

D. Aaron 

2003 Socially Responsible Investing Positive and Negative 

Business in the

Environment

2001 City Attitudes Survey: Investing in the future Neutral 

Coles, D. and D. 

Green 

2002 Do UK Pension Funds Invest Responsibly? A survey of 

current practice on socially responsible investment 

Neutral 

Coulson, A. and 

ISIS Asset 

Management

2002 A Benchmarking Study: Environmental credit risk factors in

the pan-European banking sector

Positive and Negative 

Cowe, R. and J. 

Porritt 

2002 Government’s Business—Enabling corporate sustainability Positive 

Emerson, J., S. 2003 Blended Value Map: Tracking the intersects and N/A 

 

13 A summary of the top twenty documents reviewed for this report can be obtained from the CEC Web site

<http://www.cec.org/> or Environment Canada Web site <http://www.ec.gc.ca/cei>. 

22
Bonini and K.

Brehm

opportunities of economic, social and environmental value 

creation 

Environmental

Capital Markets 

Committee.

2000 Green Dividends? The relationship between firms’ 

environmental performance and financial performance 

Positive 

Ganzi, J. and A. 

DeVries. 

1998 Corporate Environmental Performance as a Factor in

Financial Industry Decisions 

Positive and Negative 

Ganzi, J., B. 

Erbiste et al. 

2003 Environmental, Social, Health and Safety Risk Management

Manual for Financial Institutions 

Neutral 

Gilding, P. et al. 2002 Single Bottom Line Sustainability: How a value centered

approach to corporate social responsibility can pay off for 

shareholders and society 

Positive 

Innovest

Strategic Value 

Advisors, Inc.

2003 Carbon Disclosure Project 2003—Carbon finance and the 

global equity markets 

Positive 

Innovest

Strategic Value 

Advisors, Inc. 

2002 Value at Risk: Climate change and the future of governance Positive 

Little, Arthur D. 2003 Speaking the Same Language: Improving communications 

between companies and investors on corporate 

responsibility 

N/A 

Mays, S. and BT

Financial Group

2003 Corporate Sustainability—an Investor Perspective: The 

Mays report 

Positive 

Murphy, C. 2002 The Profitable Correlation between Environmental and

Financial Performance: A review of the research 

Positive and Negative 

Pearce, B., et. al. 2002 Sustainability Pays Positive 

Plinke, E. 2002 Share Performance and Sustainability—Does environmental 

and social performance have any influence on share 

performance? 

Positive 

Repetto, R., and

D. Austin

2002 Pure Profit: Financial implications of environmental 

performance 

Positive 

Repetto, R., A. 

MacSkimming 

and G.C. Isunza 

2002 Environmental Disclosure Requirements in the Securities 

Regulations and Financial Accounting Standards of Canada, 

Mexico and the United States

Positive and Negative 

Wagner, M. 2001 A Review of Empirical Studies concerning the Relationship 

between Environmental and Economic Performance—What

does the evidence tell us 

Positive and Negative 

B. Industry Sector Response to the Business Value Case 

Environmental Performance and Business Value 

There is evidence that some companies are realizing benefits from improved environmental 

performance (Blake-Goodman et al. 2002), though how and to what extent environmental 

practices generate business value varies across and even within sectors. Studies of corporate 

environmental leaders suggest a variety of potential sources of value. Improved environmental 

performance can, for example, reduce operating costs and increase efficiency, facilitate access to

markets, reduce insurance and lending rates, enhance employee recruitment and retention, 

23
improve stakeholder relations and, in some cases, lead to improved share price performance 

(Conference Board of Canada 2001). At the same time, companies are feeling the impact of 

environmental risks on their bottom line—in a 2003 survey of senior executives in the US, 35 

percent reported a business transaction failure related to an environmental issue (CFO Research 

Services 2002).14 

Despite these findings and pockets of corporate environmental leadership, broad adoption by 

industry of corporate environmental initiatives in North America, and globally, has not occurred. 

UNEP’s 2002 industry assessment found that “in most industry sectors, only a small number of 

companies are actively striving for sustainability. The majority of companies are still doing 

business as usual” (UNEP 2002, 9). In addition, Epstein (2003) suggests that even companies 

that are proactive are not realizing the full financial potential of improvements to their 

environmental management. 

While this general lack of leadership may be a response to an overall lack demand by investors 

for environmental management, the growing divide between leaders and laggards suggests that 

the majority of companies is not necessarily taking into account the potential advantages and 

disadvantages that environmental issues present across its sectors. For example, a series of 

publications by the World Resources Institute has demonstrated for a number of sectors that the 

unevenness with which environmental issues strike across industry makes them potential sources 

of competitive advantage and disadvantage (Repetto and Austin 2000; Austin and Sauer 2002, 

and 2003). As an example, the first in this series of papers found that companies in the pulp and 

paper sector face highly variable liabilities and risks related to pending environmental issues. 

The unevenness of the potential costs associated with addressing these risks and liabilities also 

means that companies impacted more greatly than their peers are forced to internalize more of

the costs than their competitors, thereby reducing their competitiveness (Repetto and Austin 

2000). 

Measuring, Communication and Disclosing 

For corporate environmental leaders, the challenge is therefore to identify the potential 

competitive advantages of their environmental positioning and effectively communicate the 

value, both tangible and intangible, of their environmental performance to investors, customers 

and stakeholders. Furthermore, by communicating these benefits to government leaders, they 

may succeed in facilitating a more supportive public policy environment—one that better 

supports corporate leadership. Successful communication along these lines is seen by many as a 

fundamental building block for advancing the business value case. Recognition of corporate 

leadership by institutional investors and through supportive public policy would entrench and 

enhance competitive advantages for early adopters of environmental technologies and business 

practices, effectively rewarding leadership though the capital markets (Forum for the Future 

2002; Blake-Goodman, Kron and Little 2002). 

There are few examples of companies achieving a clear line of communication between their 

environmental practices and a quantifiable competitive advantage. While a majority of large 

 

14 This number is nearly double (60%) within the heavy-manufacturing sector. 

24
publicly traded companies is measuring environmental performance to some extent, most of 

these are not communicating the results publicly (Canadian Institute of Chartered Accountants 

[CICA] 2000; Forum for the Future 2002) and many do not know the associated costs of their 

environmental management (Epstein 1996). At the same time, most companies measuring 

environmental performance are not using this information to benchmark their performance, set 

targets or report publicly on performance progress (expert interviewees). Nor are they reporting 

to shareholders on how their performance may represent financial risks, liabilities or

opportunities. For example, a 2003 study of the US’s largest carbon dioxide–emitting companies 

found that while many companies are measuring greenhouse gas emissions from their facilities, 

none has set baselines to control emissions from its products and only eight have set firm targets 

to stabilize or reduce their facility emissions (Cogan 2003). By extension, the research also 

concludes that many of these same companies face climate change–related financial risks and 

liabilities that are not being meaningfully disclosed (see, for example, Cogan 2003; Austin and 

Sauer 2002). 

Studies have found that there are large differences in how much companies disclose about their 

environmental performance, both among regions and countries and within regions and 

countries.15 The US and the UK demonstrate the highest levels of required disclosure globally, 

with Latin American and Asian emerging markets requiring the least (Sandeep and Dallas 2002). 

Still, public disclosure and the quality of corporate social responsibility data are generally weak. 

For instance, of the top 250 UK-quoted companies, 91 made no significant public disclosure 

about their environmental activities in 2001 (Business in the Community 2001). The study also 

questions the quality of the data being reported. Despite US disclosure activity, evidence 

suggests that the corporate commitment is stronger in Europe. A recent survey of European 

CEOs found they consistently assigned a higher level of significance to the importance of 

environmental, financial, and social credibility than did their North American counterparts 

(Brady 2003). This finding is also reinforced by recent European Community–sponsored 

research (Commission of the European Communities 2002). Nevertheless, the American Bar 

Association is launching a committee, which includes Canadian as well as American lawyers, on 

disclosure of environmental information. 

Much speculation remains as to how the finance-environmental connection can best be made. 

While academic analysis of company reporting reveals that most companies have not reached a 

point where they have explicitly captured and communicated links between their financial 

performance and environmental performance, there are signs of progress (Epstein and Roy 2003; 

Stratos 2003). Levels of reporting are improving both in quantity and quality. For example, a 

recent survey of corporate reporting in Canada found a 75-percent increase in the number of 

reporters and that companies are improving their ability to both articulate the role of

sustainability in their business and measure their performance. However, consistent with findings 

elsewhere in the world, the survey also notes that “few companies are reporting metrics that 

measure the financial contribution of sustainability performance other than the cost savings from

activities to enhance eco-efficiency” (Stratos 2003, v). It is unclear whether this represents an 

unwillingness to disclose at this level, or whether the metrics for measuring the financial 

 

15 The Global Reporting Initiative (GRI) is an example of an international, multistakeholder effort to provide 

guidance on corporate sustainability reporting, in order to improve comparability of information

(<http://www.globalreporting.org/>). 

25
contribution of environmental performance simply do not exist, or whether the findings are not 

made public by the private sector. 

Capturing the “right” data to disclose has been difficult. At present there are virtually no formal 

governmental policies or requirements (e.g., GAPP or FASB in the US) that cover environmental 

or social accounting standards, and only marginal “official” guidance is offered on accounting 

treatment of such issues. Two exceptions are the UK’s Financial Reporting Standard 12 and 

International Accounting Standard 37, whose appendices draw on environmental examples to 

illustrate accounting treatment and highlight the importance of environmental considerations 

(The Association of Chartered Certified Accountants 2003). Prior to this, CICA, in 1993, issued 

a major study on accounting for environmental costs and liabilities, which was later used as the 

basis for a UN group’s recommendations. In addition, CICA’s proposals on environmental 

performance reporting (1994) and the widely known GRI Guidelines (2002) offer some guidance 

to companies, though not necessarily in a form most useful and accessible to investors or 

financial analysts. Since 1993, CICA’s annual reporting awards program has offered an award to 

companies leading the way in environmental performance reporting. CICA’s MD&A Guidance, 

issued in 2002, also recommends disclosure of environmental and social performance metrics 

where these are relevant to measuring progress/performance as one of a company’s key 

performance drivers. 

Connecting the Corporate and Financial Sectors 

Notwithstanding the work described above, the general lack of formal, legally binding standards 

and guidance on corporate environmental disclosure represents a potentially major barrier to 

effective communication of the business value case, since some of the most relevant information 

about the bottom-line benefits of environmental performance, such as environmental costs and 

efficiencies, are buried in other activity areas of income statements (Bagozzi, Epstein and Wisner 

2003). For example, when looking at the extraction industries, the financial community has 

expressed a need for better indicators to fully understand and evaluate companies. However, the 

sectors are often not ready to report on the full range of indicators despite their efforts at the 

sectoral level to start agreeing on these indicators. This is illustrated by a recent 

PricewaterhouseCoopers survey where, “Investors and analysts identified 22 and 17 indicators 

respectively, as being particularly important out of a list of 32. Of these indicators, only a few 

fall into the traditional financial reporting category. As a result, significant gaps exist between 

companies’ ratings of the importance of key indicators and the ratings given to these indicators 

by investors and analysts” (PricewaterhouseCoopers 2003). 

This disconnect between financial sector information needs and corporate disclosure of the 

positive and negative financial impacts of environment risks, liabilities and opportunities is a 

significant barrier to the development and potential impact of the business value case. While the 

importance of disclosing material risks is well understood, it is clear that environmental risks are 

not being widely measured or properly disclosed (CEC and UNEP 2003). 

Some financial professionals also believe that proactive environmental management provides a 

leading indicator of good general management practices within a company. However, corporate 

26
environmental communication has so far largely failed to couch environment accounting and 

reporting in these terms and is thus not written in a language that analysts find useful or even 

understand (GEMI 1998; Forum for the Future 2002). This position was strongly held by the 

experts involved in the development of this report. Some have suggested that this is a result of 

companies’ focusing too exclusively on other stakeholders, such as environmental groups, plant 

communities, regulators and customers when writing their corporate environmental reports 

(GEMI 1998). Others have suggested the need for more specific engagement of analysts than 

afforded by corporate environmental reporting alone. For example, Gilding, Hogarth and Reed 

(2002) suggest that an examination of environmental issues within overall corporate business 

strategy and communication is necessary to engage analysts, since sustainability reporting is not 

a stand-alone strategy. 

The results of the Carbon Disclosure project 2002 survey are another sign of the growing level of 

acceptance among company managements of the need to more effectively capture and

communicate environmental performance information.16 When asked by 35 institutional 

investors (representing assets in excess of US$ 4.5 trillion) for relevant information relating to 

greenhouse gas mitigation, Financial Times 500 Global Index companies revealed a mounting 

and remarkably broad consensus among major global companies on the need for action on 

climate change. Fully 80 percent of the survey respondents explicitly acknowledge the 

importance of climate change as a business risk, revealing that the financial impacts of climate 

change extend well beyond the obvious, emissions-intensive sectors. In addition, approximately 

35–40 percent of the respondents (i.e., about 30 percent of the total survey universe) report that 

they are taking concrete action to address the business risk of climate change for their companies 

(CSR Europe et al. 2003; Innovest 2003; Innovest and Audlug 2002).

Moving the corporate environmental agenda forward in a progressive way will require a broadly 

accepted mandate. “All parties have a role to play in deepening the understanding of the 

relationship between corporate sustainability and shareholder value. The long-term nature of 

sustainability means it has a role to play as a lead indicator of future investment performance” 

(Mays 2003, 26). However, even the most comprehensive business value case reporting by 

companies will do little good if investment banking research and reports fail to communicate this 

information adequately and effectively. The old adage of what gets measured gets managed 

holds here. 

Governance has a Role 

Among the actions being taken is the integration of environmental performance considerations 

into broader corporate governance strategies. Seventeen of the world’s twenty largest corporate 

emitters of greenhouse gases report that they have conducted a board-level review of global 

warming. In addition, each of these companies reports having a board committee charged with 

oversight of the company’s environmental affairs (Cogan 2003). While most profiled companies 

 

16 The second report from the Carbon Disclosure Project was released on 19 May 2004. Over the last year, the 

number of participating institutions nearly tripled, to 95 from 35. In the same time period, represented assets more 

than doubled, to over US$10 trillion from US$4.5 trillion. In addition, responses to the survey from the FT500

companies are also up, from 47% to 59%. To access the reports go to: <http://www.cdproject.net/>. 

 

27
have adopted basic governance reforms to guide their environmental management practices, few 

have developed comprehensive, proactive governance response strategies to address the financial 

risks and opportunities posed by climate change. For example, only three of the 20 world’s 

largest greenhouse-gas emitters have made attainment of greenhouse gas emission targets a 

factor in executive and plant manager compensation, even though all 20 companies have other 

environmental links to compensation for at least some of their employees (Cogan 2003). 

C. Financial Sector Response to the Business Value Case 

Overall, the review of the literature indicates very limited engagement of the mainstream

financial sector in the business value case. This is also supported by the interviews with experts, 

who generally agree that little is being done in North America or globally by equity analysts to 

integrate the business value case into decision-making. It is possible, however, that the 

integration of environmental data into financial models is being gathered and held on a 

proprietary basis. Publicly available research on the business value case, therefore, may not fully 

capture an accurate assessment of the use of environmental information. 

 

Mainstream Equity Analysts 

There is some evidence, from Europe and the UK in particular, to suggest that equity analysts do 

pay attention when decisions relating to corporate responsibility or sustainable development are 

likely to have material implications on earnings (Cowe and Porritt 2002). An annual survey 

conducted by London-based Business in the Environment confirms positive movement by sellside analysts focusing on environmental and social issues (expert interviewees). In the 2002 

survey, when asked directly about the importance of environmental factors, 33 percent of 

analysts said it was “quite or very important” in their evaluation of companies, compared to only 

20 percent in 1994. The figures for social issues have increased by an even wider margin, from

12 percent to 34 percent in the same period. 

A survey of fund managers and analysts by CSR Europe in 2003 also highlights some interesting 

findings: 

• 79% of fund managers and analysts believe that social and environmental risk 

management has a positive impact on a company’s market value in the long-term, but no 

impact in the short-term; 

• 59% of fund managers and analysts believe social and environmental reputation crises are 

important or very important considerations when making an investment decision; 

• 52% of fund managers/analysts believe that social and environmental considerations will 

become a significant aspect of mainstream investment decisions in the next two years; 

• 40% agree that they grant a premium to companies with a good CSR performance; and 

• 56% are dissatisfied with corporate reporting and communications (CSR Europe et al. 

2003). 

Time frames and their correlation to higher levels of risk are a critical factor for investors. The 

research and experts interviewed noted that investment time horizons are one of the top drivers 

28
for including environmental performance considerations in investment decisions. At present, 

time and risk horizons for return on investment (ROI) may be longer for environmental 

performance than most investors or corporations are willing to accept, which impedes the 

business value case (expert interviewees). Pension investors may be a point of access for 

supporting long-term investment time horizons that correspond more closely to return on 

investments for environmental performance (expert interviewees). 

Creditors 

Compared to mainstream equity analysts, the credit side of the financial sector has a longer and 

more active history of engagement in the business value case, since this sector appears to have 

acknowledged the fact that environmental risks contribute to credit risk. The UNEP Finance 

Initiatives has been an international focal point for engaging commercial banks in the link 

between environmental, social and financial performance since it was established in 1992. A new 

sustainability initiative called the Equator Principles was launched by a number of banks in the 

spring of 2003 and is a good example of a best practice commitment by the financial sector. The 

Equator Principles commits signatories to ensuring that all project financing deals are developed 

in a manner that is socially responsible and reflects sound environmental management practices. 

The Principles also stipulates that signatories will not provide loans to projects where the 

borrower will not or is unable to comply with specific environmental and social policies and 

processes.17

Now signed by approximately 20 global financial institutions, the Equator Principles serves as 

the new industry standard or benchmark for looking at how seriously banks approach the issue of 

credit risk management related to large credit extensions and environmental and social 

considerations. It is interesting to note that the vast majority of participating institutions are 

European-based, with a small Asian contingent, one US bank, and two Canadian members. 

Socially Responsible Investment 

The leading proponents of the business value case within the financial sector are socially 

responsible investment (SRI) organizations. These organizations integrate environmental, social 

and/or ethical considerations into standard financial sector tools such as portfolio screening, 

shareholder engagement and community investment to generate financial returns. Socially 

responsible investing has evolved a great deal beyond its roots of simple negative screening, with 

best-in-class investing being perhaps the best means to ensure portfolio diversification and 

thereby mainstream acceptance (expert interviewees). 

Based on the research, the mainstream investment community overall appears to marginalize the 

concept of socially responsible investing (SRI), and there is also confusion regarding the 

definition and meaning of the SRI term. That said, however, socially responsible investment has 

a small (albeit fast-growing) percentage of assets under management globally and so does not yet 

 

17 Web link to the Equator Principles: <http://www.equator-principles.com/principles.shtml>. 

29
have the financial weight to significantly influence mainstream financial players. SRI represents 

only about 3.3 percent of total combined retail and institutional assets in Canada (Social 

Investment Organization 2002) and 11.3 percent of assets (Social Investment Forum 2002) in the 

US. 

Bowers and Arron (2003) provide an exhaustive data analysis of environmental and 

sustainability mutual funds. This allows the potential investor to evaluate exactly how 

environmental- or sustainability-driven funds are doing versus their benchmarks and other 

comparative points (e.g., the S&P 500). A growing number of Web-based resources also provide 

SRI performance data. By providing this type of information, social investing can exert greater 

influence as a credible mainstream investment style. 

There is clearly a need to align communication of environmental risks, liabilities and 

opportunities within the lexicon of mainstream finance. “Standardization of information must be 

facilitated. The SRI community recognizes that communications would be greatly improved if a 

single, centralized database of information on companies’ CSR performance were available” 

(Little 2003). 

D. Public Sector Response to the Business Value Case: Geographic 

Perspectives 

While a detailed legislative and policy review of public sector engagement in the business value 

case is beyond the scope of this report, much of the existing business value case research helps to 

provide an overall perspective on the role the public sector has been and/or could be playing to 

support the development and communication of the business value case for environmental 

performance. 

The public sector has and does, of course, play a key role in establishing the business value case 

through the development and enforcement of environmental regulations and fines for 

noncompliance. Some expert reviewers noted that stronger enforcement of existing 

environmental regulations and more consistent application of larger fines for noncompliance 

would go a long way to internalize the costs of corporate environmental impacts and thereby 

drive a link between environmental and financial performance. 

However, environmental regulation is not the only role that governments can or do play and, 

internationally, governments have been actively engaged in the development and promotion of 

the business value case—from both a legislative and a policy point of view. 

The European Commission has been particularly active in working towards the implementation 

of a common corporate social responsibility governance framework to help guide and define the 

future of European CSR policy. This work, including a 2001 green paper, Promoting a European 

Framework for Corporate Social Responsibility, aimed “to launch a debate about the concept of 

corporate social responsibility (CSR) and, secondly, to identify how to build a partnership for the 

development of a European framework for the promotion of CSR” (European Commission 2002, 

4). Where the Commission has demonstrated the most leadership, however, is in linking this 

30
agenda not only to an environmental and social mandate but also to a broader integrated 

economic strategy. Both the green paper and the work that has followed cite CSR as a positive 

contribution to the strategic goal of making Europe “the most competitive and dynamic 

knowledge-based economy in the world, capable of sustainable economic growth with more and 

better jobs and greater social cohesion” (European Commission 2001, and 2002). To follow on 

this goal, the Commission has provided financial support for several pilot initiatives, including 

socially responsible investment funds and a CSR management framework with voluntary 

disclosure standards for companies. A second, white paper on CSR is to be issued by the 

European Commission in November 2004 (Ethical Performance 2002). 

Since the publication of Green Dividends by the US EPA (Environmental Capital Markets 

Committee 2000), there have been no identified comprehensive efforts by governments in North 

America to promote corporate social responsibility, in terms of financial performance, beyond 

the regulation and enforcement of environmental, employment, and health and safety laws. 

While a coordinated government-wide response is lacking in North America, there are signs of 

growing interest. For example, a number of states in the US, including California, New York and 

Connecticut, are beginning to examine regulations, reporting, and investment policies in terms of 

environmental, labor, transparency, and corporate governance issues. Public pension funds are 

being used as a financial incentive to influence sustainable corporate behavior. Led by the 

example of California, many state treasurers and attorneys general are becoming interested in a 

more active approach to investing, with a focus not only on better governance at the corporate 

level, but also on looking at risk areas such as climate change (Michael Jantzi Research 

Associates 2001). It is also worth noting that The Institutional Investor Network on Climate Risk 

was established at a CERES summit in November of 2003. 

Some level of institutional investor interest also exists in Canada, where the Canada Pension 

Plan (CPP) Board, the Federal body that oversees the investment of Canadians’ public retirement 

funds, has recognized that, “Responsible corporate behavior can positively influence future 

value.” While the Board supports “[r]easonable shareholder resolutions that ask companies to 

make full disclosure on issues that relate to social responsibility, ethical behavior, sustainable 

development and corporate citizenship,” it does not exclude securities based on environmental or 

social responsibility criteria (CPP Investment Board 2003). Stricter rules exist in countries such 

as Sweden, where, since January 2001, the five largest state-controlled pension funds have been 

legislated to include environment and ethical considerations in their investment policies and to 

report annually on how they are fulfilling these. 

31
Climate Change in Focus: 

Public and Private Sector Response in Europe and North America

Climate change presents a good subject for illustrating the degree to which government policy may directly

influence corporate response to a major environmental issue. For example, the Canadian commitment to the Kyoto 

Protocol brings Canada’s regulatory and corporate competitive environment, in relation to carbon production issues, 

closer to that of Europe. The political atmosphere in the US, which remains uncommitted to Kyoto, clearly signals 

that America is taking a different tack. 

A number of governments, in the EU and Japan, are establishing emissions-trading regimes designed to secure the 

maximum greenhouse gas reductions using the most cost-effective solutions. The German, Dutch, French, Swedish,

Canadian, Australian, and Japanese governments are among the countries currently in the process of establishing

concrete national emissions abatement plans (Innovest 2002). 

The climate change issue has multiple implications for industry, and companies that ignore the carbon issue and the 

regulatory foundations of carbon abatement regimes may find themselves disadvantaged in the longer term, as the

potential liabilities of carbon risk begin to influence bottom-line value. A good example is found in the automobile

industry, as illustrated in Changing Drivers (Austin, D., et al. 2003). This case illustrates how carbon controls 

stemming from climate change concerns may impact the World’s top 10 major automobile companies, as regulatory

plans will require significant reductions in vehicle-related carbon dioxide (CO2) emissions over the coming decade. 

Value-oriented opportunities (management quality) and risks (carbon-related value exposure) are analyzed using a 

forward-looking, earnings before interest and taxes (EBIT) framework. (Austin et al. 2003)

As competitive advantages related to carbon risks and opportunities grow in the global marketplace, the financial 

community is taking action. In the Netherlands, the world’s largest pension fund, ABP, has recently begun to

address climate risk systematically in its stock selection process, beginning with two US$ 100 million 

“experimental” portfolios. On the basis of the portfolios’ early out-performance, the fund is currently considering

expanding the use of this “environmental risk overlay” to a larger proportion of its Euro 110 billion portfolio. This 

magnitude of institutional activity has yet to be seen in the US. 

It is worth noting that, of the 90 insurance and asset management signatories to the UN Environment Programme’s 

Finance Initiatives, none is from the United States (UNEP 2002).

Transparency and Disclosure 

Transparency and disclosure requirements are commonly seen as providing a key role for 

government to play in supporting and developing the business value case (Green Dividends 

2000; Cowe and Porritt 2002). One of the key drivers of much of what has been happening 

globally on this front has been the UK SRI Pensions Disclosure Regulation, passed in July 2000 

as an amendment to the 1995 Pensions Act. The regulation requires all pension funds in the UK 

to report publicly on their socially responsible investment policies and initiatives (UK Pensions 

Act 1995 amendments passed in July 2000). A number of other countries have responded to this 

UK lead. For example: 

• France has amended its Corporations Act to require companies listed on the French stock 

exchange to explicitly disclose specific social and environmental considerations in their

annual reports (amendments to France’s 1967 Act in respect of commercial corporations, 

32
passed February 2002). Environmental and social considerations are now reflected in 

legislation overseeing retirement savings contributions and retirement fund regulations. 

• In August 2001, the Australian government passed the Financial Services Reform Act 

(FSRA), a comprehensive piece of legislation that covers issues of delivery, licensing, and 

disclosure in the provision of financial products and services. The Act includes an amendment 

that compels providers of investment products to disclose “the extent, if any, to which labor 

standards, environmental, social or ethical considerations are taken into account in the 

selection, retention or realization of the investment (Michael Jantzi Research Associates 

2001). 

• Most recently, the Johannesburg Securities Exchange announced that companies listed on the 

exchange will have to comply with King II corporate governance codes as well as Global 

Reporting Initiative (GRI) guidelines (Socialfunds.com 2003). 

The recent changes in UK legislation have affected other sectors as well. For example, the 

Association of British Insurers (ABI) announced in October 2001 that it would require all public 

companies to report on the management and verification policies they use to identify and 

mitigate any risks associated with their environmental or social performance. 

In the US, the Securities and Exchange Commission (SEC) is proactively promoting greater 

transparency and disclosure of company information as a basic right of shareholders. SEC 

support of shareholder involvement may help strengthen the business value case by drawing 

attention to the materiality of environmental issues and ensuring that this information is 

disclosed (meeting in Washington convened by Senators from New Jersey, New York and 

Connecticut, 9 July 2003, attended by author; expert interviewees). Recent corporate accounting 

scandals in the US have bolstered these efforts by increasing pressure to enhance the 

accountability and transparency of corporate environmental, social and financial disclosure. 

The enactment in the US of the Sarbanes-Oxley Act in 200218 could result in greater scrutiny of 

methods for quantifying and disclosing potential environmental liabilities and provide an 

opportunity to increase the enforcement of disclosure of environmental risks. However, 

enforcement of SEC regulations will have to be improved if the new regulations are to maximize 

their impact, particularly in light of 1998 US EPA study finding that 74 percent of companies 

failed to report environmentally-related governmental enforcement proceedings that could result 

in governmental monetary sanctions greater than $100,000 as required by the SEC (BlakeGoodman, Kron and Little 2002). In addition, there is also a need to mitigate the potential risks 

for companies which increase transparency by voluntarily reporting information about their 

environmental and social performance. Some firms say they become subjected to greater scrutiny 

 

18 The Sarbanes-Oxley Act of 2002 is a sweeping piece of reform legislation intended to protect investors by 

improving the accuracy and reliability of corporate disclosures made pursuant to the securities laws. Section 302, 

“Corporate Responsibility for Financial Reports,” refers to specific provisions regarding the accountability of

corporate disclosure. It references the need for the principal executive officer(s) and principal financial officer(s) to

sign-off the report, certifying that they have reviewed it and that “the report does not contain any untrue statement of

a material fact or omit to state a material fact.” 

33
relative to their peers when attempting to become more transparent, resulting in a negative rather

than positive business impact. 

In Canada, proposed provincial securities commission rules are comparable to those in the US. 

For example, the Ontario Securities Commission has issued new rules regarding CEO/CFO 

certification of corporate disclosures that roughly parallel those of the Sarbanes-Oxley Act, and 

there are also ongoing discussions regarding the potential restructuring of security exchange 

commissions across Canada (Ontario Securities Commission 2003; Wise Person’s Committee to 

Review the Structure of Securities Regulation in Canada 2003). In addition, all Canadian banks, 

insurance companies, and trust and loan companies with equity of $1 billion or more are required 

to publish an annual statement describing their contributions to the Canadian economy and 

society (Financial Consumer Agency Act of Canada, 14 June 2001; amendments to certain Acts 

in relation to financial institutions). 

In terms of securities law and environmental issues in North America, Canadian law limits the 

scope of the public interest mandate to protecting investors and promoting fair and efficient 

capital markets, and there is no provision for factoring in environmental issues. In the United 

States, the National Environmental Policy Act defines the public interest to include 

environmental protection. The SEC therefore has to take environmental objectives into account 

when formulating rules and regulations. In should be noted, however, that there is little evidence 

that the SEC has decided to establish and implement a plan broader than that in Canada in terms 

of allowing environmental factors to be directly linked to securities regulations as part of the 

public interest. Securities regulations in Mexico are directed solely to the protection of investors 

and have no mandate to promote the public interest (Repetto, MacSkimming and Gustova 2002). 

At the most fundamental level, the disclosure requirements of Canada, Mexico and the United 

States are similar, in requiring that all material information regarding securities offered for sale 

to the public must be promptly revealed. There is common recognition in the three countries that

environmental information may be material in this broad sense and, if so, must be disclosed. 

While these legislative initiatives are by no means a panacea to ensure full disclosure of 

environmental risks and liabilities, taken as a whole, they signal recognition that broad 

integration of sustainability considerations into the economy requires the active involvement of 

the financial sector. 

34
V. Conclusions: Barriers, Gaps and Opportunities 

This report has focused on identifying where the business value link is solidly established, where

it is weak and where there are gaps in knowledge and practice. Several hundred papers covering 

a wide range of analytical and conceptual approaches were reviewed, of which ninety were 

specifically used for the creation of this paper. Twenty experts were also interviewed in an 

attempt to establish a baseline context to help guide future research and engage stakeholders in 

further work on the business value case for environmental performance. The following are some

of the barriers, gaps and opportunities identified in the research: 

A. Research and Analysis

While evidence of a business value case for environmental performance is strong at a theoretical 

and anecdotal level, much empirical work remains to be done. At the macro-level, where the 

business value case is empirically strongest, comprehensive and standardized metrics for 

capturing environmental performance data are lacking. Little work has been done to help 

companies systematically quantify the actual or forward-looking value of their 

environmental/CSR activities, despite the fact that stock prices represent expectations regarding 

the future value of income streams, taking into account future revenues, costs, risks, etc. (ICF 

Kaiser 1997; Emerson, Bonini and Brehm 2003). Stronger metrics would, in and of themselves, 

enable the emergence of a much more authoritative assessment of the presence and overall 

impact of environmental value drivers. Also, there is a strong body of business, professional and 

academic research literature and related networks about environmental management accounting 

(very active in Europe and Asia, less so in North America). A conceptual framework to 

systematically capture statistically rigorous relationships between specific environmental and 

financial indicators is needed to improve understanding of the appropriateness of specific 

indicators and to identify where correlations are strongest at the sector, firm and issue level. 

Metrics developed and tested within such a framework would, for example:

• help to overcome credibility gaps with the financial sector, whose interest is focused on 

forward-looking analysis, by testing metrics within a theory-based framework which 

could be used to test future-looking hypotheses; 

• lead to the development of a quantitative analytical basis upon which to guide both 

corporate and public sector policy makers on where the business value case could be 

most effectively leveraged (e.g., through governance initiatives, or on specific sectors or 

environmental issues); 

• contribute to the effectiveness and extent of dissemination of business value case 

information by focusing on key issues (such as corporate environmental governance, 

“carbon risk”) and by facilitating its communication in a language and format relevant to 

key stakeholders, including the financial sector; and 

• drive a consistency in terminology and contribute to the development of standardized and 

comparable environmental performance information. 

Another gap in the research and a major barrier to financial sector uptake of the business value 

case is the lack of micro-level variable analysis. While in practice, single variable environmental 

35
value drivers may be rare or difficult to measure, micro-level quantification of the influence of 

environmental variables on financial performance at the company, sector and issue level is 

needed to more conclusively identify and understand environmental value drivers as well as to 

contribute to broader-level metrics and indices (Emerson, Bonini and Brehm 2003). The types of 

research needed include: 

• longitudinal research (i.e., over 10 years); 

• multivariate statistical analysis, to isolate the impact of environmental performance 

elements from other confounding variables and identify those elements that have the 

greatest impact on share price; and 

• micro-level analysis, to establish a correlation between company environmental 

performance and shareholder value (Feltmate et al. 2001) and test causation. 

While the above research provides support for a connection between environmental and financial 

performance, little of it establishes a direct causal link between emissions and financial 

performance (and those studies that do are challenged as not valid), further highlighting a need 

for further micro-variable analysis. 

This research would increase the validity and acceptance of the business value case concept by 

the mainstream financial community. The development of accepted metrics would also

contribute to improved quality of dissemination of the business value case. Governments and the 

private sector each have a role in supporting the development of this research and analysis to 

help capture the potential business value case contribution to societal and corporate benefits. 

B. Measurement, Communication and Dissemination 

Most companies are not disclosing and may not be gathering environmental information and data 

in a fashion that is usable for making bottom line decisions. Business value case data may be 

gathered internally and not published. However, the interviews, literature review and expert 

review carried out as part of this research suggest that most companies do not have the measures 

of their environmental impacts needed to allow them to quantify the related costs and/or benefits 

to their businesses. At the same time, some research indicates that companies can face 

significantly divergent levels of financial exposure to the environmental issues relevant to their 

sector, pointing to potential significance, both to companies and to the financial sector, of 

integrated environmental performance information. Business value case research must establish 

specific measures that can be integrated into management, operational, and capital investment 

decisions and facilitate the communication of risks and benefits to stakeholders in the financial 

sector. 

Research also indicates that information linking environmental and financial performance is not 

being presented in a coherent and coordinated manner, resulting in less interest and appreciation 

of the business value case by all components the financial sector (e.g., commercial banking, 

investment banking, pension funds, property and casualty insures, etc.). There is a clear need to 

align communication of environmental risks, liabilities and opportunities within the lexicon of 

mainstream finance. This process involves companies capturing the right kind of information 

about their environmental performance and presenting it in a format appropriate to the audience. 

36
Leading companies have so far taken great strides in communicating with broader stakeholders 

such as regulators, plant communities and environmental groups. The Global Reporting Initiative 

is an example of a leading effort to encourage companies to use standardized reporting formats. 

However, most have so far failed to capture the kind and quality of information needed to engage 

financial audiences, such as analysts (and those who hire these analysts), fund managers, CFOs 

and corporate treasurers.

Better measurement, transparency and disclosure at all levels of industry and investment relative 

to financial, social and environmental information is perhaps the foremost means of moving this 

engagement forward. Decisions makers, including investors, policy makers, and consumers, 

must have access to adequate environmental information that allows comparison between 

companies in order to make decisions and, where this information is financially material, to 

ensure the efficient functioning of financial markets (Repetto, MacSkimming and Gustova 

2002). However, the research identifies a number of barriers to transparency and disclosure: 

• a lack of a uniformly adopted set of standards for measuring and reporting on corporate 

social and environmental activities; 

• a lack of demand for information by a great number of stakeholders (from community

representatives to government representatives); 

• a general absence and/or enforcement of regulatory regimes mandating disclosure; and 

• a lack of demand for information by investors, analysts etc. 

There is also a need to mitigate the potential risks for companies who report. When companies 

increase transparency by voluntarily reporting information about their environmental and social 

performance, they can be subjected to greater scrutiny. To overcome this barrier and encourage 

good corporate reporting practices, transparency and third-party auditing of this information 

should receive adequate recognition by mainstream as well as socially responsible investors. The 

popularity of socially responsible investment is growing and the resulting increase in demand for 

more detailed environmental performance information is putting a substantial strain on

companies’ reporting resources. If interest in socially responsible investing is mainstreamed, 

these demands will need to be addressed through standardization and coordination of information 

demands. 

Finally, research suggests that the majority of business value case data and analysis is being 

disseminated through environmental, corporate social responsibility and other non-financial 

channels. To engage a broader mainstream financial audience effectively, this information 

should be disseminated using traditional financial networks. 

C. Public Policy 

Governments have an important role to play in supporting the development and communication 

of the business value case. In particular, there is a need for integrated government support from

departments focused on industry and finance. In Europe, broad government support has 

contributed to the successful engagement of banking and institutional investors, who are actively

working on the development and application of environmental business value metrics (CSR 

Europe 2003). 

37
One key area for further government effort, both in North America and elsewhere, is the 

collection of comprehensive and timely corporate environmental performance data and its 

communication in a useful and accessible format. The credibility and comparability of this data 

are critical to supporting analyses of corporate performance and the business value case (Repetto 

and Austin 2000). While some governments and other organizations are providing this service 

(e.g., US EPA Sector Facility Index, Canada’s National Pollutant Release Inventory), there is a 

need to expand the scope and address timeliness, comparability and verification issues, both 

domestically and internationally. 

This research also makes recommendations on the economic and market conditions that could 

lead to improved linkages between corporate environmental and financial performance on a 

much greater scale. For example, expert opinion suggests that mechanisms to encourage 

environmental strategies by increasing recognition of their value to firms include changes to 

financial reporting and MD&A disclosure requirements to enable the consideration of a firm’s 

environmental strategies and performance in investment decisions. (Also, research and literature 

on intangible assets suggests that corporate environmental and social policies and performance, 

along with stakeholder relationships, can significantly impact reputation and brand value.) This 

point is echoed in the US EPA (Environmental Capital Markets Committee 2000) Green 

Dividends report, which calls for collaboration with professional investment organizations to 

support the development of equity valuation techniques that incorporate the financial 

consequences of environmental strategies. This report also suggested continued promotion of 

market-oriented approaches to environmental protection and development of performance-based 

regulatory frameworks and stronger corporate governance regulations. 

Strengthening corporate governance, and understanding the relevance of environmental 

performance to the governance agenda remains a key gap, particularly as it relates to 

transparency and disclosure. As the cornerstone of corporate behavior, good governance may 

well be the basic starting point for making the business value case at the company level. 

Emerging elements of best practice in the area of governance are being identified; the 

fundamental focus is on the integration of environmental and social performance into business 

management systems (Zollinger and Lankester 2001). One good example of how this can be 

accomplished is by including environmental performance as a specific aspect of the link between 

executive compensation and stock price performance (Repetto, MacSkimming and Gustova 

2002). 

Finally, governments could make better use of existing and new legislation to mandate disclosure 

of financially material environmental issues. The UK and Denmark (Danish company law) have 

implemented disclosure legislation to encourage strengthened corporate transparency on 

environmental and social issues, to facilitate dialogue on the business value case. These actions 

have resulted in a range of legislative changes around sustainability disclosure across Europe. 

Some interviewers expressed concern about duplicating this regulatory approach in the North 

American context as they felt that most governmental thinking around the business value case is 

too regulatory in its approach, and is not flexible enough to promote real innovations around 

environmental activities and sustainability. However, there is general agreement that government 

intervention can help to move the business value case forward. 

38
Lack of enforcement of current securities legislation as it pertains to disclosure of material 

environmental risks and liabilities remains a barrier to the business value case. Researchers 

suggest that fiduciaries should actively engage securities commissions to enforce existing 

disclosure laws in order to help protect investment value and identify opportunities for proactive 

dialogue with companies around potential areas of environmental improvement (Repetto and 

Austin 2000). 

In summary, several broad roles for government were identified in this analysis: 

• supporting efforts to identify and address research and communication gaps; 

• increasing use of market mechanisms and tax incentives and disincentives; 

• supporting the availability of transparent and comparable environmental information; 

• effecting stronger regulatory control and better enforcement of current environmental 

laws and regulations, with stiffer penalties for noncompliance; 

• setting and enforcing corporate governance standards; 

• through strengthened securities regulators, enforcing and increasing disclosure of 

environmental risks, costs and liabilities, as well as other aspects of environmental 

performance; 

 catalyzing and leveraging partnerships, especially with financial and business/industry 

departments, agencies and nongovernmental organizations in order to engage effectively 

the financial sector; and 

 in the case of environmental agencies, in particular, working on making environmental 

information available to the financial community in useful formats, and cooperating more 

effectively with securities regulators and accounting oversight bodies. 

39
VI. Recommendations for Further Development of the 

Business Value Case

Address gaps in the research on the business value case. Specifically:

• Carry out micro-level variable analysis at the sector, firm, and issue level to evaluate the 

financial performance associated with specific corporate environmental initiatives using 

financial and business metrics. Additional work is needed to determine methods for 

supporting industry to collect this information, integrate it into its management, 

operational and capital investment decisions and communicate the concordant financial 

risks and benefits to stakeholders in the financial sector. 

• Integrate environmental considerations with work on corporate governance issues, 

particularly as related to transparency and disclosure. 

• Increase sector-level analysis of general environmental initiatives (versus specific ones). 

• Develop a theory-based framework with testable hypotheses on the relations between 

financial and environmental variables. The framework must account for both tangibles 

and intangibles and thus will most likely draw from economic, marketing and financial 

theory. 

• As allowed by this framework, select metrics that summarize and compare environmental 

performance to financial performance within and across sectors (such as metrics that 

translate environmental risks into financial risks).

Improve communication of the business value case 

• Align corporate communication of environmental risks, liabilities and opportunities to the 

lexicon of mainstream finance. Specific suggestions include: 

 developing sector-level reporting approaches specifically aimed at the

financial services industry; 

 integrating environmental considerations into the chief financial officer’s

quarterly briefing of analysts; 

 having environmental management representatives on the corporation’s 

financial policy board sub-committee; and 

 using standardized global reporting approaches such as the Global Reporting 

Initiative (GRI) guidelines. 

• Ensure availability of comparable information essential for the financial community to 

effectively evaluate the performance of different firms. 

• Identify the corporate and financial key decision-makers who need access to the business 

value case research (e.g., investor relations officers, chief financial officers, asset

allocation specialists, credit policy officers). 

• Businesses should define environmental performance, utilizing an established 

CSR/Sustainability framework, and, for consistency and comparability, adopt relevant 

metrics from a known reporting standard. 

40
• Businesses should better define, measure and report incrementally (internally and 

externally) on environmental targets that are meaningful to the corporation’s stakeholders 

(identified through research) and within a corporation’s direct control. 

• Early priority should be placed on engaging the industrial and financial communities in a 

dialogue to share what is currently known on the business case and to identify the types 

of information and analysis to which they are likely to respond. Researchers should 

cooperate with other communities, thus automatically accomplishing part of the 

education goal. 

• In Canada ,this work could include supplementary guidance on the inclusion of 

environmental considerations in the management discussion and analysis section of 

corporate annual reports. 

• Disseminate information on the business value case through business and financial 

channels rather than environmental and corporate responsibility outlets. 

• Businesses need to better measure, document and track environmental investments and 

environmental initiatives that may add business value. 

• Businesses need to look for ways to measure return on investment or assess share value 

and other business indicators linked to environmental initiatives. 

• Businesses could improve stakeholder engagement to understand expectations and gain 

perspective on perceived performance. 

• The financial sector should encourage business to document and track environmental 

investments and initiatives and to communicate this information and analysis to financial 

analysts. 

Government should play an active role 

• Increasing collaboration and coordination among a range of departments and agencies 

(e.g., industry, finance, trade, commerce, environment, etc.) supporting the development 

of the business value case is needed in the following areas: 

 Continued support to identify and address research and communication gaps. 

 Increased use of various market mechanisms, including, but not limited to, tax 

incentives and disincentives. 

 Setting and enforcing corporate governance standards, including disclosure of 

environmental risks and liabilities. 

 Strengthening disclosure of environmental risks, costs and liabilities. 

 Engagement and support of corporate sustainability leaders and experts from the 

socially responsible investment community who are championing the business 

value case. 

• Other specific suggestions include the following:19 

 initiate a multi-stakeholder process by hosting high-level meetings between: (a) 

environmental and securities regulatory agencies, to explore further collaboration, 

and (b) corporate financial management, environmental agencies/ministries, 

securities regulators, auditors, accountants and rating agencies, to identify options 

for a public/private partnership that would help foster a healthy financial sector in 

North America; 

 

19 The first three following bullets are recommendations from CEC background paper to Ministers (CEC 2003).

41
 establish a liaison office for facilitating the flow of information from the 

environmental agency to the securities regulator; 

 provide a telephone service for analysts and investors that would direct their 

questions to relevant branches and sources of expertise within the environmental 

agencies/ministries; 

 develop a Web site containing links and directories to potentially useful 

environmental information, searchable by companies; 

 help set up “business value case” initiatives that would recruit companies and 

financial institutions to join in collaborative research initiatives; 

 establish recognition programs for outstanding case studies and contributions to 

knowledge development in this area, and; 

 provide funding for academic research in this area—explore the use of incentives 

to support linking environmental performance to business value. 

42
Annex A: List of Interviewees 

Person Name/Location Category Firm/Contact Data

1. Hewson Baltzell FI/Industry Innovest Strategic Advisors 

2. Toby Belsom FI Morley Investments 

3. Timo Van de Brink Academic Vrije University, Amsterdam

4. Michele Chan NGO Friends of the Earth 

5. Jed Emerson Academic/ 

Foundation 

Stanford University & Hewlett 

Foundation 

6. Kajetan Hetzer FI SNS Bank 

7. Doug Holmes Academic Monash University 

8. Andreas Knoetzen &

Eckhard Plinke 

FI Bank Sarasin

9. Lloyd Kurtz FI Harris Bretall Sullivan & Smith, LLC 

10. Steve Lydenberg FI Domini 

11. Mindy Lubber NGO/FI CERES 

12. Donna Morton NGO Integral Economics 

13. Mario Monzoni NGO/Academic Vargas University & Friends of the Earth 

Amazonia 

14. Jon Naimon FI Green Light Investors 

15. Brian Pierce NGO/FI Forum for The Future 

16. Don Reed FI/Industry Ecos Corp. 

17. Jack Robinson, Matt

Patsky, & Celine Suarez 

FI Winslow Management

18. Ken Scott FI Walden Capital 

19. David Wheeler Academic Schulich School of Business, York Univ. 

20. Allan White NGO Tellus Institute 

FI = financial industry, NGO = nongovernmental organization 

43
Annex B: Comments from Expert Reviewers20

Six practitioners from the financial sector, nongovernmental organizations, industrial 

corporations and academic institutions agreed to critically review this report. Specifically, 

reviewers were asked to provide an overall assessment of the report, confirm that key pieces of 

research had been considered in the analysis and that the report presents a comprehensive and 

balanced assessment of the business value case from the perspective of identifying where future 

research and engagement are needed. Reviewers were also asked to provide constructive 

comments identifying gaps in the business case analysis, recommendations to improve the 

business case, as well as recommendations on how to communicate and disseminate this work. 

Reviewers’ comments have been distilled and incorporated into the report. In addition, the 

unedited expert reviewer comments are provided below. The authors’ response to the overall 

comments is included as Annex C. 

List of Expert Reviewers: 

Expert Reviewer Title and Affiliation 

A. Marc J. 

Epstein 

Distinguished Research Professor of Management 

Jesse H. Jones Graduate School of Management 

Rice University 

B. Carmine 

Nappi 

Director, Industry Analysis 

Alcan Inc. 

C. Sandra 

Odendahl 

Senior Manager, Environmental Risk Management 

Royal Bank of Canada 

D. Ken 

Ogilvie 

Executive Director 

Pollution Probe 

E. Brenda 

Riddick 

Director, Corporate Social Responsibility 

Bank of Nova Scotia 

F. Andrew

Winston 

Director, Corporate Environmental Strategy Project

School of Forestry and Environmental Studies 

Yale University 

 

20 These are cited within the text as “expert reviewer.” 

44
Expert Reviewer: 

A. Marc J. Epstein, 

Distinguished Research Professor of Management 

Jesse H. Jones Graduate School of Management 

Rice University 

Unedited Comments: 

I do have many of the concerns that I expected to have, and though it is better than expected, I 

am not sure how it moves the field forward and provides any new information than many already 

published materials for example the Margolis and Walsh book. This has been many of my

criticisms of this work that we are rehashing previously completed materials and not making any 

steps forward. So, I though I do have some disagreements with some of the conclusions and 

recommendations presented, I don’t see the contribution of this document to the literature or 

discussion. 

That said, a more rigorous analysis of the literature would conclude that the relationships and 

links are less clear. Though the environmental and social community likes to make the point 

about the positive relationships, it is not clear. And, even if it were clear, we have not established 

the cause and effect. Do profits cause companies to spend more money or environmental 

programs or does environmental performance lead to future financial success? Do good 

companies with good leaders drive superior financial performance and concurrently make other 

proactive decisions on things such as the environment. So, neither the drivers or the effects are 

clear though some of us are starting to gather some evidence. 

I was also not clear why governance is discussed here. Is this a driver of good environmental 

performance? Is this paper also on good governance? Yes, these scandals are in the news, and I 

have worked on this a lot, but the relevance to environmental performance is not clear to me. 

The authors seem to focus on external disclosure and communication. The fundamental problems 

in that the companies do not calculate the business case when making decisions. They don’t have 

the measures of either the costs or the benefits and thus all internal analyses are deficient. Thus 

they make these decisions differently than most investment decisions which are made based on 

return on investment. They cannot disclose something that they do not have. Until companies 

have a methodology and measures for their social and environmental impacts, they cannot 

disclose them even if they wanted to. If progress is to made, first it has to be on constructing the 

business case in a way that managers can use—with specific measures that they can integrate 

into management decisions and operational and capital investment decision making processes. 

So, this is not about increasing the regulation of disclosure now—first companies need the 

information to disclose. Then we can discuss whether the disclosure to attain increased 

transparency should be voluntary or mandated. The focus should be on what managers can do 

now. 

45
There is also no evidence that Europe is ahead of North America. There may be more disclosure, 

but there is no evidence that there is more integration into decision making or calculation of the 

business case. As stated above, if the calculations are not made, the increased disclosures of 

irrelevant data does not help anyone. Further, we have no evidence that the increased level of 

disclosure has any impact on or is related to the level of environmental performance. That is, it is 

generally seen that the disclosures are public relations documents and do not reflect levels of 

company integration of environmental issues in decision making or level of environmental 

performance. 

I think that you should focus on helping companies and managers make better decisions with a 

framework and measures on how to make the business case internally. Then, maybe we can talk 

about disclosure and transparency because only then will companies have something to disclose. 

Expert Reviewer: 

B. Carmine Nappi 

Director, Industry Analysis 

Alcan Inc. 

Unedited Comments: 

In general, I found the report extremely well-written, very clear, and comprehensive. The current 

gaps in the business value case are well identified, in particular the difficulties that researchers 

may find in trying to establish a statistically significant relationship between environmental 

performance and business value, no matter how these two last variables are defined. 

Nevertheless, I would like to offer some comments in order to improve even more the quality of 

the report: 

• First of all, before wondering about the “statistical significance” of the relationship between 

business value and environmental/social performance, researchers should examine first and 

thoroughly its “economic significance.” Why do we expect such a relationship to exist? What 

is the economic theory behind it? Based on what set of assumptions about the objective 

function of firms? In what exact case this relationship is thought to be positive? Why? To 

what extent the expected sign (positive or negative) of the relationship is sensitive to the 

assumptions used? What is the alternative assumption? 

• Second, once the “economic significance” has been very well documented and established 

(and there seems to be very little material on this), then comes the question of “empirical

evidence.” However, what is important here is not the presence of a correlation (which may 

sometimes be found even between unrelated variables) but much more the presence of a 

causality link between environmental/social performance and the business value of an 

enterprise. This is a much more difficult task and requires much more than a high degree of 

correlation. It requires mainly a multivariate statistical analysis where variables other than 

those mentioned above may be held constant in order to really isolate the impact of the 

independent variable on the endogenous variable. 

46
• Third, a lot of work has been done by industry associations not on the relationship mentioned 

above, but on defining the environmental, social and economic impacts of their members (in 

the discussions related to the Kyoto agreement). To the extent that this work better defines the 

dependent and independent variables to be used for the above, it would have been worthwhile 

to include it in the survey. For example, in the case of the aluminum industry, the 

International Aluminum Institute has 11indicators to capture the environmental impacts of the 

industry (global PFC emissions and average PFC emissions per tonne of aluminum produced 

over time; global GHG emissions, CO2 equivalents, and average emissions per tonne of 

alumina and aluminum produced; samething for fluoride and SO2/BaP/Particulate emissions; 

fresh water consumption; old and new scrap recycled; etc). The social impacts are measured 

by 5 indicators (percentage of plants with formal mechanisms for consulting the local 

community; percentage of them with workforce training/education schemes and youth 

employment programmes; community initiatives to improve health, education, environment 

and the local community; number of recordable incidents and global lost time injuries per 

million hours worked; etc.). Finally, 6 indicators are used for the economic impact (total 

direct employment; contribution to GDP; etc). Of course, indicators have big shortcomings 

(what weight should be given to economic impact as compared to environmental or social 

impacts?; what weight should be given to one specific indicator within a group?). 

Nonetheless, they deserve to be part of the reviewed literature. I am sure that other industry 

associations (nickel, copper, steel, etc) must have been generating the same type of output.

Expert Reveiwer:

C. Sandra Odendahl 

Senior Manager, Environmental Risk Management

RBC Financial Group 

Unedited Comments: 

General Assessment: 

• I found the paper hard to follow. For example, I’m not sure that splitting the subsections of 

IV. A. into “quantitative” and “qualitative” research is user-friendly. As a reader, I would 

find it more useful to have the subsections of IV.A. Current State of Evidence...broken 

into: (1) positive links between business and environment, (2) neutral correlation, (3) 

negative correlation. Perhaps another useful way would be to break the results into the 

different “envrionmental performance” proxies, such as: (1) Financial performance and 

environmental events, (2) financial performance and pollution reduction, (3) financial 

performance and environmental liabilities 

• The paper is unclear or inconsistent in explaining what is meant by a “business case” or a 

“business value case” and how we would know when we found one. 

• The paper switches back and forth among “environmental performance”, “sustainability”, 

“corporate responsibility”, “corporate environmental sustainability” etc etc. Help!!!! The 

report title suggests that it should focus on environmental performance. Not only are the 

other terms not interchangeable, they are never defined in the report. “Sustainability” must be 

47
defined. This wishy-washy term means different things to different people. Then there are 

“environmental sustainability,” “sustainability criteria,” “business and sustainability, etc 

sprinkled throughout this document. The reader is left to ponder what exactly the writers are 

talking about. If it is not possible to use consistent language, then we must at least ensure 

buzzwords are well defined. 

• In the first paragraph of the Introduction, the business case is defined as a correlation 

between environmental and financial performance. However, the many ways of measuring 

“environmental performance” are not clearly and concisely outlined in the paper. For 

example, “sustainability,” and “pollution reduction” appear to be assumed to be measures of 

environmental performance, but this is not explicitly stated nor justified. 

• The scope of the report is unclear. It seems to cover a lot of material unrelated to the stated 

objective (which I believe is in the title) 

I. Acknowledgements 

• Para. 1, Sent. 4—Is the Network really “informal”?

• Para.2, Sent. 3—“contribution to illustrating the business value case...” The business case 

was not established by the report authors. They only reported on the work of others. 

II. Executive Summary

• Para.1—I do not understand how there is a “key opportunity” to be found in “engaging the 

business and financial communities in the debate on the correlation between environmental 

and financial performance.” I thought the opportunity is in demonstrating the correlation, so 

that the business and financial communities can act accordingly. 

• Somewhere in the Exec Summary, it is critical to specify what is meant by “Business value 

case” 

• The objective of the study is not clearly stated at the beginning of the Exec Summary. 

• Para. 4, sent. 1 “....and serves as a guide for future research....” 

Key Findings 

Status of the Business Value Case 

• The first bullet, second sentence should say “...neutral correlation between environmental 

performance and business value”... Last sentence should say: “...and where it is less so 

could serve as a driver...” 

• The second bullet says that “a number of gaps remain at the sector, firm, and issue level...” 

Shouldn’t the gaps be clearly listed here, as this is the answer to one of the objectives of the 

study?

48
Communication and Language Barriers 

• I believe that the contradictory and not easily comparable nature of the research is a major 

communication barrier. Is it covered in bullet 2?

• In the first bullet, the last sentence implies that financial analysts should be looking at the 

business value case (for environmental performance). This is an assumption, but not a fact. 

Many believe that financial analysts should look at company finances, access to capital, and 

quality of management above all. It can be argued that if there really is a business case for 

environmental performance, it will show up in improved financial performance (isn’t that the 

whole point?), so there may be no need to analyse it separately. I suggest removal of the last 

sentence of the first bullet. 

Lagging North American leadership 

• If the objective was to examine the evidence of a business case for environmental 

performance, why is the report commenting on lagging NA leadership in environmental 

performance by industry and integration of environmental information by the financial 

sector? These topics appear to be beyond the scope of the report. The report might 

legitimately comment on how much research into the business case comes from North 

America versus other regions. 

• I’m not sure what the second bullet means where it says “...North America is falling behind 

emerging economies’ actions to support the link between environmental performance and 

financial performance....” Furthermore, is this part of the report’s scope? 

Role of the Public Sector 

• A key role that is not discussed in this review is the role of government to establish and 

enforce penalties for non-compliance. Regulatory controls are an essential driver of

environmental performance because pollution is mostly an externality that society “pays for” 

unless the cost is appropriately transferred back to the polluter. 

III. Introduction 

• The scope of the report is not clearly stated anywhere 

• Again, para 1, sentence 2 (Engaging the business and financial....”) sounds like bafflegab to 

me.

• Para. 3 including bullets—The five bullets list possible reasons why environmental 

information is not integrated into financial decisions, but all five points focus on the financial 

community. Aren’t there problems with business in general not seeing the correlation 

between environmental and financial performance? Again, it would be helpful to clarify the 

scope of this report. 

• Para 4—North America is part of “international,” no need to state it separately 

Methodology 

• Para 3 should say “see Annex A” 

49
• The list of Interviewees is scarce on mainstream financial institutions—Canadian or US 

IV. Linking Environmental performance to Business Value 

A. Current State of Evidence 

• Para 1—another twist on the business value case “environmental business value case” 

• Para 2.—define “sustainability criteria” 

• Para 2—what is meant by “financial decision making processes” 

• The terms “sustainability,” “responsible business practices” and “sustainability principles” 

are used interchangeably. Is this intentional? Given that this paper is summarising the

findings of several other authors, would it not be helpful to give examples of what authors 

are referring to when using any of these terms. I would be surprised if every researcher did 

indeed mean the same thing. 

Quantitative Research 

• Para 4—how did Bagozzi et al define environmental performance?

• Para 6—it is stated that none of the research establishes a direct causal link between 

emissions and financial performance. However, in paragraph 8, we learn that Konar and 

Cohen concluded in 1997 that a reduction in toxics increases market value. I am confused. 

• Para 8—it would be helpful to have more information about the specific studies cited, such as 

the Konar and Cohen study. What kinds of firms were studied? How were toxic chemicals 

determined? What size of companies saw the $31 million increase in market value? Etc. 

• Page 17, first bullet—It is stated that “Event studies show that the influence environmentrelated events (positive or negative) have on stock market performance of firms is only short 

term in nature, which suggests that analysts are not including environmental performance as 

part of their long-term valuations.” Actually, what it suggests is that there is NO REASON 

for analysts to include environmental events in long-term valuations. If there is only a 

demonstrated short-term impact on stock price, then why would they? Where is the gap? 

• Page 18, Second-Last Paragraph—the word “Fortunately” at the beginning of the paragraph 

gives away the report’s biases. This should be removed. 

• Page 18, Last Paragraph : “Europe leads in terms of conceptual business value case 

thinking......” Plain English please! 

B. Industry Sector Response to the Business Value Case 

 Achieving Business Value 

• General Comment on the section title—if the whole point of this study is to see what the 

status is of the business case, and we’re finding it is unclear, then what is the point of 

discussing how firms are not embracing the (unproven, unclear, poorly communicated) 

business case? I’m trying to think of a better title! 

50
• This section seems to jump all over the place without a clear path or direction. I suggest some

subheadings, and a bit of a logical framework. Maybe a more succinct title would help 

tighten the focus of the section. It reads as though the writer isn’t sure what he/she is getting 

at. (I don’t know what he/she is getting at) 

• Para 1, sentence 1—“Leading companies are realizing benefits....” This is very subjective. 

What is a “leading company”? It must be defined, or the sentence should say “Some 

companies...” 

• What is “improved sustainability performance”? 

• Para. 2; what is meant by “broad adoption of corporate environmental sustainability”? What 

would that look like? We can’t use buzzwords like “corporate environmental sustainability” 

without stating what is meant. Anyway, in this study, are we talking about environmental 

performance, or are we also talking about social performance, philanthropy, governance, etc? 

• How can we be sure broad adoption of corporate environmental sustainability has not 

occurred? From one report in 2002 by UNEP? The statement may or may not be true, but it 

is not well justified in the paper. 

• Para. 3—the hypothesis here is that companies must communicate their “sustainability 

performance “ (I thought this paper was about environmental performance) to their 

stakeholders in order to move along the path to sustainability. And further on it states, 

“Successful communication is fundamental to advancing the business case”. Huh? Those 

statements are highly debateable, but they are presented as fact. It is unclear how 

communication to stakeholders, many of whom never ask for environmental information and 

do not read it, helps a firm perform better. Furthermore, it must be explained how 

communication can help the business case. If the “business case” we are referring to is that 

there is a link between environmental and financial performance, then how does 

communication prove or disprove this? There is a gigantic logic gap here. 

• Para. 3, 4, and 5—another undebated assumption here is that it is the role of business to push 

environmental information at government, investors, customers and shareholders (and this 

will somehow make them more “sustainable”). In fact, business is typically responsive to its 

stakeholders, so if the stakeholders are not asking for this information, there is no business 

case for the firm to provide it. They may do so for internal reasons such as a desire to 

maintain a particular reputation or corporate culture. If stakeholders ask for it, then there is 

indeed value in providing it. 

• Para. 4—Could it be that the reason that the US’s largest CO2 emitters have not set firm

targets to stabilize or reduce their emissions is because there is no external driver (regulatory 

or stakeholder pressure) and because there is no financial case for doing so? Either no 

researcher has considered this, or the report authors have not interpreted the available 

research in this manner. Either way, shouldn’t this possibility be addressed? 

• Para. 5—Isn’t it true that the “corporate commitment” to disclosure is stronger in Europe 

because European stakeholders are requesting disclosure? 

• Para. 6, discusses how few companies are reporting metrics that measure to financial 

contribution of sustainability and then the sentence states that “It is unclear whether this 

represents and unwillingness... or whether the metrics...do not exist.” The most likely reason 

(and the purpose of this paper) is not mentioned—i.e., that there is no conclusive evidence 

51
that “sustainability performance” necessarily provides a financial contribution to an 

individual business. 

• Para. 7—the results of the CDP may in fact show the consistent and longstanding acceptance 

of company management that they must respond to their stakeholders! If the CDP had 35 

institutional investors controlling US$4.5 trillion asking how many people below 5’4” were 

employed at a company, you can be sure that the response rate would have been pretty good 

for that survey too. 

C. Financial sector Response to the Business Value Case 

• General Comment—again, the section title should be modified, since this paper is trying to 

find evidence of the business case. If it turns out that there is no business case, then the title 

makes no sense at all 

Creditors 

• This section should clarify that creditors’ “engagement in the business value case” is in fact 

recognition that environmental risks contribute to credit risk. This is not the same as saying 

that good environmental performance increases share price, or any of the other linkages that 

have been discussed in this paper. Furthermore, the Equator Principles are simply more 

recognition of the same—environmental risk adds to credit risk. 

• There is one US bank participating in the Equator Principles—Citigroup.

Socially Responsible Investment 

• Para. 3—The statement, “The mainstream investment community, however, marginalizes 

socially responsible investing” is not attributed. What research indicates this? Also, it would 

be interesting to know how the mainstream investment community “marginalizes” SRI?

Since 96% of investment in Canada is not in SRI, one could legitimately argue that it is 

presently a marginal subset of the investment universe. 

• Wouldn’t this section be a good place to discuss what the SRI investment community has 

demonstrated regarding the strength of the link between environmental and financial 

performance? If there were any group that should have lots of research and data available, 

this would be it. However, the authors do not provide any SRI data to address the objective 

of the report (remember, this report is supposed to be examining the link between 

environmental and financial performance) 

D. Public Sector Response to the Business Value Case: Geographic Perspectives 

• The public sector response section focuses heavily on improving transparency and disclosure, 

which are important. However, what about the public sector’s role in protecting the public 

interest by implementing and enforcing strong environmental regulations? A gap in this 

report, and perhaps in the body of available research, is examining how conclusive the link is 

between financial and environmental performance wherever there is strict environmental 

regulation. For example, if it costs a firm $1,000,000 in fines every time it accidentally spills 

more than X litres of organic matter into the St. Clair River, it becomes easier and more 

obvious for the firm and the financial analysts looking at the firm to link the environmental 

and financial performance. Where enforcement is weak and fines are low, one would expect 

52
the link (i.e. the “business case”) to be weak as well. Has no researcher ever done an 

examination of this? If not, we have a gap. If so, lets see the results. 

V. Conclusion: Barriers, Gaps and Opportunities 

• General comment—some of this section is repeated in the following section. It would 

perhaps be less repetitive to focus this section on summarising and drawing conclusions from

the research reviewed. “Opportunities” are very similar to, and lead to, recommendations, 

below. 

Research and Analysis 

• In the last 3 bullets listing the types of research needed, the writers again start talking about 

sustainable development and company sustainability, rather than environmental performance. 

This is right after stating that “micro-level quantification of the influence of environmental 

variables.... is needed.” How will sustainable development research help us understand the 

impacts of environmental performance at a micro level? Won’t it make things blurry, since 

sustainable development (at least MY definition of it, I don’t know about anyone else’s) 

comprises much more than environmental performance?

Communication and Dissemination 

• Para 1—Communication is important, but if the link between environmental and financial 

performance is weak or spurious, then coordinated communication won’t make it better 

appreciated by the financial sector. I don’t think we’ve established that the link is always 

significant, and certainly haven’t established when it is versus when it isn’t. 

• Para. 2—Another barrier to disclosure is that not enough stakeholders (including regulators) 

ask for it 

Public Policy

• As mentioned above, a major public policy gap and role for government is enforcement of 

pollution control regulations. This turns externalities into internal costs for firms, and thus 

the link between environment and finance is made. Pollution fines and penalties in Canada 

are typically very, very low, when they are laid at all. This needs to be examined and 

discussed. 

VI . Recommendations for Further Development of the Business Value Case 

Address gaps in the research on the business value case. Specifically: 

• The third bullet belongs in the communication section. It is not a research gap. 

• More sector-level analysis of general environmental initiatives (versus specific ones) would 

also be useful 

Improve communication of the business value case 

53
• There is no “one-size-fits-all” solution to communication. Furthermore, this paper shows that 

the business case it not even clear! So, these “communication” strategies are not realistic in 

my view 

• To get the CFO to talk about environmental considerations, those considerations would have 

to be important to the firm. The fact is that environmental matters are not key performance 

drivers in all firms nor in all sectors. 

Government should play an active role 

• OK 

Expert Reviewer: 

D. Ken Ogilvie 

Executive Director 

Pollution Probe 

1. General Assessment

In my opinion, the report presents a good assessment of the current state of knowledge on the 

business case for linking environmental performance to business value. The weakness of 

empirical research on the correlation between environmental and financial performance makes it 

difficult to know exactly where to target research efforts. As noted, however, the penetration into 

mainstream business and financial communities of the existing research and analysis on this 

subject is poor. Therefore, early priority should be placed on engaging these communities in a 

dialogue to share what is currently known on the business case and to identify the types of 

information and analysis to which they are likely to respond. This engagement could be 

invaluable in helping assessing the recommendations made in the Linking Environmental 

Performance report and in setting the future research agenda. 

A sustained effort may be needed to educate the business and financial communities on the 

significance of environmental performance to the long-term financial viability and prospects of 

business, depending on the results of empirical and other research on this subject. Ideally, 

research would occur in cooperation with these communities, thus automatically accomplishing 

part of the education goal. As with all innovations, pioneers and early adopters will most likely 

be the vehicles for early engagement, but linkages to institutions and organizations within which 

they work should be strived for at the start. 

b) Key pieces of research and information may have been omitted from the analysis. In

particular, the growing research base and literature on voluntary environmental initiatives and on 

ENGO/business partnerships, although not directly related to the business case proposition 

underlying the Linking Environmental Performance report, may offer new insights into what 

many corporations/businesses are looking for in terms of public image, as well as in new ideas 

for product innovation and marketing. Some useful references on these topics are noted below. 

54
Selected voluntary environmental initiatives literature:

Carraro, Carlo; Mattei, Fondazione Eni Enrico; Lévêque, François (editors). “Voluntary 

Approaches in Environmental Policy”. The FEEM/KLUWER International Series on Economics, 

Energy and Environment; Book Series: ECONOMICS, ENERGY and ENVIRONMENT; Volume

14, Kluwer Academic Publishers, Dordrecht; Hardbound, ISBN 0-7923-5516-4; March 1999, 272 

pp. http://www.wkap.nl/prod/b/0-7923-5516-4

Christmann, Petra and Glen Taylor. 2002. "Globalization and the Environment: Strategies for 

International Environmental Initiatives." Paper prepared for submission to the Academy of 

Management Executive Special Issue - How Governments Matter?

http://faculty.darden.virginia.edu/christmannp/Paper%20Abstracts/ChristmannTaylorAME.pdf

Iannuzzi, Alphonse Jr. 2001. “Industry Self-Regulation and Voluntary Environmental Compliance 

2001” 

OECD. 2003. “Voluntary Approaches for Environmental Policy: Effectiveness, Efficiency and 

Usage in Policy Mixes” Paris, France. 

http://oecdpublications.gfi-nb.com/cgi-bin/OECDBookShop.storefront/EN/product/972003091E1

Orlando Jimenez (presenter). 2004. “Voluntary Agreements in Policy-Making and Implementation. 

An effective approach towards sustainable development?” Part of the Paper Session: Theorising 

Sustainability: Connecting Economy, Environment and Society? II, 3/15/2004. 

Selected ENGO/business partnerships literature:

Covey, J., & Brown, D. L. (2001). Critical Cooperation: An Alternative Form of Civil SocietyBusiness Engagement. IDR Reports: A Continuing Series of Occasional Papers, 17. 

Mendleson, N., & Polonsky, M. J. (1995). Using strategic alliances to develop credible green 

marketing. Journal of Consumer Marketing, 12, 4-18. 

Hartman, C. L., & Stafford, E. R. (1997). Green Alliances: Building New Business with 

Environmental Groups. Long Range Planning, 30, 184-196. 

Heap, Simon. (2000). NGOs Engaging with Business: A World of Difference and a Difference to 

the World. INTRAC NGO Management and Policy Series No.11, pp. 66-69. 

Stafford, E.R. and C.L. Hartman. 1996. “Green Alliances: Strategic Relations Between Business 

and Environmental Groups.” Business Horizons, 39(2), 50-59. 

Stafford, Edwin and C.L. Hartman. 2000. “Environmentalist-Business Collaborations: Social 

Responsibility, Green Alliances and Beyond.” Published in Advertising Research: The Internet, 

55
Consumer Behaviour and Strategy, George Zinkhan (editor). American Marketing Association, 

Chicago, IL. 

Westley, F. and H. Vredenburg. 1991. “Strategic Bridging: The Collaboration Between 

Environmentalists and Business in the Marketing of Green Products.” Journal of Applied 

Behavioural Science, 27(1), 65-90. 

In addition, there is a growing amount of literature and discourse on the subject of Corporate 

Social Responsibility (CSR) that could be examined. The Linking Environmental Performance 

Report looked at this topic, but did not cover the literature in depth. The current interest of ISO 

in this topic (and the potential for an ISO standard in this area), for example, is an indicator of 

the growing importance of CSR to international trade, and hence business. Financial analysts 

may not be aware of CSR developments yet, but might become interested in the future if they 

perceive the importance of this subject to business risk. 

In summary, linking environmental performance to business value is a complex task with many 

possible dimensions to it. The report does a good job of looking at this linkage using the direct 

literature on this subject, but some new insights may be gained from literature that does not 

directly target this subject, but which may become a basis upon which future business value is 

assessed. 

2. The Business Value Case

Based on my knowledge and understanding, the author provides a very good assessment of the 

current gaps in the business value case. As noted above, there may be some additional insights to

be gained from literature on voluntary environmental initiatives, ENGO/business partnerships 

and CSR. This literature may give insights into business value in terms of image, marketing, 

innovation and social license to operate, among others. 

3. Supporting and Developing the Business Value Case

The following recommendations (and roles) are made to effectively develop the business value 

case: 

i) Business—Document and track environmental investments and environmental initiatives that 

may add business value. Look for ways to measure Return on Investment or assess share value 

and other business indicators linked to environmental initiatives. 

ii) Financial sector—Encourage business to document and track environmental investments and 

initiatives and to communicate this information and analysis to financial analysts. Offer to work 

with selected companies to identify relevant financial (and other) indicators and set up reporting 

mechanisms. 

56
iii) Government—Set up “business value case” initiatives that help recruit companies and 

financial institutions in research initiatives. Establish recognition programs for outstanding case 

studies and contributions to knowledge development in this area. Provide funding for academic 

research in this area. Explore the use of incentives to support linking environmental performance 

to business value. 

iv) University/academic—Use business value case studies in business school (and other faculties, 

as appropriate) course materials. Encourage academic research in this area. 

4. Communication of the Business Value Case

Since I come from the ENGO community, my comments are limited to this sector. The main 

communications vehicle to large numbers of ENGOs in Canada is through the Canadian 

Environmental Network (CEN), which has approximately 2,000 member 

organizations/individuals. Direct communication with the larger ENGOs (including conservation 

groups) is also recommended. A few examples include: West Coast Environmental Law 

Association, Suzuki Foundation, World Wildlife Fund (Canada), Canadian Nature Federation, 

Pembina Institute for Appropriate Development, Conservation Manitoba, Pollution Probe, 

Canadian Environmental Law Association, Environmental Defense Canada, Sierra Club, Sierra 

Legal Defense Fund, Friends of the Earth, STOP, UQCN (Quebec), Ecology Action Centre 

(Nova Scotia), etc. The best way to reach these groups is through e-mail/internet connections. 

Pollution Probe will share this work with all sectors through its VIRC (i.e., Voluntary Initiatives 

Resource Centre) (see www.pollutioprobe.org and look under What’s Happening to view the 

Voluntary Initiatives Resource Centre). The business case report will be included in the VIRC in 

the annotated bibliography section when the report is completed and approved for release. 

Pollution Probe will also consider linking the report to its work on a project titled, Towards an 

Environmental Sustainability Policy Framework. The initial phase of this project will be 

completed by March 31, 2004, and will be profiled on the VIRC. 

Expert Reviewer:

E. Brenda Riddick 

Director, Corporate Social Responsibility 

Bank of Nova Scotia 

1. General Assessment 

a) In your view, does the report present a comprehensive and balanced assessment of the 

business case from the perspective of identifying where further research and engagement is 

needed? Why or why not? 

57
The review of the relevant literature is comprehensive however the interviewees engaged in 

the report would appear to have a biased viewpoint on the business value case. To gain a 

balanced assessment it would be beneficial to include in the list of interviewees the equity 

analysts and the “mainstream financiers” with whom it is the desired intention to ultimately 

engage. 

North America has recognized leaders in the field of sustainability as measured by indices 

such as the DJSI and FTSE 4 Good. The perspectives and insights of these leaders would add 

another useful dimension to the report and a perspective from industries with a large 

environmental footprint would be beneficial in balancing the assessment, which is heavily 

weighted towards the work of academics in the field of sustainability as opposed to actual 

leading sustainability practitioners. 

b) Have key pieces of research information been omitted from the analysis? Please specify. 

Sustainable Asset Management (SAM) is considered to be the most highly regarded 

sustainability research organization. As SAM developed the world’s first index to track the 

performance of sustainability-driven companies worldwide it would be worthwhile 

referencing this research in the report. It would also be worthwhile considering SAM’s 

approach in defining the scope of environmental performance as it relates to environmental 

business opportunities, environmental management, environmental risks and environmental 

strategy and how performance against these criteria are linked to financial performance. 

2. The Business Value Case 

a) From the research presented in the report and from your own knowledge, does the author 

provide an accurate assessment of the current gaps in the business value case? Are there 

other gaps that have not been identified? If yes, please describe. 

Little attention appears to have been paid to the potential financial value of a corporation, 

business or industry which capitalizes on environmental business opportunities in, for 

example, the design, manufacturing or financing of innovative environmental technologies 

in an age of increasing environmental regulation and environmental scrutiny and therefore 

an age of ever increasing business opportunity. 

While the report identifies the considerable gaps or opportunities that exist in the 

communication and dissemination of research on the business value case—we must 

acknowledge that the less than compelling business case (no clear definition of 

environmental performance or financial performance and thus an inability to make a strong 

link between the two, lack of data, inconsistent or non-existent metrics) is in itself a barrier 

to the penetration of the business value case into mainstream business, the lack of interest 

and appreciation in the business case and the lack of comparable and thus convincing 

information. 

58
b) In your view are there gaps in research, information and analysis on the business value 

case and/or gaps in an actual link between environmental performance and business value? 

Please explain.

It is very difficult to make a strong link to business value when there is a lack of consistency 

in the examples cited to demonstrate this link. For example, in one instance we cite 

“evidence and experience......suggest that, in certain circumstances, improved 

environmental performance will lead to improved financial performance”. This linkage is 

based on company reported environmental information as a proxy for environmental 

performance. We then cite another study which suggests, “Companies with superior 

environmental performance had higher returns on investment...” based on a resource-based 

view of environmental performance. 

In considering the gaps in research, information and analyses it is important to analyze and 

evaluate the financial value/risks of environmental performance where a particular industry 

such as a financial institution has a direct environmental impact (energy and water 

consumption, paper consumption, level of recycling) and an indirect impact (lending to 

energy intensive industries, financing of projects in environmentally fragile areas and 

investment of assets in companies with large environmental footprints).

Likewise, in order to establish a link between environmental performance and financial 

valuation there are gaps in the research with respect to where a company can take the lead 

and take effective actions on its own, where it can only take effective action in working 

with others and where effective action is only possible through contributing to the efforts of 

others (i.e. corporate donations). 

 

Although shareholders and customers do not typically track a corporation’s performance or 

chose to deal with a company based on a single risk variable—there needs to be additional 

research and analysis on stakeholder perceptions and expectations of environmental 

performance on an industry by industry basis in order to understand the potential 

opportunity for added financial value through environmental responsibility and likewise the 

risk. Information on trends in the public’s willingness to punish or reward a company based 

on its perceived environmental performance would be beneficial and adds another important 

perspective to the business value case. 

3. Supporting and Developing the Business Value Case 

a) In order to effectively support and develop the business value case, what recommendations 

(e.g. specific research, provisions of information, communication initiatives, policies, etc.)

would you provide to: 

i) Business 

• Define environmental performance utilizing an established CSR/Sustainability 

framework

59
• Develop an environmental performance strategy

• Define, measure and report incrementally (internally and externally) on 

environmental targets that are meaningful to the corporation’s stakeholders 

(identified through research) and within a corporation’s direct control 

• For consistency and comparability adopt relevant metrics from a known 

reporting standard (e.g. GRI) 

• Establish the causal links to financial performance 

ii) The Financial sector 

• Incorporate messages related to environmental performance in traditional 

financial reporting and communications to investors and analysts

iii) The Government 

• Clearly articulate the government environmental management strategy and 

vision

• Engage business in environmental agenda

b) What role do you see each of these sectors playing? Are there other sectors that should be 

playing a role? 

i) Business 

 

• Stakeholder engagement to understand expectations and gain perspective on 

perceived performance 

• Adopting environmental practices that are within the corporation’s control and 

identified as meaningful by stakeholders

• Public reporting through a variety of reporting mechanisms

• Establishing benchmarks of environmental performance which contribute to 

the establishment of socially beneficial norms and encourage socially 

responsible practices and innovation in the area of sustainability

• Consensus on metrics and reporting guidelines

ii) Financial sector 

• Incorporation of environmental performance data in financial valuations

iii) Government 

• Policy

4. Communication of the Business Value Case 

60
5. What do you recommend as the most effective means to communicate and disseminate the 

report and other research on the business value case? 

• Identify and gain the endorsement of a widely respected leader in 

sustainability

• A letter introducing the study addressed to the CEOs and CFOs of top North 

American Corporations

• A concise report to analysts which includes a clear call to action

• Engage support of the SRI community

6. Are there specific organizations, associations, or networks that should be engaged 

(including yours)? 

In order to develop a sound business case there must be conformity and consistency in 

reporting. Engagement of corporations in an industry network to develop a framework for 

environmental performance would be beneficial. 

Regulatory bodies working in conjunction with business on this initiative would also be 

beneficial. 

7. Will you share this report with any of your colleagues? From Business? The Financial 

sector? Government? Other? Please specify. 

It would be our intention to share a concise report on the Business Value Case to our Senior 

Executive Team responsible for Real Estate, Finance, Environmental Lending Policies and 

Global Risk Management 

Expert Reviewer: 

F. Andrew Winston 

Director, Corporate Environmental Strategy Project 

School of Forestry and Environmental Studies 

Yale University 

1. General Assessment 

a) In your view, does the report present a comprehensive and balanced assessment of the 

business case from the perspective of identifying where further research and 

engagement is needed? Why or why not? 

Balanced, yes. Comprehensive, maybe—but it’s a tough topic to cover fully. Some concerns I 

have about the report are mainly structural (or perhaps just personal writing style so take it with a 

grain of salt) —many of the best conclusions are buried. For example, the summary at the end of 

section IV-A has a couple of excellent points: 1) the business value case is strongest at the 

61
sector/aggregate level and weakest at the specific metric level, 2) the ‘specific reasons for 

the...correlation are not yet proven’. This latter conclusion is a major one and should be 

highlighted and discussed. Not knowing why there’s a correlation is one of the big reasons it’s 

hard to convey. Other great points are in the conclusion (such as the need for clear metrics) but 

are many pages into the study—these solid points need to come forward to the intro. 

In general, the study does not seem to be completely clear on its main task, which could be a 

function of what was assigned. Some general observations on this topic... 

o Is the study supposed to help make the business value case, or just assess the state of the 

thinking on it (this confusion is biggest in section IV-B where there are stories on the 

business world’s progress on climate change and setting GHG targets, which seems a bit 

off topic on the state of the business case). 

o Thus it muddies a few possible goals: a) give a status on research on the 

connection/correlation, b) give a status of how the case is communicated to key 

stakeholders, c) tell some stories that support the case itself 

o Also, is the focus supposed to be on communicating the business case mainly to the 

financial community (vs. the business community, the NGO community, etc)? If not, then 

the expert interviews should include a broader array, including more from the business 

community such as CEOs who ‘believe’ and some who don’t. 

b) Have key pieces of research/information been omitted from the analysis? Please specify. 

A couple questions central to the discussion come to mind that are touched on, but not addressed 

directly. 

o What is business value? 

o What is environmental performance? 

These two are critical and very, very hard to answer. But I think that pointing out the vagueness 

of these definitions will highlight why the business case is so hard to measure and communicate. 

The many possible definitions of business value derived from environmental action are 

mentioned specifically in the opening paragraph of IV-B (costs, access to markets, employee 

retention, etc). This breadth of value creation should be highlighted much more in the study and 

the status of the business case for the range of payoffs should be assessed. The table with proxies 

for financial value only focuses on things like stock price, net income, and other traditional 

financial measures. What about these other payoffs? Maybe some are in the studies mentioned in 

the other table of “Top 20” papers, but it’s not clear if so. 

The definitions of environmental performance are also highly varied—is it just emissions and 

outcomes, or reduced ‘footprint’ across the whole value chain from suppliers to end-of-life. The 

real leaders are thinking along the lines of the latter. The study should address the full range of 

environmental performance. Environmental action is also not well defined yet. In footnote 3, the 

study describes how an environmental management system can add value. Environmental 

performance does not just stem from the EMS—it comes from bringing an environmental 

perspective into all aspects of the business. 

62
Section IV-A covers many of the ways people look at these values, and the table is helpful, but it 

might be helpful just to call out the connections that have been studied: e.g., TRI correlation with 

financial outcomes, global standards correlated with no reduction in market value, emissions 

with market value, etc. Maybe this just means a simplified table. In addition, this study could 

address the quality of the studies covered, in terms of range of companies and industries or 

statistical validity (e.g., 90% confidence level on findings, etc). 

2. The Business Value Case 

3. From the research presented in the report and from your own knowledge, does the 

author provide an accurate assessment of the current gaps in the business value case? 

Are there other gaps that have not been identified? If yes, please describe. 

4. In your view, are there gaps in research, information and analysis on the business value 

case and/or gaps in an actual link between environmental performance and business 

value? Please explain. 

See above... 

5. Supporting and Developing the Business Value Case 

6. In order to effectively support and develop the business value case, what 

recommendations (e.g. specific research, provision of information, communication

initiatives, policies, etc.) would you provide to: 

i) Business 

ii) the Financial sector 

iii) Government

To answer these as a group, I think the important point here is that making the business case to 

each of these communities will require a very different approach and style. My take on what’s 

needed to make the business case to the business community includes... 

o Concrete examples of company actions that have paid off (or not) 

o Discussion of the breadth of payoffs 

o Understanding of the business forces coming to bear (like the Equator principles and 

SRI) 

The first area does not fit a report that assesses the state of the business case—the stories are best 

in a different forum. As mentioned above, I think this report could do more on the second area. 

The big trends for the third one are covered in this study but could be highlighted a bit more. 

But making the case to the business community will be complex and needs to be honest about 

the failures in the field and the possible pitfalls. And it needs to vastly expand the definition of a 

‘payoff’ for environmental action. 

The business value case for the financial community may be a much simpler task. Innovest in 

New York is dong excellent work showing the connection between environmental leadership and 

63
overall management quality. They have some great charts showing how much better their top-tier 

environmental performers do than the laggards in terms of stock price. They are saying it’s 

correlated, not necessarily causal. But this may be plenty good enough for the financial world—

they mainly want to know that a company is a good investment and is managed well. But, 

according to the stats in this study, the financial world is getting it to some degree (79% of fund 

managers seeing the value in risk management). As this study points out, what may be missing 

for the financial community is the connection to short-term business value. This connection has 

not been either measured well or communicated well. 

Finally, for government, the case may need to focus on how regulatory action can prompt 

innovation (Michael Porter is the big proponent of this), or how they can help by levelling the 

playing field for an industry. The case for government may also focus on how to mix market and 

regulatory forces, or when the business case is strong without government intervention (e.g., cost 

cutting and efficiency) and when the government may be needed (e.g., asking companies to 

internalize costs of CO2 emissions). 

This report makes some good points about the communication barriers and the need to speak the 

business community’s language (or the ‘lexicon’ as they call it). The need for transparent and 

comparable metrics is also a great point. 

7. What role do you see each of these sectors playing? Are there other sectors that should 

be playing a role? 

i) Business 

ii) the Financial sector 

iii) Government

iv) Others?

The business community clearly has a vital role in documenting the business case. But it should 

also play a major role in communicating it. The true believers should be encouraged to carry the 

message to the other sectors. And, importantly, the company representatives should include 

CEOs and line business heads, not just the environmental or sustainability people. The financial 

sector can play a crucial role in how it finances projects – the Equator principles are a major step 

in that direction. And the govt needs to level the playing field and make all players internalize 

certain harms. 

NGOs also need to be educated about the business case—not the moral one, but the business 

case, which may include a moral element, but is primarily about building stronger businesses. 

NGOs are moving from a scolding role to partnerships, but they need to understand the business 

case and convey it effectively. And the media needs to understand it as well so they can engage 

with stories on how good environmental moves are good business—they need to tell more than 

the good citizenship angle on the story and tell it from a business perspective. A few publications 

like Fortune and Fast Company have picked up on these threads and do good work, but it needs 

to be widespread. 

64
8. Communication of the Business Value Case 

a) What do you recommend as the most effective means to communicate and disseminate 

the report and other research on the business value case?

b) Are there specific organisations, associations, or networks that should be engaged 

(including yours)?

c) Will you share this report with any of your colleagues? From Business? The Financial 

sector? Government? Other? Please specify.

Not sure what the best means are, but they need to be mainstream—mainstream media, 

mainstream industry and trade journals, mainstream events and conferences, etc. The study 

points out the need to use ‘traditional financial networks’. I would only add as mentioned above 

the need to use business people (CEOs, business line heads) to deliver the message to 

shareholders and analysts. 

In terms of organizations...the green business community is talking to itself right now and we 

need to open up the tent. Organizations like the Conference Board, WTO, WEF, etc. 

9. Additional Comments

Minor additions to the timeline in Annex D... 

o The timeline is financial industry leaning (which may be the point—not sure) 

o In phase 3, some key publications, including the Brundtland Report and Hawken’s 

Ecology of Commerce in particular really started this movement. Other key writers 

are missing from the timeline, and perhaps from the whole study, such as Amory 

Lovins. 

o In phase 3 and 4, a big change came when some business community bigwigs (e.g., 

CEO of Shell, BP, DuPont, etc) got on board. This made a huge difference. 

65
Annex C: Authors’ Response to Expert Reviewers 

We would like to thank all reviewers, interviewees, and network members for their input, effort 

and thoughts in contributing to this report. This report in its final form has been materially 

updated and improved upon because of the excellent written feedback received. As you, the 

reviewers, will see, many of your specific and overall comments are now reflected throughout 

the final report. 

It is also critical to note that this report was a literature review and was not intended to put forth 

anything “NEW”, but was intended as a distillation and summarization of the work and thoughts 

of others. 

Although a great many of the comments were excellent and we the authors agreed with many of 

them, a large number of the comments fall outside the scope of this effort as outlined in the 

introduction of the paper. This paper was not meant to do the following: 

• Cover all the documents reviewed in detail. It was the specific desire of the CEC and EC 

to keep this paper shorter by reducing the amount of references and citations from

specific documents. For interested parties, there is an additional 50-page exhibit that 

summarizes the author’s distillation (i.e., not an evaluation or a report that proposes next 

steps) of the 20 most relevant documents reviewed for this report. 

• Cover all aspects of solving the Business Value Case or prove that sound environmental 

or sustainability practices are financially profitable. 

• Perform any new research. 

• Try and link all different approaches and methodologies. 

• Perform any original analysis of the cause and effect of environmental issues. 

It is also important to remember that this report: 

• Did not look at research formally published past September of 2003, as the report was 

created during the months of October—December of 2003. 

As far as the documents reviewed and the individuals interviewed go, it is important to note to 

following: 

• Only literature that specifically looked at environmental performance related to financial 

performance was examined. Although a great amount of other excellent research exists, it 

was seen as outside the scope of this effort. 

• The researchers, the CEC and the EC reached out to a broad universe of people 

requesting suggestions on relevant documents. 

• The researchers then spent several weeks scanning Web site data-bases and search 

engines to find additional relevant documents. 

• In regard to interviewees, the researchers contacted a much larger number of people than 

are listed as interviewees. However, many of the individuals specifically suggested by 

peer reviewers, the Network, the CEC and the EC chose not to participate or said they 

were unavailable. 

66
Although no research study can (a) cover all relevant research materials or (b) interview all 

worthwhile people, every attempt was made to examine as much material as possible and to 

interview as broad as possible a universe as was feasible. 

67
Annex D: Timeline of Major Events related to 

the Business Value Case 

Phase One—Up to 1970: 

• Milton Freeman mindset—Companies maximize profits by minimizing costs through 

externalization of liabilities. Pollution and negative social/environmental effects will be 

absorbed by the planet, creating profit for the company. 

• Charity is deemed to be the way to leverage wealth towards social good. 

• Environment is seen as a good, free for corporate exploitation, with little to no regulation. 

Phase Two—The Early Days (1970–1985): 

• Alerted by Rachel Carlson and Silent Spring; the public slowly wakes up to effects of 

pollution and the possibility that economic activity is damaging the ecosystem and 

thereby humans. 

• EPA and the US government take the lead in mandating toxic emissions disclosure. 

Company-specific data becomes available for the first time, but there is no equivalent in 

Europe. 

• Socially responsible investment (SRI) funds are introduced, with environmental screens, 

using limited quantitative methodologies. 

• 1970s real estate crisis in USA. 

• USA Superfund and other legislative Acts. 

• Asbestos lawsuits begin. 

• Environmental insurance is made available for the first time. 

• Development Bank guidelines are introduced. 

• Expansion phase occurs for NGO-driven environmental awareness. 

• Terms like “corporate social responsibility” and “sustainability” are unknown. 

Phase Three—A Movement Takes Form (1986–1995): 

• Fleet Factors case gets global attention as the first time a bank is held liable for an 

environmental cleanup (May 1990). 

• US-based banking regulator (FDIC) issues specific bank guidelines in 1992. 

• UNEP declaration for environmental banking is endorsed by 28 signatories in 1992. 

• The US-based Securities and Exchange Commission (SEC) issues SAB ’92 in 1993, 

explaining that material environmental liabilities must be disclosed. 

• ASTM issues the first standard in 1993, stating basic requirements for real estate 

environmental due diligence. 

• Public awareness builds to a point where the environment becomes a mainstream

business issue. 

• Europe begins to take the lead in environmental regulation, with a focus on corporate 

regulation and tax-driven consumer behavioral changes. 

• During the Reagan years, there is a push for de-regulation, with a negative impact on the 

environment. 

68
• Pension funds and institutional investors take note of SRI. 

• Insurance industry and creditors begin to see the environment as a risk factor, and climate

change starts to emerge as the big issue. 

• Starting with the Exxon Valdez and Union Carbide Bhopal disasters, companies begin to 

feel the impact of negative responses to catastrophic environmental events. 

• Although there is little academic interest, there are some early signs of positive 

correlation between financial performance and environmental factors. 

• The first profit-driven environmentally screened mutual funds are launched in the USA 

and Switzerland. 

Phase Four—Rapid Growth and the Birth of Sustainability (1996–2000): 

• US insurance industry annual statement requirement related to environmental liabilities 

for all US licensed insurance firms is introduced.

• Property and casualty claims associated with asbestos and its environmental risk is 

estimated at over US$ 300 billion. 

• In Europe, a rapid growth of profit-motivated, environmentally screened mutual funds 

begins. 

• ISO 14000 series is introduced in 1998. 

• UK banks begin to offered lower credit rates for clients with good EMSs (1998). 

• Innovest and Sustainable Asset Management (for-profit environmental rating companies) 

are launched. 

• Dow Jones Sustainability Index is launched. 

• Shareholder activism grows significantly in terms of both volume and effect, driven by 

early success and SEC reforms. 

• SRI becomes mainstream, but the trans-Atlantic approaches begin to obviously diverge. 

• In the US, SRI is “bolted on” by financial advisors after initial fundamental financial 

analysis. 

• In Europe, engagement and institutional investors focus on the development of 

integrating sustainability into analytics on an equal par with financial concerns. 

• Academic interest grows. 

• CSR reporting becomes mainstream, as does “green-washing.” 

• Debate grows as to whether sustainability is a core strategy or simply a marketing tool. 

• Kyoto Protocol and climate change dominate the environmental press. 

• Some companies begin speaking up about integrating sustainability as a means to both 

reduce risk and drive down costs through efficiencies. 

• Many new companies and networks enter the CSR/SRI analytics field, offering 

increasingly sophisticated products and services. 

• Wall Street remains oblivious to CSR. 

• European Banks start to pay attention, even claiming the CSR niche (e.g., The Cooperative Bank, Rabobank). 

• UK Pension Fund Act is enacted. 

• Japanese eco-funds are introduced. 

69
Phase Five—(2001–-Present): 

• Rapidly growing level of interest in climate change by almost all major insurers (with

possibly only some USA-based firms lagging). 

• Academic interest surges, as studies begin to conclusively prove performance. 

• Limited mainstream financial research focusing on SRI begins in Europe. 

• Studies on the relationship between environmental and economic performance at the firm 

level are reported only very recently for Europe. 

• Interest grows among large American institutional investors. 

• UK occupies the lead position in terms of SRI. 

• FTSE “4 Good” Index is introduced in Summer 2001. 

• First Transitional Economy Sustainability Fund, by Banco Real (December 2002). 

• UNEP aggressively expands its push into North America. 

• High level of interest expressed by NAFTA ministers (Summer 2002). 

Equator Principles is launched and signed by 20 commercial banks in 2003.

70
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About the Authors

John Ganzi is a former Citicorp vice president and Salomon Brothers manager and since 1990

has managed Environment and Finance Enterprise (EFE), a research and strategic advisory firm

focused on the relationship between environmental issues and financial performance. In addition, 

since the spring of 2000, he has been the executive director of the Finance Institute for Global 

Sustainability (FIGS) and, since 1998, has been an adjunct professor of finance at the University

of North Carolina’s Kenan-Flagler Graduate Business School, where he teaches second-year 

MBAs, and business executives. During his time at Citicorp and Salomon, John held a variety of 

financial management positions for a combined total of 15 years, and has spent the last 12 years

in the environmental field. He holds two Master’s degrees, in Environmental Science and in

International Business, from New York University and the University of Michigan, respectively,

and an undergraduate degree in Business, Economics, and Government from Georgetown 

University. 

Eric Steedman is a former portfolio manager of the Dreyfus Third Century and Socially 

Responsible Growth funds, having had responsibility for all matters relating to social investment 

and proxy voting at Dreyfus and overseeing more than US$1.2 billion in assets. Eric has over 9 

years experience in the social/environmental sustainability field, and now works as a business 

strategy consultant in the area of socially responsible and sustainable investment and business, 

providing customized solutions to challenges facing organizations and entrepreneurs. From 1996 

to 1999, Eric also served as a director of the Social Investment Forum in the US. Eric graduated

from the McGill MBA program in the fall of 2000. Eric also holds a Master’s in Political Theory 

from Glasgow University and an Honours BA in Political Science from Carleton University in

Ottawa. 

Stefan Quenneville is a Montreal-based business strategy consultant. He holds an MBA 

(Finance concentration) and a Bachelors of Science (joint major in Biology and Environmental 

Studies) from McGill University. At the World Bank he established a remote and Web-based 

distance education program, which trains students and professionals in partnership with 25 

universities in 15 African countries. This innovative project has been recognized as one of “Ten 

Websites to Change the World" by the BBC and as “Pioneering Distance Education" by the 

Harvard Business Review. He speaks English, French, Spanish, Italian and Portuguese. 

80