The environment presents a new dimension in which differences in the relative value of companies can be discerned, and exploited, by investors. In recent years, investors and companies have become increasingly aware of the many ways that environmental issues affect their businesses, presenting both challenges and opportunities.
Environmental issues generate business risks that have to be carefully managed.
Regulations aimed at protecting human health and the environment constantly evolve and often create uncertainties for firms with significant implications for their financial performance. Consumer reactions, toxic torts, and other environmentally motivated litigation create serious non-regulatory risks that may reduce a company's markets or undermine its balance sheet. At the same time, rich rewards are increasingly available to companies able to transform environmental concern into market opportunity or competitive advantage. Some companies find their reputations are enhanced and their earnings increased by adopting cleaner production techniques or facilities. Companies have even made a changing regulatory framework into a source of competitive advantage by pre-empting environmental regulations and voluntarily going beyind compliance on their own terms, knowing that rivals will likely be compelled to react later.