The Economic Value of Corporate Eco-Efficiency

Abstract

This study adds new insights to the long-running corporate environmentalfinancial performance debate by focusing on the concept of eco-efficiency. Using a new database of eco-efficiency scores, we analyse the relation between ecoefficiency and financial performance from 1997 to 2004. We report that ecoefficiency relates positively to operating performance and market value. Moreover, our results suggest that the market's valuation of environmental performance has been time variant, which may indicate that the market incorporates environmental information with a drift. Although environmental leaders initially did not sell at a premium relative to laggards, the valuation differential increased significantly over time. Our results have implications for company managers, who evidently do not have to overcome a tradeoff between eco-efficiency and financial performance, and for investors, who can exploit environmental information for investment decisions.We thank Innovest Strategic Value Advisors, Mark Bremmer, Roderick Molenaar and Vishal Jadnanansing for help with the data. We are grateful to an anonymous referee, John Doukas

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