U.S. firms ignore the environment at their own risk

Monday, October 29, 2007 12:00 pm
by Marc J. Lane


The evidence is mounting that environmentally responsible companies are more profitable and deliver better investment returns. Yet most U.S. companies have been slow to adopt responsible environmental practices, yielding ground to Europe and Japan, where investor demand, competitive pressure and regulatory mandates have spurred companies to improve environmental performance.

Peter Webster, executive director of Ethical Investment Research Services Ltd., a London independent research organization, persuasively argues that good corporate citizenship enhances shareholder value.

But EIRIS' recent study of nearly 2,000 companies around the world makes the sobering case that all but the biggest U.S. companies are significantly lagging their European and Japanese counterparts in meeting environmental challenges.

The European Union strictly regulates environmental performance, and investors and non-governmental organizations have lobbied hard for sustainable practices. Fearing that export opportunities might be lost to more responsible firms in other countries, Japanese companies have embraced internationally accepted environmental standards that help businesses mitigate operations' adverse environmental effects.

More than 90% of European and Japanese companies that materially impact the environment were found by EIRIS to have developed policies to manage their environmental effect, compared with only 67% in the United States. And more than half the companies in Japan and in several European countries, but only 18% of U.S. companies, were credited with improving environmental performance.

The Carbon Disclosure Project, a collaboration of more than 300 institutional investors, also gives U.S. companies bad grades. It just reported that U.S. businesses aren't keeping up with their global competitors in reducing greenhouse gas emissions or in capturing the entrepreneurial opportunities climate change presents.

But U.S. companies are starting to see the light. Twenty-two petitioners - state officials, investment managers and environmental groups - have recently asked the U.S. Securities and Exchange Commission to improve corporate environmental reporting. They contend that climate change will impact financial performance and that company managers are obliged to disclose and minimize climate change-driven risks. The petitioners are right.

MonsterTrak, an arm of job-search site Monster Worldwide Inc., just published a survey reporting that a staggering 92% of young workers prefer to be employed at an environmentally friendly company. The survey says workers tend to be happier, more productive and more profitable at green companies.

Environmental responsibility is a proxy for good corporate management. U.S. managers, increasingly focused on the environmental risks and liabilities their companies face, must move beyond awareness to action.

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Reprinted with permission from Crain Communication Inc., Copyright 2007.

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