profits
Developed countries may have learnt that environmental friendliness pays, but South Africa still lags far behind
Roger Cowe in London
THE “greening” of business has received a boost from research which shows that British companies taking environmental issues seriously have better financial performance than their non-green rivals.
In the first substantial study of this kind, the research, by Imperial College and Jupiter Asset Management, a financial services company, found that a large sample of greener companies did as well or better than competitors in the same business over a four-year period.
The conclusions will give new impetus to the environmental business movement, which has seen an initial enthusiasm for green marketing and simple waste-reduction measures give way to doubts about more fundamental environmental strategies.
The research will also help the green investment sector, which has been able to show good performance but still has to overcome worries among investors that addressing environmental issues might damage profits.
That fear is conclusively rejected by researcher David Edwards. “The results strongly support the hypothesis that good environmental performers perform better than bad environmental performers.”
Edwards based his research on firms such as Argyll, British Polythene, British Telecom, Iceland, Kingfisher and London International. These all fit the funds’ criteria for good environmental performance, which cover management, disclosure and reduction in energy use and pollution.
The study focused on 51 such firms and compared their profitability between 1992 and 1995 with similar companies in the same sectors. The green companies achieved substantially higher return on capital, and even the best of the non-green companies did no better than those on Jupiter’s list.
The green store groups, for example, achieved returns of almost 26% over the four-year period, compared to only 15% for comparable non-green companies.
Edwards cautioned that the results do not prove that being green necessarily produces better profits. The opposite could be the case – that more profitable companies can afford to be more active on environmental issues.
But Simon Baker, Jupiter’s green manager, said the causal connection was irrelevant for his purposes. “All I need to know is that the companies on our list will show a better return.”