BUSINESSWEEK ONLINE : JANUARY 8, 2001 ISSUE
ECONOMIC TRENDS On Wall Street, Green Is Golden Eco concern is paying dividends Environmentalists don't look kindly on the role of multinational corporations in the developing world. Many companies, they say, deliberately invest in nations with weak environmental standards in order to reduce costs and fatten their bottom lines. A corollary of this view is that companies willing to profit from lax local environmental rules should expect to fare at least as well in the stock market as more principled companies. Yet a study in Management Science finds that Wall Street actually rewards multinationals that hew to stringent environmental standards in the developing world. In the study, sponsored in part by the University of Michigan's William Davidson Institute, researchers Glen Dowell, Stuart Hart, and Bernard Yeung analyzed data from the mid-1990s on the stock market performance and environmental policies of 89 major U.S. mining and manufacturing companies with production facilities in developing nations. Their stock market measure was the market value of a company relative to the replacement cost of its physical assets. Their environmental ratings came from the Investor Responsibility Research Center. Taking into consideration industry, company size, research investment, and other factors, the authors found that the market valuation of companies with strict global environmental standards was some 80% higher, relative to their physical assets, than that of companies using local standards for their operations. Companies that simply used less stringent U.S. environmental standards in the Third World did nearly as badly as those adopting host-country practices. Why does Wall Street value companies with high global environmental standards? The authors speculate that adopting lax local practices may hurt profits and growth over the long run by courting bad publicity and failing to anticipate future changes in standards as local incomes rise. A single high standard deflects criticism, builds employee morale, and permits the rapid diffusion of new technology throughout a company's international operations. ''Companies attracted by weak local environmental regulations,'' says Yeung, who is now at New York University, ''may find that their short-run gains bring long-term pain.'' By GENE KORETZ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP					INTERACT E-Mail to Business Week Online

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