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Integrated Environmental and Financial Performance Metrics for Investment Analysis and Portfolio Management

Author

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  • Simon Thomas
  • Robert Repetto
  • Daniel Dias

Abstract

This paper introduces a new measure, based on a study by Trucost and Dr Robert Repetto, combining external environmental costs with established measures of economic value added, and demonstrates how this measure can be incorporated into financial analysis. We propose that external environmental costs are relevant to all investors: universal investors are concerned about the scale of external costs whether or not regulations to internalise them are likely; mainstream investors need to understand external costs as an indication of future regulatory compliance costs; and SRI investors need to evaluate companies on both financial and social performance. The paper illustrates our new measure with data from US electric utilities and illustrates how the environmental exposures of different fund managers and portfolios can be compared. With such measures fund managers can understand and control portfolio‐wide environmental risks, demonstrate their environmental credentials quantitatively and objectively and compete for the increasing number of investment mandates that have an environmental component.

Suggested Citation

  • Simon Thomas & Robert Repetto & Daniel Dias, 2007. "Integrated Environmental and Financial Performance Metrics for Investment Analysis and Portfolio Management," Corporate Governance: An International Review, Wiley Blackwell, vol. 15(3), pages 421-426, May.
    • Handle: RePEc:bla:corgov:v:15:y:2007:i:3:p:421-426
    DOI: 10.1111/j.1467-8683.2007.00575.x
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    Cited by:

    1. Sadok El Ghoul & Omrane Guedhami & Hakkon Kim & Kwangwoo Park, 2018. "Corporate Environmental Responsibility and the Cost of Capital: International Evidence," Journal of Business Ethics, Springer, vol. 149(2), pages 335-361, May.
    2. Christopher Marquis & Michael W. Toffel & Yanhua Zhou, 2016. "Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing," Organization Science, INFORMS, vol. 27(2), pages 483-504, April.
    3. Sun, Haiyan & Chen, Fushan, 2022. "The impact of green finance on China's regional energy consumption structure based on system GMM," Resources Policy, Elsevier, vol. 76(C).
    4. Christopher Marquis & Michael W. Toffel & Yanhua Zhou, 2011. "Scrutiny, Norms, and Selective Disclosure: A Global Study of Greenwashing," Harvard Business School Working Papers 11-115, Harvard Business School, revised Jul 2015.
    5. Geng, Qianqian & Wang, Ying & Wang, Xiaoqing, 2023. "The impact of natural resource endowment and green finance on green economic efficiency in the context of COP26," Resources Policy, Elsevier, vol. 80(C).
    6. Lv, Chengchao & Bian, Baocheng & Lee, Chien-Chiang & He, Zhiwen, 2021. "Regional gap and the trend of green finance development in China," Energy Economics, Elsevier, vol. 102(C).
    7. Michelle Rodrigue & Michel Magnan & Charles Cho, 2013. "Is Environmental Governance Substantive or Symbolic? An Empirical Investigation," Journal of Business Ethics, Springer, vol. 114(1), pages 107-129, April.
    8. Judith L. Walls & Pascual Berrone, 2017. "The Power of One to Make a Difference: How Informal and Formal CEO Power Affect Environmental Sustainability," Journal of Business Ethics, Springer, vol. 145(2), pages 293-308, October.
    9. Andrew S. Manikas & James R. Kroes, 2018. "The relationship between lean manufacturing, environmental damage, and firm performance," Letters in Spatial and Resource Sciences, Springer, vol. 11(2), pages 141-155, July.
    10. Hoje Jo & Hakkon Kim & Kwangwoo Park, 2015. "Corporate Environmental Responsibility and Firm Performance in the Financial Services Sector," Journal of Business Ethics, Springer, vol. 131(2), pages 257-284, October.
    11. Johnson Kakeu, 2017. "Environmentally conscious investors and portfolio choice decisions," Journal of Sustainable Finance & Investment, Taylor & Francis Journals, vol. 7(4), pages 360-378, October.
    12. Hakkon Kim & Kwangwoo Park & Doojin Ryu, 2017. "Corporate Environmental Responsibility: A Legal Origins Perspective," Journal of Business Ethics, Springer, vol. 140(3), pages 381-402, February.
    13. Zhang, Yong & Liu, Zhen & Baloch, Zulfiqar Ali, 2022. "Combining effects of private participation and green finance for renewable energy: Growth of economy as mediating tool," Renewable Energy, Elsevier, vol. 195(C), pages 1028-1036.

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