Multinationals with High Eco-Standards Most Likely to Succeed
LINTHICUM, Maryland, September 1, 2000 (ENS) - Large companies that adopt strict global environmental standards in developing countries are rewarded with higher stock market performance, according to a study published Thursday in a journal of the Institute for Operations Research and the Management Sciences (INFORMS). These findings run contrary to the widespread belief that multinational corporations suffer from environmental regulation.
The Institute for Operations Research and the Management Sciences is an international scientific society with 10,000 members, including Nobel Prize laureates, that applies scientific methods to help improve decision making, management, and operations.
"We have found a significant and positive relationship between the market value of a company and the level of environmental standard it uses," say the authors.
The researchers examined 89 manufacturing and mining companies headquartered in the United States that are included in the Standard and Poor's 500 Index. Only multinational enterprises that had production operations in countries with Gross Domestic Product per capita below $8,000 were included in the study.
Of the companies examined, firms choosing to employ their own strict global environmental standard abroad are found to have an individual value of $10.4 billion higher than those using less stringent U.S. standards.
"The evidence from our analysis indicates that positive market valuation is associated with the adoption of a single stringent environmental standard around the world," the authors said.
Yet, the researchers were unable to determine if environmental measures undertaken in one year result in higher market value in a following year.
The study warns developing countries that using lax environmental regulations to attract foreign direct investment may bring them poorer quality, less competitive firms.
But the researchers found that defaulting to lax local environmental standards is not the most common practice. Nearly 60 percent of the companies sampled adhere to a stringent internal standard, compared to less than 30 percent that only enforce developing countries' standards.
The INFORMS study found that interest groups and non-governmental organizations expose unsound corporate environmental practices, raise consumer awareness, and put pressure on governments to discipline polluters even if the pollution is in overseas locations.
"Greenwash" author Kenny Bruno gives examples of the type of corporate hypocrisy he encountered while researching the book - transnational corporations that preserve and expand their markets by posing as friends of the environment.
"The world's leading ozone destroyer takes credit for leadership in ozone protection," Bruno writes. "A mammoth greenhouse gas emitter professes the precautionary approach to global warming. A major agrichemical manufacturer trades in a pesticide so hazardous it has been banned in many countries, while implying it is helping feed the hungry. A petrochemical firm uses the waste from one polluting process as raw material for another hazardous process, and boasts of an important recycling initiative. Another giant multinational cuts timber from virgin rainforest, replaces it with monoculture plantations and calls the project 'sustainable forest development.'"
To avoid this type of censure, Dowell, Hart and Yeung report, many managers maintain a high level of environmental practice in all company locations.
Overall, choosing stringent environmental standards is more profitable than defaulting to lower or poorly enforced local environmental standards, the INFORMS report concluded. The authors concede that the increased productivity observed in the study may be a result of using new technologies and equipment.
Still, they suggest, firms that adopt high environmental standards are those that strive for eco-efficient production systems. The conscious policy to pursue technologies and processes that increase resource productivity of their operations has a positive effect on the bottom line.