Trying to figure out which companies will have the biggest environmental liabilities down the road? Check out what they’re saying about their environmental practices.
A new study by four business researchers says the best environmental performers are those that give out the most information about their environmental practices in their environmental and social responsibility reports. The researchers looked at environmental and social responsibility reports for 191 companies from the top five most polluting industries in the U.S. for 2003. Using a specialized scoring system, companies deemed to be good environmental performers through such things as toxic emissions and treatment of toxic waste scored above industry norms for voluntary disclosure of their environmental efforts. Poor performers scored below industry norms.
In an era of increased pressure for pollution reduction and targets, such as the Kyoto Protocol, objective scoring schemes for environmental and social responsibility reports are increasingly important for investors and other stakeholders, said Gordon Richardson, one of the paper’s authors and a professor at the Rotman School of Management at the University of Toronto. Other co-authors of the paper include Rotman Professor Yue Li and Florin Vasvari of London Business School, who is a graduate of the Rotman PhD program.
"If government limits become much more stringent — which they surely will — it’s the poorer compliers who will have the highest price tag to get their emissions in line," said Prof. Richardson, whose work was done with support from the AIC Institute for Corporate Citizenship at the Rotman School and the Canadian Institute of Chartered Accountants.
But just giving out information is not enough to make a company green, the study says. Companies shamed into disclosure by negative media coverage may still not improve their environmental performance. These companies tend to give out more "soft," hard-to-verify information, known as "greenwashing," such as stating they have an environmental policy, rather than hard information, such as benchmarking their performance to industry averages.