Business and Society

The economic value of corporate eco-efficiency

January 30, 2008 | 1 min read
The Innovest ratings are related to two dependent variables: 
  1. Valuation (measured using Tobin’s Q). The formal hypothesis tested is: “Eco-efficiency is positively associated with firm value. Companies with a high eco-efficiency rating have a higher value than do companies with a lower rating.” The hypothesis is confirmed, as Innovest ratings were a consistently significant positive factor in Tobin’s Q, even after adjusting for Sales Growth, R&D intensity, Size (book value of assets), Age, and membership on Nasdaq.
  2. Operating performance (measured using Return on Assets). The formal hypothesis tested is: “Eco-Efficiency is positively associated with return on assets. Companies with a high eco-efficiency rating have a higher ROA compared to companies with a lower rating.” Again, the Innovest ratings were a statistically significant factor after adjusting for total assets, total sales, and financial risk (debt/assets ratio). The authors check both findings for robustness using a variety of models and independent variables, finding in each case that the environmental information in the Innovest ratings is related to both valuation and operating performance.

The study also includes a highly informative subgroup analysis, in which it is shown that the observed effects appear to be asymmetrical:  poor eco-efficiency is shown to be statistically significantly related to poor operating performance and lower valuation. Superior, eco-efficiency, is not similarly related to higher valuations or superior operating performance to a statistically significant degree.

The authors conclude that “the results suggest that managers do not face a tradeoff between eco-efficiency and financial performance, and that investors can use environmental information for investment decisions.”

This study is carefully done, highly detailed, and important. It is closely related to Derwall et al. (2005), suggesting that the outperformance observed in that study may have been due primarily to valuation effects.

This study won the 2005 Moskowitz Prize competition for the best quantitative study of socially responsible investing (awarded by the Center for Responsible Business at the Haas School of Business, in cooperation with the Social Investment Forum, the Moskowitz Prize promotes the concept, practice, and growth of socially responsible investing).

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This article was previously published on, January 30, 2008.

This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “The Economic Value of Corporate Eco-Efficiency”, Lloyd Kurtz,, January 30, 2008.

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Research Paper


Kees Koedijk
Professor of Financial Management, Tilburg University and Dean of TiSEM

Jeroen Derwall
Assistant Professor, Tilburg Sustainability Center

Rob Bauer
Rob Bauer is Professor of Finance, Maastricht University

Nadja Guenster
Assistant Professor of Finance, Maastricht University

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