It pays to be green
February 6, 2008
The authors analyzed the performance of 243 stocks for the years 1991 and 1992 using the Compustat database. Using environmental data developed by Franklin Research and Development Corporation, they find that, after controlling for industry concentration, industry growth rate, firm growth rate, firm size, capital intensity, and advertising intensity, environmental rating has a statistically significant positive impact on the firm's return on assets (p<0.01). The effect is small — incremental improvement in r2 was 0.01 — but highly significant (F-test for change in r2 > 8.00). The relationship was stronger for firms in higher-growth industries. The study also includes a concise and informative review of the literature of resource-based competitive advantage.
This paper won the 1998 Moskowitz Prize competition, awarded by the Social Investment Forum. The Moskowitz Prize, which in 2004 became an initiative of the Center for Responsible Business at the University of California, Berkeley, promotes the concept, practice, and growth of socially responsible investing.