Business and Society

Pure profit: the financial implications of environmental performance

February 6, 2008 | 1 min read

The study “Pure Profit: the financial implications of environmental performance” (2000) is notable because it is among the first to attempt to integrate a social factor (environmental policies) into a standardized equity valuation framework. The authors, Robert Repetto and Duncan Austin, economists at the World Resources Institute, estimate the economic impact of environmental risks to 13 major U.S. pulp and paper companies. They developed several different scenarios for both low elasticity (environmental costs can be passed along to customer via higher prices) and high elasticity (costs cannot be passed on) cases. Their conclusion is that the net impact of environmental exposure ranges from +2.9% to -10.8% of the firms' market capitalizations (median -6.8%).

Although not tested directly, the authors contend that these findings are not currently reflected in market valuations: “Obtaining the data on which analysis was built involved a great deal of digging in obscure, though public, data sources. In conversations with analysts, research firms providing environmental information to analysts, and with company representatives, we did not find that comparable studies on these environmental issues had been carried out by others. Therefore, we believe it unlikely that findings like these have previously been conveyed to investors.” The authors argue that this deficiency impedes the ability of investors to make sound choices when the environment poses financial risk or opportunity.

See also: Austin, Duncan, and Amanda Sauer. “Changing Oil: Emerging Environmental Risks and Shareholder Value in the Oil and Gas Industry.” World Resources Institute, June 2002. Uses scenario and DCF analysis to examine the potential impact of climate policies and restricted access to reserve on global oil and gas companies. Finds that shareholder value could be impacted by 10% or more for some companies, although potential impact varies widely. Notes that “few companies have disclosed the degree to which they are financially exposed to these issues, and no company has attempted to quantify the implications for its shareholders.”

This report is one of a series of WRI publications aimed at improving the management of environmental issues by the private sector. It was awarded the 2000 Moskowitz Prize (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).


This article was previously published on, February 6, 2008.

This article may be reproduced according to our terms of use with attribution (and link, if online) to To be cited as: “Pure profit: the financial implications of environmental performance”, Robert Repetto, Duncan Austin,, February 6, 2008.

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