Professor Bainbridge...on law, politics, religion, culture & food

Corporate Green Investments Don’t Pay Off for Shareholders

A study by two Dartmouth economists reports that:

Researchers debate whether environmental investments reduce firm value or can actually improve financial performance. We provide some first evidence on shareholder wealth effects of voluntary corporate environmental initiatives. Companies announcing membership in Climate Leaders and Ceres - two voluntary environmental programs related to climate change - experience significantly negative abnormal stock returns. The price decline is smaller in carbon-intensive industries, where regulatory actions are more likely, and for high book-to-market firms, suggesting that “green” expenditures crowd out growth-related investments. We also document insignificant announcement returns for portfolios of industry rivals. Overall, the environmental investments appear to conflict with shareholder value-maximization. This has far reaching implications since the U.S. government relies on voluntary initiatives to reduce the emissions of greenhouse gases.

Twenty-odd years of studying corporate behavior tells me that “green” invstment decision by corporate executives are far more likely to be driven by home front considerations than shareholder value. Every nights the executives go home to face their kids, who bitch and moan about the environment. as the W$J explained a while back:

In households across the country, kids are going after their parents for environmental offenses, from using plastic cups to serving non-grass-fed beef at the dinner table. Many of these kids are getting more explicit messages about becoming eco-warriors at school and from popular books and movies.

This year’s global-warming documentary “Arctic Tale,” for instance, closes with a child actor telling kids, “If your mom and dad buy a hybrid car, you’ll make it easier for polar bears to get around.” Kids on field trips to the Garbage Museum in Stratford, Conn., are sent home with instructions to recycle cans, bottles, newspaper and junk mail. The museum hosted 388 schools visits last year, 42 more than the year before. At one California elementary school, kids are given environmental activities to do with their families—including one where parents have to yank out the refrigerator and clean the coils to make it more energy efficient. ...

The Natural Resources Defense Council, the New York nonprofit, has been trying to secure permission from various media companies to use a cartoon character to spread the word. “It is the really, really young kids who are going to change their parents’ behavior,” says Phil Gutis, the group’s spokesman, adding that the message to children ought to be straightforward: “I think it’d be as simple as, ‘Kids, tell your parents.’ ”