Today the RiskMetrics Group ESG Blog highlights new research showing that companies with better environmental performance are viewed as lower risk in bond markets and pay a lower cost of borrowing. The researchers, Rob Bauer and Daniel Hann, won the Moskowitz Prize for research in socially responsible investing. I found this the most interesting finding:
...the link between environmental risk and debt costs has strengthened over time. To test this, Bauer and Hann divided their 1995-2006 data sample into two parts, and performed the same tests on data from the 1995-2001 and 2001-2006 periods. They found that the “credit market…assigned little value to corporate environmental concerns prior to the dot-com bubble.” The authors believe that post-bubble finance searched for new risk metrics, and found some in the form of environmental performance indicators
It seems there's been more focus on the bond market lately for those looking at corporate environmental performance. As Sarah King for points out, though, this is partially because measuring the upside of environmental performance is even harder than quantifying risk.
You can read Bauer and Hann's paper here.