Green market, how much is attention to the environment worth?
(Sustainabilityenvironment.com) – The market rewards companies attentive to their impacts and penalizes those responsible for environmental damage. This is supported by a new analysis by the Climate Finance Observatory of the School of Management of the Politecnico di Milano, presented during the conference “Climate change: the response of the financial markets”.
The attention to environmental impacts by companies is no longer a matter of branding or ethical responsibility but has now become a strategic economic element. We are increasingly witnessing a phenomenon for which the market rewards virtuous companies, while it tends to penalize, both with respect to the price of the shares, and with respect to the value of the company itself, those that are not. The value of a company that does not take into account the environmental impacts of its activities can in fact be reduced up to -5.6%.
The Observatory’s survey analysed the reactions of the market to the increase in the price of ETS certifications – the mechanism that imposes a cost, through the purchase of certificates, to those who use polluting energy sources or produce certain emission quotas.
“Considering almost 12,000 electricity generation plants in Europe, related to companies listed and subject to this policy of emissions trading (ETS policy) – explained Vincenzo Butticè, Deputy Director of the Observatory -, there is a strong correlation between the price of ETS Certificates and the market performance, based on the carbon intensity of the company: only those that have a limited carbon footprint, and therefore have invested in green technologies, benefit from increased prices of ETS Certificates; on the contrary, polluters are heavily penalized”.
The data is also repeated with respect to consumer perceptions. “What is clear – continued Butticè – is that the reduction of a ‘notch’ in reputational rating can result in a reduction in the value of the company up to -5.6%: virtuous companies, at the time when they are responsible for an accident that involves environmental damage, are penalized by the market in a more consistent way than those that are not”. The survey analysed 700 companies located in Italy, France, the United Kingdom and Germany, all listed, which between 2020 and 2021 presented their reputational risk analyses.
The report therefore suggests that consumers also have an important role to solicit companies with regard to their impacts, environmental and otherwise, for example, with regard to reinternalisation of multinationals that have moved part of their activities to countries with less binding environmental policies or lower costs. “The push to mitigate climate change affects reshoring strategies and the composition of global value chains – confirmed Roberto Bianchini, director of the Observatory –. We analyzed 126 multinationals in the manufacturing sector that had shifted production activities abroad. Well, those who publish a sustainability report and originate from states with stringent environmental policies, and therefore are subject to the judgment of stakeholders very attentive to the issue of sustainability, have a probability of returning to the country of origin of 64% against 1.5% average”.