Forty-six companies lost a total of $16 billion in market value after joining the U.S. Environmental Protection Agency's Climate Leaders, a government-industry partnership that advocates the reduction of greenhouse gases, according to a recent collaborative study between the College and the Tuck School of Business.
The study, authored by Tuck professor Karin Thorburn and Dartmouth environmental studies professor Karen Fisher-Vanden, revealed that companies' stocks dropped in value immediately after they voluntarily reduced greenhouse gas emissions.
"We expected the opposite," Thorburn said. "So, we looked at a lot of ground data before we were convinced of the results."
The researchers anticipated a decline in the value of environmentally-friendly companies about five to ten years ago, but expected more favorable results in recent years. After the original investment in sustainable technology, companies can expect decreased expenses through reduced energy bills, Thorburn said. However, that the companies' initial investments in reducing carbon emissions could have negatively influence their financial situations.
"You don't just turn off the knob," Thorburn said. "The companies have to invest in expensive technologies at a huge cost."
The researchers decided to study market implications of companies who enact sustainability initiatives because the area has received little scholarly attention, according to Thorborn. Other research has focused primarily on companies that violate environmental policy.
"Companies are part of the cause and the solution," Palmiotto said. "There are companies who are taking action and making choices."
Companies will take further initiatives to reduce emissions when consumers take note of the issue, Thorburn said. Currently, the consumer demand for reduction of companies' gas emissions is not prevalent, she added.
"It is one thing saying that you like it and another to invest your money in it," Thorburn said.
Because eco-friendly policies may be detrimental to companies, Thorburn said she believes most companies will be hesitant to alter their current practices regarding greenhouse gasses. For this reason, she believes the reduction of greenhouse gas emissions is reliant on government legislation.
"The costs to individual companies far out weigh the benefits for society," Thorburn said. "A corporate manager's fiduciary duty is to maximize shareholder wealth. This is a conflict of interest."
To illustrate her point, Thorburn drew upon a hypothetical situation in which a company's board members wish to support refugees in Darfur. They cannot do so with corporate funding because it is not in the best interest of the investors, she said. Board members would need to use their own money to further their causes.
"They can't bring their own philanthropy into the boardroom," she said.
Despite Thorburn's predictions, some companies have begun to invest in environmentally-sensitive programs, according to Patricia Palmiotto, director of the Allwin Initiative for Corporate Citizenship at Tuck. For example, Walmart reduced packaging of its products, UPS purchased more fuel efficient trucks and General Electric created energy-efficient products, she said.