Working Report, 2/2005 – Environmental Shareholder Value

Environmental Shareholder Value

1 Foreword

Consideration for the environment is gaining a foothold in the boardrooms of many companies, in Denmark as well as abroad. Previously, this area was the responsibility of technical experts in one of a company's staff functions. Today, however, it is becoming a business area to which the board of management and the company's investors must relate strategically.

Many companies have developed environmental policies and established environmental management systems. Good examples of how environmental initiatives can lead to large savings in, for example, material and energy consumption abound. Many companies are convinced that a green image is important to their earnings. However, the value of environmental work is not illustrated in the calculation of a company's key figures for investors.

The new Danish Financial Statements Act, which entered into force on 1 January 2002, requires large enterprises to provide information about their environmental impact and environmental efforts to the extent that this influences the enterprise's operation and thus its financial development. A screening of the 2002 annual reports for 80 companies showed that 24 percent had described the company's environmental conditions, but that none had described the monetary value of the environment.

The demand for information about environmental and sustainability issues originates from company stakeholders, such as the authorities, interest organisations, employees, and others. Stakeholders are interested in how the company reacts to the impact it imposes on society. However, the information is also of interest to investors in connection with data concerning the company's financial performance in the traditional sense.

The arguments suggesting that companies look at more than the financial bottom line in order to show more social responsibility have been turned upside-down: companies should look at other elements and show social responsibility because it is relevant to their financial bottom line. This is part of the philosophy behind the concept of Corporate Governance.

With this background, the present report focuses on the correlation between the company's environment, finances, and Corporate Governance.

This report has been prepared with support from the Cleaner Products Programme under the Danish Environmental Protection Agency (Danish EPA) by employees of PricewaterhouseCoopers, Anne Søgaard Melchiorsen (MSc) and Birgitte Mogensen (state-authorised public accountant). The report was completed in February 2004 in Danish.