United States          Office of Cooperative       November 1998
          Environmental Protection      Environmental Management
          Agency            (1601F)
&EPA    Corporate Environmental
          Performance
          As A Factor In
          Financial  Industry
          Decisions
    1301998.1

               Internet Address (URL) • http://www.epa.gov
     Recycled/Recyclable • Printed with Vegetable Oil Based Inks on Recycled Paper (Minimum 20% Postconsumer)

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     CORPORATE ENVIRONMENTAL PERFORMANCE
                            As a Factor in
             FINANCIAL INDUSTRY DECISIONS
                           STATUS REPORT

                             November 1998
                        Chapel Hill, North Carolina

                Prepared by Environment & Finance Enterprise
                               John Ganzi
                              Anne DeVries

           For the Office of Cooperative Environmental Management

       Under contract to the United States Environmental Protection Agency
           Under Requisition/Reference No. K1J078/QT-DC-97-003341

The information in this report has been obtained from sources Environment & Finance Enterprise judges
reliable; however, we do not guarantee its accuracy, and some information may be incomplete or
condensed. All opinions included in this report constitute the authors' judgment as of this date and are
subject to change. This report is for informational purposes only and is not intended for any other use.
For more information, please call Environment & Finance Enterprise at 919-933-3610, fax 919-933-1352,
or e-mail Jganzi@aol.com.

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                                ACKNOWLEDGMENTS
 Statement of Environmental Commitment by the Insurance Industry, Preamble (November 1995) and
 Statement by Financial Institutions on the Environment & Sustainable Development (as revised, May
 1997), are reprinted with the permission of the United Nations Environment Programme, Palais '
 des Nations, 1211 Geneva 10 Switzerland.

 The Role of Financial Institutions in Achieving Sustainable Development, Executive Summary, is
 reprinted with the permission of the European Union ฉ, 1997. The study was commissioned by
 the Directorate-General XI (Environment, Nuclear Safety and Civil Protection) of the European
 Commission. It does not, however, express the Commission's official views: the responsibility
 for the views expressed lies solely with the authors,

 Environmental Reporting: An Approach to Good Practice (February 1997) is reprinted with the
 permission of the Department of the Environment, United Kingdom.

 The Global Reporting Initiative, A Project of CERES, is reprinted with the permission of the
 Coalition for Environmentally Responsible Economies, 11 Arlington Street, Boston, MA 02116.

 The  tables  from GREEN METRICS:  A  Global  Status Report  on  Standardized Corporate
 Environmental Reporting (April 1998),  are, reprinted with the pennission  of the Tellus Institute,
 11 Arlington Street, Boston, MA 02116.

 The sample analysis material from the Investors Responsibility  Research Center is reprinted
 with the permission of the Investors Responsibility Research Center, 1350 Connecticut Avenue
'NW, Suite 700, Washington, D.C. 20036.         '                                '

 EcoValue '21 ™ Uncovering Hidden Value Potential for. Strategic .Investors  is reprinted with the
 permission of The Innovest Group International, 1255 Fifth Avenue, Suite 2E> New York, NY
 10029.        .'''.-                              .

 The sample analysis material from Environmental Information Services is reprinted with the
 permission of Environmental Information Services, 149 Fifth Avenue, Suite 716, New York, NY '
 10010.

 The Links Between Environmental and Financial  Performance is  reprinted with the permission of (
 the New York Society of Securities  Analysts, One World Trade Center, Suite 4447, New York,
 New York 10048.

 Dialogue on Valuing Environmental Performance is reprinted with the permission of the Aspen
 Institute, 1333 New Hampshire Avenue NW, Suite 1070, Washington, D.C"20036. -

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                                    CONTENTS
 i. EXECUTIVE SUMMARY	.	.	,	.	r
        Purpose and Scope	.	'.	:...;	1
        Methodology	'.	;...„	:...:.....:	1
        Overview	,...!	.	...2
        Summary of Key Findings	:	;	•;	...2
        Areas for Further Research....	;	:	4
                         i                    /                         •
 2. INTRODUCTION.................	.............„................;	.......	.	..........	5
        2.1. Objectives	:..;	.-.	.•/...'	,...5
        2.2. Background	.;	5
        2.3. Approach	:	8
        2.4. Organization	9
 3. MEASURING ENVIRONMENTAL PERFORMANCE: WHAT, WHY AND HOW	10
        3.1. Introduction	'..'.	;	10
        3.2. What is EP?....'.	T..r....	'.	'.	10
        3.3. Why Firm EP May Matter in FSI Decisions	:	.......13
        3.4. How to Measure EP	1	16
 4. MAKING CORE FINANCIAL DECISIONS: CURRENT USE OF EPls.	.'.	:.-..	25
*       4.1. Introduction.!	.<	;.;..'.	.25
        4.2. Downside Focus: Insurance Underwriting Decisions and EP	...30
     '   4.3. Downside Focus: Credit Extension Decisions and EP	33
        4.4. Upside and Downside Focus: Investment Decisions and EP	38
        4.5. Core Financial  Decisions: Summary	48
 5. SUMMARY OF KEY FINDINGS AND AREAS FOR PRIMARY RESEARCH	.	..	50
        5.1. Summary of Key Findings	50
        5.2. Areas for Potential Research;	54
 NOTES	......—..	.	..	...55

 EXHIBITS .......		„.:	....	..............73

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
                            1. EXECUTIVE SUMMARY
PURPOSE AND SCOPE
    How  does the financial  services  industry (FSI)  factor corporate environmental
performance in assessing financial performance (EP)? The United States Environmental
Protection Agency (USEPA) sponsored an analytical review of published information to
find the answers.

    •   Specifically, this review is designed to determine how the private sector of the.
       financial  services industry  includes  measures  of their   corporate  clients'
       environmental  performance  in  making  investment,  credit  extension,  and
       underwriting decisions.1

    The review was limited to materials that were publicly available as of December 1997
and was primarily limited to North America.2 Eight segments of the FSI were considered:3
                                                                   V
    *   Commercial banks                  '  •                   •   •    • .
       i            .  -
  '  *   Investment banks
    •   Mutual funds
    •   Pension funds
    •   Life insurance companies                               .            .
    •   Property & Casualty (P&C) insurance companies
    •   Venture capital firms
  •  •   Foundations

METHODOLOGY                               ;
    The researchers conducted a broad electronic scan of the academic literature arid major
industry publications to assess the industry's current efforts to link EP and FP.  In addition
to conventional literature sources, the following areas were examined:

    •   Current product offerings available to industry
    •   Environmental reports published by corporations and financial institutions
                                             /
    •   Environmentally-oriented products offered by the FSI    '           ••.
    •   Government documents
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
 .   •   Research studies and reports  prepared  and published by  various  business,
       governmental, and environmental groups
    Information that was not publicly available in written form or mat did not explicitly
address  environmental  issues  was  excluded.    Such  sources included  personal
conversations with industry experts,  personal  correspondence and  internal financial
institution documents not available in the public domain.

    The literature review focused on three broad questions:

    •   What is  environmental performance (EP) and  how are environmental
       performance indicators (EPIs) currently being looked at and reported on by
       industry?

    •   How does the FSI currently—or how might it potentially—factor the EP of
       its corporate  clients  in making decisions  about insurance underwriting,
       credit extension, or investment?

    •   What knowledge gaps might serve as the basis for further research?


OVERVIEW
       The report is  presented in four parts. Part 2 provides a general background for
understanding the basis of this report.  Part 3 gives the  reader a basic understanding of
what is meant by  EP and EPIs,  why EP might be relevant in making certain types of
financial decisions, and how EP might be measured. Part 4 examines  how the FSI is
currently looking at, and working with, EP and EPIs.  Finally,, Part 5 summarizes the
report's findings and  recommends potential areas for further research.


SUMMARY OF KEY FINDINGS                                                        .
       This review covered a vast body of literature, which identified over 300 references
that focus on ways in which environmental factors relate to, or potentially affect, FP. Based
on this information, the researchers identified nine key themes:

    1.   There appears to be no clear consensus on how to define  EP at the firm or plant
       level, nor on how to report such performance to the general public or to the FSI:

    2.   It appears that EP has the potential to affect a firm's rate of return,  cash flows,
       creditworthiness, the price of its publicly traded securities, and/or its likelihood of
       filing a property or casualty insurance claim. Although this potential exists,  there is
       a fair amount of disagreement as to the materiality of the impact within  the FSI.
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Corporate Environmental Performance as a Factor in firumdoL Industry Decisions
    3.  An unresolved issue for integrating EP into financial decisions is how to determine
       for a particular industry or transaction (credit extensions, investments, or insurance
       underwriting) which of the many aspects, if any, of EP are material to firm-level FP.

    4.  The FSI's perspective is colored by its past experience with environmental risks
       including those for  lenders (lender  liability), underwriters (asbestos  claims and
       CERCLA/Superfund claims), and investors ("social investing").

    5.  Improving EP can reduce the "downside" risk or increase the "upside" potential
       for the client, and in turn the financier. EP can potentially reduce the risk of loss—
       the downside risk—for insurers, lenders, and  investors.  It can also help produce
       new products or open new markets, thus enhancing a client's potential for earnings
       and growth—its upside potential—for investors. ,

    6.  Insurance underwriters and, to a lesser extent, commercial lenders are furthest
       along in integrating environmental factors into their decision-making processes.
       Both underwriting and credit transactions generally involve a physical asset EP
       has an impact on this underlying asset, giving both underwriters and lenders a
       direct material interest in mis aspect of their corporate clients' business.

    7.  In contrast to underwriters and credit officers,  investors.are still in the early stages
       of understanding the potential impacts of a firm's EP on its FP. This difference is
       due, in part, to the limited availability of useful data.

    8.  Assessing the. materiality of a firm's EP is especially complicated for investors due
       to the fact that no individual physical asset (e.g. real estate, a building, or piece of
       equipment)  is involved (see item six above). Rather, the investor's stake is  a
       financial instrument (e.g. stock, bond,  commercial  paper,  etc.) in the  overall
       company or project.  In addition, investors must evaluate both downside risk and
       upside potential.                                        .    •

    9.  The financial services industry is beginning to realize that industry's EP in the
       aggregate can have spillover effects which in turn can negatively affect the financial
       performance  of  its  corporate  clients—even  those  who  adhere  to  sound
       environmental management practices.
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Corporate Environmental Performance as a Factor m Financial Industry Decisions.
AREAS FOR FURTHER RESEARCH
    To determine priorities for further research, each of the eight segments of the financial
services industry included in this report were evaluated in terms of four factors:

    •   The overall relevance of environmental factors in its day-to-day operations
    •   The types of financial activities in which it is engaged
    *   The magnitude of its capitalization
    •   The extent to which its practitioners already assess clients' EP (in part) as a function
       ofFP
    Based  on this analysis, it appears  that the  greatest  untapped  opportunity  for
identifying effective ways to integrate EP into  assessments of FP lies  in the  area  of
investment decisions. The segments of the  financial  services industry  engaging  in
investment activities are:

    •   Investment banks
    •   Property & Casualty insurance companies
    •   Pension funds
    •   Life insurance companies
       A secondary priority might be research on asset-backed  lending  by commercial
banks. While EP is occasionally integrated into such lending decisions, especially when a
development bank—such  as the  World  Bank—is  involved, a clear standard for this
segment has yet to emerge.

       Although other areas -could be considered, it appears that work with the financial
services industry segments identified above would most likely result in the greatest impact
for the effort expended.
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                               2. INTRODUCTION
2.1. OBJECTIVES
    This report was prepared to provide a common frame of reference for how the financial
services industry (FSI) currently factors the environmental performance of firms in making
underwriting, credit, or investment decisions—and how it might do so in the  future.
Specifically, the objectives are:

    1.  To assess broadly the extent  to which the  FSI currently recognizes the
       financial implications of its clients' environmental performance

   . 2.  To develop a working hypothesis regarding which segments  of the FSI
       might  have a material financial interest in their clients' environmental
       performance,  within the context of their  investment, credit extension, or
       underwriting decision-making processes

    3.  To provide an overview of environmental performance indicators (EPIs),
       both cited in  the literature  and used  by  industry,  through which
       environmental performance might be measured or characterized


2.2. BACKGROUND
    Virtually no  financial institution paid  attention  to environmental factors in making
business decisions until  the  1970s.  Before  that time, environmental  concerns were
considered a relatively minor operating consideration, with no tie to financial performance.
This attitude began  to change—particularly for  industrial concerns—as environmental
regulations raised the cost of using environmental assets (such as clean water or land) as a
production input or a dumping ground for.production wastes.

    As the impact of liability  for past actions and  direct  costs for current compliance
rippled through the economy, the financial services industry began to experience loan
defaults, material losses as a result of insurance claims, liability associated with foreclosed
property,  and the loss of shareholder value. The underwriting  and lending segments
responded with internal risk reduction efforts (these included changes in underwriting and
in credit due diligence procedures and practices) and calls' for regulatory changes, such as
the innocent landholder defense under CERCLA.
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Corporate Environmental Performance as a Factor m Financial Industry Decisions
    On the investment side, individual investors began demanding "green" investment
options as part of a growing interest in "socially responsible" investing. The mutual fund
industry met the demand,  and institutional investors began to consider environmental
concerns in making some investment decisions;

    By the early 1990s, a growing number of corporations and investors recognized that
improvements in environmental performance might be an indicator of overall financial
performance. They realized that environmental performance improvements imply risk
reduction and cost reduction, which have an impact on market share, rate of return, or
both. For some firms, proactive environmental management is linked with opportunities to
increase revenues by introducing new products or entering new markets with current
products. However,  investors were, and continue to be, limited by the lack of  good
methodologies to translate environmental information into useful investment criteria. .

    In September 1996, the International Organization for Standardization (ISO) issued ISO
14001, the first in a series of standards related to environmental management systems (see
PartS).                                 .               .

    USEPA  was  interested  in  whether  the certification  of a  firm's  environmental
management system  under ISO 14001 might provide useful environmental performance
data to the FSI. In February 1997, USEPA brought together a small group of commercial
and investment bankers, bank regulators, and trade association representatives to discuss
the potential value to the  FSI's decision-making processes of information  mat might
become available  as  firms became  ISO 140j01-certified.  Although the dialogue did not
produce  a  consensus on the potential or actual  value  of ISO 14001 information, the
participants made three observations:

    *  The issue of environmental information and its use in financial decisions is
      broader than ISO 14001.  Therefore,  any future inquiry should consider a
      range  of  environmental  performance  indicators,,  including  other
      environmental management system protocols and related environmental
      principles and practices.

    •  The FSI will not seriously consider the environmental performance of its
      clients unless  and until there,are ways.such performance can be tangibly
      linked to financial performance.

    •  Environmental factors are not material in many financial transactions. To be
      grounded in the realities of ,the marketplace, any  analysis oฃ the FSI's
      interest in its corporate clients' environmental performance must necessarily
      take into account the diversity of both the types of transactions  and the
      players in the industry.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
    USEPA is not alone in considering the linkage between environmental and financial
performance. A number of government-sponsored and private initiatives are under way to
address specific aspects of this linkage. For example:

    •   The United Nations Environment Program (UNEP) established initiatives involving
       the banking industry (1992, Exhibit B) and the insurance industry (1996, Exhibit A),
       which are now seen by the institutions involved as a partnership between UNEP
       and themselves.

    •   In 1995, the. United Kingdom established a forum known as FEMAS (Financial Eco-
       Management and Audit Scheme, Exhibit D) to discuss industry concerns.

    •   The European Commission is also examining the role of corporate environmental
       performance in FSI decisions and recently released a report (Exhibit C), similar in
       nature to this  document, describing  how financial institutions throughout the
       European Union are engaged' in looking at environmental risks.

Numerous efforts are also underway within the private and nonprofit sectors:
                           ,                 \
    •   The Aspen Institute  (Exhibit  M)  is coordinating an ongoing dialogue  among
       American investors and large industrial corporations to explore ways to improve
       environmental communications between industrial companies and the investment
       community.                                         •  . '  >
                                   r          x                       *
    •   CERES (Exhibit E) explores corporate environmental reporting and how various
       stakeholders-from  around the  world—including industrial companies, financiers,
       governmental representatives, nonprofit representatives, and other interested
       parties—can help facilitate the simplification and  standardization of the world's
       growing array of reporting protocols. ' "

    •   The Environmental Bankers Association and Mortgage Bankers Association  have
       both established internal, members-only working groups on various issues facing
       members.                                                          .
                •\.       *-
    •   The New  York Society of Securities Analysts has created  a group of members to
       examine the links.between corporate citizenship and performance. As part of this
       initiative, the organization recently held a seminar  series on environmental factors.
       and activities related to its client bases (Exhibit L).

More detail on these complementary initiatives is provided in the following pages and in '
the exhibits at the back of the report.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
2.3. APPROACH
    To assess the current status of the FSI's efforts to link environmental and financial
performance, the researchers conducted a broad electronic scan of the academic literature
and major industry publications. The researchers searched citation indices to identify those
articles' with both environmental  content (using  such keywords  as "environmental
protection") and financial content (using  such keywords as "debt," "credit," "equity,"
"investments,"  "bonds,"  and  "underwriting").  They  reviewed  additional materials,
including reports  from nonprofit  groups, non peer-reviewed research studies,  quality
research by industry experts, and government documents.

    As part of this effort, the researchers also  made contacts with firms providing
environmental "screens" or data to the industry, and compiled an extensive bibliography
(Exhibit N). The specific objective for this publication was limited to a review of publicly
available information published as of December 1997. The bibliography is up to date up to
that period: however, it is important to note that it provides just a snapshot of a rapidly
evolving field.

    In addition to conventional  literature sources, the researchers examined the following
areas for publicly available information, including

    •   Current product offerings available to industry
    •   Environmental reports published by corporations and financial institutions
    •   Environmentally-oriented products  offered by the FSI
    •   Government documents
    •   Research studies and reports prepared  and  published by  various business,
       governmental, and environmental groups
    As stated in the executive summary of this report; the researchers had a very specific
objective for this publication, which was limited to a review of publicly available published
information as of December 1997. The review was designed to consolidate current thought
on how—and the  extent to which—the  private sector of the financial  services industry
includes measures of its clients' environmental performance in making investment, credit
extension, and underwriting decisions.

    The authors tried to avoid including information not easily available in written form
and literature that did not clearly include an environmental component.  As a result,
conversations held with industry experts, personnel correspondence on the subject, pure
financial literature, and internal financial institutions' documents not available in the
public domain have been excluded.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
2.4. ORGANIZATION
   The body of this report is divided into three parts. In the first, Part 3, the authors
explain what might be meant by the term "environmental performance/' why performance
from this dimension might matter to the FSI, haw this concept might be measured, and the
advantages and disadvantages associated with these measures.

   Part 4 examines  the three core  financial  decisions—underwriting, lending, and
investing—and the various groups that make these decisions. Some historical background
is provided  on the role of environmental factors in the FSI's decision-making processes.
The focus, however, is on who within the industry is using, or might find value in using,
environmental performance as a factor in its financial decisions.       '  ,

   Part 5, the final part of this report, identifies key findings of the research and discusses
potential areas.for additional study.

   The report is intended for two audiences: those with a background in finance who may
have limited experience with environmental matters, and those with a background in
environmental policy who may be new to the financial services industry. Rather than try to
address gaps in the audiences' backgrounds through the text, the authors have provided
supplementary material in endnotes, tables, and exhibits.,
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
              3. MEASURING ENVIRONMENTAL PERFORMANCE:

                            WHAT, WHY AND How
                                \
                                                                                %
3.1. INTRODUCTION
    Linking a firm's environmental performance to its financial performance requires a set
of environmental performance indicators (EPIs)—that is, generic indicators that assess a
firm's interaction with the environment.4 To be useful, these indicators must at the least be
widely reported, credible, consistent over time, and timely.

    Optimally, such a generic set of indicators would facilitate comparisons between firms
and across industries.5 The financial services industry could then take the analysis one
step further and assess how the use of particular indicators varies with the type of financial
decision. For instance, the industry could evaluate whether some  indicators are more
•useful in investment decisions, while others are more useful in credit decisions.

    This part of the report describes the progress that is being made in developing EPIs.
Specifically, the focus is on the what, why, and how of environmental performance (EP):

    *  What is meant by EP (Section 3.2)
                     •"                          '              A
      f                          '           "
    •  Why EP is, or might be, relevant to certain types of FSI decisions (Section 3.3)

    •  How EP can be measured and the problems that may arise when various EPIs are
       applied to FSI decisions (Section 3.4)


3.2.WHATISEP?"
   Just as there is not a single definition of financial performance,7 there is no single
definition of environmental performance. Any  assessment  of  EPc depends  on several
factors:  the nature of a  firm's  interactions  with the environment,  which varies along
industry lines; the reason environmental performance is  reported; and  the  intended
audience for the reported information. Not  surprisingly, various entities  have defined
environmental performance and EPI in terms relevant to their  own situations.     !

    Here are just a few of the many ways of defining or conceptualizing environmental
performance. This list is not meant  to be  exhaustive or normative;  it is intended  to
illustrate the wide range of current definitions. 8
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    ISO 14001. ISO 1400 defines EP as "the measurable results of the environmental
    management  system,  related to an organization's control of 'environmental
    aspects based on its environmental policy, objectives, and targets."'

    ISO 14031.  ISO 14031: Evaluation of Environmental Performance, now in its
    final draft,  does not  set hard  standards of performance, but establishes a
    protocol- for  the evaluation process. This  protocol  also  defines  EP in
    management  terms,   as  representing the  "results  of an organization's
    management of its environmental aspects," where the environment is defined  .  .
    as "surroundings in which an organization operates, including air, water, land,
    natural resources, flora, fauna, humans, and their interaction." ป At present mis
    is one of the most widely accepted definitions of EP.

    United Nations Environment  Program. UNEP is  working  to  standardize
   , corporate environmental reports and evaluate them in terms of their reporting
    on five areas of EP, with 50 sub-areas and multiple indicators. Those areas are :
    management policies and systems, with 12 sub-areas; input/output inventory,
    with 18  sub-areas; finance,  with 5  sub-areas;  stakeholder relations  and
    partnerships,  with 10 sub-areas; and  sustainable development,  with 5  sub-  >
    areas."                •..,,_-                                 -  ,

    World Business Council for Sustainable Development. The WBCSD  suggests
    that investors assess  corporate EP in terms of six components  of  "eco-
    efficiency:"  reducing the  energy inputs to, and requirements of, goods and
    services;  reducing   toxic  dispersion;  enhancing  material   recyclability;
    maximizing sustainable  use of  renewable  resources; extending  product
    durability; and enhancing the functionality of goods and services.12

    Coalition for Environmentally Responsible Economies. The CERES principles
    "establish an environmental ethic with criteria by which investors and  others
    can assess the environmental performance of companies." Signatories pledge
    to meet objectives in 10 areas: protection of the  biosphere, sustainable  use of
    natural resources,  reduction and disposal of wastes, energy conservation, risk
    reduction, safe products and services, environmental restoration, informing the
    public, management commitment, and audits and reports-^

    Many other standards, definitions, and approaches have also been published and
proposed. A partial listing of the worldwide initiatives focusing on  EPIs is attached as
Exhibit F. (This listing is  an extract from a report  prepared by 'CERES and the Tellus
Institute in me summer of 1997.)                 '    '   .
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Since each economic sector relies on and uses assets differently, the importance of EP
 and the type of EP that is material to FSI decisions varies by industry. For instance, the
 costs  of managing compliance  with air, water, and hazardous waste  regulations is
" significantly more important for petroleum refiners than for catalog retailers or  resort
 hotels. All, however, may be concerned with their customers' demands for ."greener"
 products and processes.                        -            ,

    Due  to the wide  range of  potential environmental  impacts associated with any
 particular industrial activity, and because activities differ  among  industries, it has been
 difficult for corporate managers  or the FSI to select a single set of-EPIs that effectively
 measure current EP.14  The tension between  standardization of indicators and industry
 specificity is discussed below (Section 3.4.6).

    Demand for EP information has primarily come from three sources:

    •   Local communities concerned about hazards of emissions, perceived or real, from
        facilities located in the community (prompting the "right-to-know" laws)
    •   Environmental regulators
    •   The broader  community of  environmental  scientists interested in potential
        environmental impacts of industrial activity
    The use of environmental information by the FSI is a more recent development and has
 involved adapting existing data sources  for use in financial  decisions. Stakeholder
 concerns have been a factor in stimulating the growth of Corporate Environmental Reports
 (CERs).15

    Given this variety, the way the FSI uses the data will ultimately  determine which
 aspects of EP are relevant. It may be prudent for an investment manager to  consider
 performance on all the indicators of eco-efficiency listed above; an underwriter or credit
 officer, however, may only be interested in a  subset.  A firm  may improve on one indicator
 (e.g., toxic releases to air) and regress on another (e.g., nutrient releases to water)—but
 neither may be material to a particular financial decision. Furthermore, the EPIs that are
 relevant to a financier's evaluation may or may not be the same as those that are relevant
 to a governmental representative or environmental or community group.

    It appears that the key issue for integrating environmental factors into FSI decisions is
 to  determine which  of the many aspects of EP  are relevant to firm-level financial
 performance within a particular industry for a particular financial decision.
 Environment and Finance Enterprise                                                        12

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 Corporate Environmental Performance as a Factor in financial Industry Decisions
 3.3. WHY FIRM EP MAY MATTER IN FSI DECISIONS
^   Satisfactory  environmental  performance  may reduce  a  firm's  downside  risk  for
 underwriters; lenders, or -investors,  and/or  increase the  potential for upside gains,
 measured  in terms of' sales, profits, market share, or valuation of a firm's freely traded
 securities.  One  or both  of these potential sides is identified  throughout the literature
 reviewed for this report.         ,                .

    Section 3.3.1 identifies ways that a firm's environmental performance can reduce the
 downside risk of financial decisions, while Section 3.3.2 identifies opportunities for upside
 gains. These lists are notmeant to be exhaustive, and the examples cited will not all apply
 to any particular firm. [The use of these indicators as a composite environmental screen to
 guide investment decisions is discussed in Section 4.4.3.]
    /                                    '  •

 3.3.1. The Downside: Risk Reduction                                     .
    Lack of attention to environmental matters may result in poor environmental operating
 performance, which can have a range of negative financial impacts on the firm; as well as
 on its insurers, lenders, and investors. Poor EP may:

    •  Create a liability  relating to  the contamination of land, due to persistent
       pollution or an accidental release16

    •  Create a liability for accidental releases to air or to water17

    •  Increase  the  cost  and/or  decrease the. availability  of Environmental
       Impairment Liability Insurance18                           '

    •  Expose the firm  to compliance penalties, mandated  shutdowns,  and/or
       more stringent regulations19
                 >                                .                                  *
    •  Detract from the marketability of the firm's products20                           .
       \                                                                    .      •
    •  Reduce investors' valuation of the firm's earnings  based on  the investors'
       perceptions of the firm's performance and prospects-21

    •  Increase  the  firm's exposure  to  regulatory  risk the risk  that  future
       regulations will devalue the firm's assets  (for example, environmental
       regulation of coke  ovens in the steel industry); or the risk that  future
       regulations may  retroactively penalize a firm for past EP  (for example,
       CERCLA) or require rapid — and therefore costly — compliance activities
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
   On the other hand, improving EP can reduce the risk that the firm's operations, cash
flows, earnings, capital spending decisions, or market presence will be negatively affected
by such conditions.

3.3.Z The Upside: Productivity Benefits
   A growing body of literature  asserts  the importance of managing EP as a strategic
element  of  business  success, rather than as  a  staff function limited  to regulatory
compliance or responding to stakeholders. A number of factors have contributed to this,
change in attitude:

   •   In 1989, the Exxon Valdez incident prompted the creation of CERES, the Coalition
       of Environmentally Responsible Economies. CERES member firms adhere to a set
       of principles regarding the environment.22

   •   The first Toxics Release Inventory (TRI) data (from the 1987 reporting year)  was
       released in 1989. TRI proved a revelation to senior company management who saw
       releases to  the environment as "waste" and hence an indicator  of production
       inefficiency.23

   •   In a  widely noted 1991 Scientific American article, Harvard economist Michael
       Porter advanced the notion that stringent  enyironmenital regulation could be a
       source of national competitive advantage.24  Other academic researchers have also
       argued that proactive management of environmental concerns is a potential source
       of competitive strength for the firm.25  '                      ,            -

   •   In 1992,  the  United Nations  convened the  second global  conference on the
    •  environment  in  Rio  de  Janeiro.  At  that  time,  Swiss  industrialist Stephen
      Schmidheiny launched the World Business Council for Sustainable  Development,
      an organization devoted  to  moving beyond the  notion of EP  simply as a
      compliance-driven requirement and to establishing a link between EP and FP.26

   Improving EP may generate benefits that go far beyond  mitigating the downside risk.
Frequently cited benefits that may accrue for a firm from improvements in EP include:27

   •  Reducing the costs of environmental compliance—particularly in  such areas as
      hazardous waste management—and increasing profitability28

   •  Easing relations with regulators, reducing costs of regulatory transactions29

   •  Increasing the yields associated with certain production processes (such as'
      reducing benzene emissions from a refinery that sells benzene) to  reduce
      potential loss of revenue30
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
    •  Reducing the costs of product input, including energy, as processes become
       more efficient3!

    •  Increasing the marketability of existing products where EP is a criterion in
       product selection32

    •  Enabling the firm to charge a premium price for "certified" processes or
       products33         .                        '.

    •  Providing opportunities  to expand the firm's  product line to include
       "green" products, replace a product with a higher value-added service, or
       market environmental services34

    •  Stimulating productivity  improvements or product quality improvements
       with associated benefits to profitability and market share35
                                    A
    •.  Producing a wider market for the firm's stock36

3.3.3 Summary Questions
    Financial analysts face a series of questions in assessing  the financial impact of EP
either in terms of downside risk reduction or upside potential. Such questions include the
following:     .                                     '

    •  What financial impacts attributable to EP are likely to accrue and to which
       industries, and how does the extent of the impact differ.by mdustry?

    •  Do financial impacts attributable  to EP change over time? For instance,
       investors may choose .to invest in the firm that is the environmental "best in
       class" in a particular industry. If the EP "floor" is raised across  an industry,
       does being "best in class" still matter for investment decisions?

    •  Is the potential financial impact material, and in what way? Good EP may
       have  a minor impact' on costs,  but may  materially  affect sales  if
       demonstration of  good EP is  required  as  an  element in  vendor pre- >
       qualification.                                                        •      '

    •  Do measures of firm-level  EP exist? Are reporting vehicles  available  to
       capture the financial impact of firm-level EP?

    An overview of some of the available environmental performance indicators (EPIs) is
provided in Section  3.4.  Part 4 explores  the process of converting these measures into
"screens" for FSI decisions, either to screen out firms with-poor EP or to identify firms
whose superior EP may be associated with upside gains.

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
3.4. How TO MEASURE EP
                                                     ;
3.4.1. Introduction                            .              ,                      '
    A wide range of EPIs is being used by the reporting frameworks being developed.
Some define EP  solely in management  terms, while  others are focused on  operating
measures.37 Some definitions use a broad range of categories and indicators while others
are very specific. Some EPIs are qualitative and some are quantitative.

    This discussion of EPIs and  their potential use by  the FSI in evaluating a firm's
environmental performance is grouped into four generic categories:M  .

    •   Overall strategy or policy regarding the environment

    •   Generic  environmental management practices designed to implement the
       overall environmental policy

    •   Specific operating practices and/or decisions related to product design and
       production technologies
          %
    •   Measures of environmental operating performance (EOF)

    Environmental performance can be assessed in terms of specific indicators within each
group or through some combination. As noted earlier,  the financier's choice will depend
on a. number of factors, the most important  of which  are the industry and the type of
financial decision involved. This section provides examples of EPIs within each category
and identifies potential concerns regarding their use for financial decisions.
                    I
   Table 1 on the following page  provides 'a summary  of the various types of indicators.
Examples have been taken from numerous sources, including the UN Engaging Stakeholders
report;39 the World Resources Institute's report, Measuring Up;40 the Tellus organization's
working paper, Green  Metrics: A  Status Report on Standardizing  Corporate Environmental
Reporting?1  and the Investor Responsibility Research Center  inventory of EPIs  (See
Exhibit I).                                         .
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
Table 1: Overview Of Four Categories Of EPIs (Examples provided in each category are drawn
from multiple sources as noted in tine text, with substantial overlap among the lists. Again, the choice of a
relevant indicator or group of indicators for use in FSI decisions will depend on a number of factors.)

                                                                          Comments
 EF1 Category 1 - Strategic Position/Policy	
 Integral part of marketing strategy
     Examples: organic farming, sustainable wood production
 Tends to be limited in value to certain
 industries'
 Adherence to outside codes
     Examples: CERES Principles, Responsible Care
 Cross-industry application
 Environmental policy statement
    Examples: policy statement, single global corp. standard
 Cross-industry application
 No guarantee of performance^
 EPI Category 2 - Management Practices
 Environmental management infrastructure
     Examples: Chief Environmental Officer, rank, # of staff
 Cross-industry application
 No guarantee of performance
 Environmental auditing
     Examples: frequency, coverage, public access to results
 As above
 Environmental cost accounting
    Examples: use of life cycle cost analysis, full cost accounting
 As above
 Environmental management systems
    Examples: TQEM, ISO 140Q1 certification
 As above
 EPI Category 3 - Product Decisions and Operational Practices
 Product Design/Production Technology
    Examples: recycled content, product recyclability, EP of product
    (e.g., energy use), packaging, "chemical-free" processes	
 Tends to be industry and product
 specific
 Input Decisions
    Examples: technical decisions, vetting of suppliers/contractors
 Tends to be industry and product
 specific  .	
 Expenditures
    Examples: investment in plant/equipment for environmental
    protection, environmental qualify assurance, R&D	
 Increasingly difficult to track as firms
 integrate environmental protection
 into broader technology decisions
 EF1 Category 4 - Environmental Operating Performance
 Inputs
    Examples: use of energy (nonrenewables), nonrenewable materials,
    unsustainable use ofrenewables, toxins, water	
 Cross-industry application, but same
r measures not equally relevant
 No mandated data source
 Chemical Releases (Outputs)
    To air - "Greenhouse gases" (CO2 and equivalents), stratospheric
    ozone depleters (CFC-11, etc.), acid rain precursors (SO2), smog
   . precursors (VOCs and NOx), toxic releases (HAPS)
    To Sand - hazardous and solid wastes
    To water - nutrients, BOD, toxins  	•        	
 Cross-industry application, but same
 measures not equally relevant
 Only toxins have mandated data
 source, and only for some industries
 Issue of timeliness
 Stewardship of Habitats and Ecosystems
    Examples: programs to protect habitat, to transplant endangered
    species by construction, to fund conservation of habitats to offset
    those affected by company activity
 Cross-industry application, but same
 measures not equally relevant
 No mandated data source or
 consistent framework for reporting
 Regulatory Compliance
    Examples: instances of significant non-compliance, enforcement
    penalties/permit denials, number/severity of reported pollution .
    accidents (e.g., spills), environmental legal proceedings
 Various economic sectors subject to
 widely varying levels of regulatory
 interest and activity
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
3.4.2. EPI Category 1: Environmental Strategy or Policy Statement
    Description. The first group of EPIs deals with how the firm has positioned itself with
respect to the environment, both internally and publicly. In some cases, a firm's overall
strategy has an inherent environmental component;42 in other cases, the firm may make its
environmental position consistent with its overall market strategy.43

    More  typically, firms  articulate their  strategic  position by  adopting the  CERES
principles or making an explicit environmental policy statement (published in the annual
financial report or annual environmental report). In other cases, an industry association
may take the lead, positioning the industry as a whole. For instance, after the catastrophic
release of toxic gases from the  Union Carbide facility in Bhopal in 1984,44 tile Canadian
Chemical Producers Association began the Responsible Care Program; it has since become
a condition of membership for the US Chemical Manufacturers Association.45

    Potential Use in Financial  Decisions. This type  of indicator has the advantages of
simplicity and comparability. An analyst can readily ascertain, for example, whether or not
a firm has publicly declared its environmental policy. Although it is not a measure of
environmental operating performance, such an indicator may be a useful surrogate where
lack of data makes environmental operating performance difficult to assess.46

    Policy statements do not necessarily translate into financial benefits or improved EP,
nor does the absence of such a  policy or statement necessarily imply poor EP. However,
financiers can use the existence of a strategy or policy statement either as a .binary activity
(with existence representing a positive action and non-existence treated as a neutral event),
or they cart grade the policy or strategy based on  a set  of indicators appropriate to the
industry and score the policy or strategy on  a sliding  scale for incorporation into the
financial analysis model.47

3.4.3. EPI Category 2: Environmental Management Practices
   Description. The second group of EPIs consists of generic environmental management
practices. Such practices may cover a range of activities, including:

   •   Conducting periodic environmental audits of a firm's facilities*8
  .  •   Ensuring that the accounting system accurately reflects environmental costs49
   •   Producing a CER50
    •   Adopting a plan to ensure total environmental quality management
   •   Having practices at  some  or  all  of a firm's  facilities  certified  as meeting
       international standards of the ISO 14000 series
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 These practices are sufficiently generic to be applicable to every economic 'sector, from
 agriculture to manufacturing or services.

    In most firms, environmental management began as a separate staff function, narrowly
 focused  on  regulatory  compliance.  The  first  attempts  to integrate  environmental
 considerations into broader management concerns emerged from  firms' efforts to develop
 systems to improve product and service quality. CERCLA liability then stimulated the
 development of an industry that provides environmental audits to alert firms to potential
 liability. In addition, sharp increases in hazardous waste disposal costs in the late 1980s
 heightened the need for a cost accounting system that accurately associates environmental
 costs with the productive activities that generate the waste.

    In the late 1950s, firms began to consider ways to manage environmental compliance
 more systematically—and to integrate environmental management with the firm's overall
 management.51 This shift  was prompted  by  two key factors: increasingly complex
 environmental regulations52 and a change in attitude among business leaders, who began
 to see EP as a source of competitive advantage and to seek ways to manage it.53

  -  To meet the need for- better management tools, environmental management systems
 (EMS) were developed to guide a firm's  interactions with the environment. An EMS is a,
 system designed to promote compliance with regulations, ensure  clarity of organizational
 policies, reduce financial risks related to environmental factors, and ensure that sufficient
 corporate resources are devoted to environmental management.

    The development of standards for generic environmental management practices was
 led by European governments, which made Eco-Management and Audit Scheme (EMAS)
 certification a requirement for access to. European Union markets. In 19%, the ISO began to
 release the ISO  14000 series of environmental management  protocols. ISO has three
 objectives in creating these environmental protocols: "to encourage a common approach to
 environmental management, to strengthen a company's ability to improve and measure its
 environmental performance, and .. : remove trade barriers."54 Due to the costs associated
with  obtaining ISO 14001  certification, firms may  decide to certify themselves as
 corporations or on a plant-specific basis;  some firms have indicated a preference for their
existing environmental management systems.55

    Potential Use in financial Decisions.  This group of performance indicators includes a
 range of measures,  each with potential problems for use by the FSI. CERs may not be
 substantive, and  thus not perceived  as credible (Section 3.4.6).  The presence of an
environmental auditing program may be a sufficient measure of EP for an underwriter, yet
 insufficient for an investor/lender concerned about the firm's exposure to regulatory risk.
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Corporate Ermronmental Performance as a Factor in Financial Industry Decisions
    A firm's certification under ISO 14001 (or reliance on a comparable EMS) goes a step
further, providing a basis of comparison on overall management performance in relation to
the particular environmental factors facing a firm within a given industry. However, there
is not yet a sufficient number of ISO 14000 certified firms or sufficient operating experience
to track the relationship between certification and financial performance.56

    Adoption of EMS has the potential to serve as either a downside or upside indicator.
As  a downside indicator, the existence of an EMS may reduce the likelihood of incurring
an  environmental liability, reduce the  cost  of  acquiring  Environmental Impairment
Liability Insurance (EIL),-increase the "numbers of insurers willing to write a company's
coverage/'^.and ease relations with a regulatory agency.58 As  an upside indicator, an EMS
may indicate overall productivity59 or the ability to gain access to particular markets.60 The
importance of each of these factors is likely to vary based on firm size and industry group.

    The weaknesses of generic management practices as an indicator of EP are similar to
those affecting policy statements. While it is reasonable to expect mat following protocols
will improve the likelihood and reduce the cost of compliance, there is no guarantee that
the firm will be proactive and achieve productivity or other upside benefits.61

    Finally, the lack of a CER, an EMS, environmental accounting, or an environmental
audit schedule does not necessarily imply poor EP.  For some industries, adopting these
generic management practices may be  unnecessary as their EP can be gauged using more
direct measures of operating practices (Category 3) or performance (Category 4).

3.4.4. EPI Category 3: Environmental  Operating Practices (Production Technologies and
Product Design/Content)
    Description, Operating decisions on product design and content and on production
technologies may also be  used  as indicators  of EP. The World Business Council  for
Sustainable. Development (WBCSD) is  promoting the use of indicators  of "eco-efficiency"
that are primarily oriented to assessing operating practices—that is, how well products are
designed to:

    •   Reduce energy use
    •   Maximize recyclability
    •   Extend durability
    •   Enhance the functionality of goods and services62
   Potential Use in Financial Decisions. Comparisons across industry groups are less
meaningful because of potentially vast differences in products; however, for some industry
groups, adoption  of particular practices is likely to  be an important indicator  of EP. In
particular, certification of practices may be useful where there is a lack of governmental
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                              \
regulatory data. For instance, while there may be no government-mandated data on toxic
chemical use on farms, a farm certifying its practices .as "organic" might be presumed to
have no such releases. Similarly, many consumers and environmental groups see value in
forestry firms receiving, certification  according to specific forestry practices,  rattier than
adherence to generic management standards.63  On  the manufacturing side,  a firm may
choose  to disclose  that its  processes are,  for instance, "cyanide-free," "chlorine-free,"
"phosphate-free," or "mercury-free."

    With some exceptions,64 information to make comparisons on products or operating
practices is not publicly mandated. Availability and quality of data depends on how fully a
firm discloses these decisions  in  its corporate financial or environmental  report.  The
credibility of disclosure is also a potential issue (Section 3.4.6).

3.4.5. EFI Category 4: Environmental Operating Performance
    Description. In the United States, the most commonly used indicators of'EP are those
that rely on information required by USEPA  regulation: data on contaminated sites, the
number and size of chemical spills, compliance history,, etc. The volume of operating
performance data was expanded substantially in 1986, when the Superfund Amendments
and Reauthorization Act (SARA)  required manufacturing firms (SIC 20-39) to report
releases of several hundred chemicals to the air, water, and land. Since 1987, the first year
firms submitted their TRI reports, the requirement has been expanded to cover more
industry groups and more chemicals,  and to require reports at lower thresholds of release.^

    With the exception  of TRI data, a great deal of governmental information on EP has
been difficult for the. FSI to  obtain. Since  it has  generally  been collected by  state
environmental agencies authorized  to administer USEPA regulations, the data for a
corporation  with multiple manufacturing facilities  may be  found  in multiple  state
databases.                  -

    USEPA recently launched  the "Envirofacts  WareHouse"65 initiative to increase the .
availability of all the data it has on firm performance. When the information source is fully
developed, it will include data on inspections, significant  non-compliance  violations (as
opposed to  minor paperwork violations), enforcement actions and penalties/pollution
releases (TRI),  pollution spills, a toxicity-weighted pollution release, a pollution to
production ratio, and demographic information on neighboring communities.66 The web
site maps out environmental data for more  than 700,000 sites that- handle potentially
dangerous chemicals and identifies their harmful substances. Users can access information
on the sites by name, address, or zip code.6.7              .   -

   Potential Use in Financial Decisions. Changes  in  these measures  can  be used to
indicate the; potential for downside  risk reduction< and the potential for  upside gains
(Sections 3.3.1. and 3.3.2). With respect to downside risk, a firm that eliminates emissions


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Corporate Environmental Performance as a Factor in Financial Industry Decisions
of hazardous toxins because of plant-wide  source reduction has  reduced the risk  of
insurance claims, potential  contaminated land collateral, and future environmental
regulation of those toxins. Upside gains from reduced emissions include greater yields and
lower input costs (including the cost of waste disposal).

    Publicly mandated data has three limitations, however:

    •   While there is information compiled  on other  environmental concerns, such  as
       nutrient releases  to rivers and greenhouse  gas  releases,68  the data, is not  as
       extensive or as widely collected across economic sectors as data for toxic chemicals.

    •  - Public data provides information only for firms that are subject to environmental
       regulation, thus excluding major industries such as agriculture from the same types
       of EP scrutiny.
                '                                                        -t
    • '   As a result of reporting lag times, by the time data becomes available, it no4onger
       reflects current status and/or practices, which diminishes its relevance for decision-
       making.

       Voluntary data disclosure in CERs may fill this gap to  some extent, but raises
questions of credibility (Section 3.4.6).

3.4.6. Issues for FSI Use of EFIs
    The  various  initiatives  to  standardize  corporate environmental  reporting  have
identified five data problems of particular concern to users of EPIs: availability, credibility,
standardization, industry specificity, and  timeliness.69  These  data problems prevent
researchers and analysts from more fully investigating the links between EP and FP and
from developing the constructs necessary  to make environmental data meaningful over
the full range of financial decisions. Each of these problems is briefly rioted below.

   Availability of Data,  Particularly Quantitative  Data.  The  lack of  information
availability was noted by multiple  sources as  an  important problem in furthering the
integration of EP into financial decisions. As noted above, USEPA's data does not provide
the full array of potential information that a financial analyst may want, either for all
pollutants or for all industries. Moreover, USEPA does not have jurisdiction over the full
range of environmental impacts that might be associated with a firm's operations. 7ฐ  The
literature reviews did not find any discussion of the range of publicly available data being
collected by other federal agencies—such as the Department of Interior (e.g., federal timber
leases by firm), the Department of Energy (e.g., power production) or the Department of
Agriculture (e.g., pesticide use on farms)—that may be of value to the FSI. It appears that
the FSI is either unaware  that this information is available or believes it is not material for
consideration in its decision-making processes.
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                  f
    CERs may fill these availability gaps. The growing number of these reports has created
 additional demand for more uniformity among CERs (see the standardization discussion
 below) and for, more quantitative  information on  activities  for  which no regulatory
 mandates exist, such as energy use, water" use, and greenhouse gas emissions.

    Reliability of Data, Potential users of EPIs are concerned about the reliability of both
 publicly mandated data and data from voluntary disclosures. For example, one concern to
 EPA, individual states, and the industry is the accuracy of the data that will be found at
 EPA's  new  Internet site, "Envirofacts  Warehouse."71   A 1995  report by  Global
 Environmental Management  Initiative (GEMI) and Investor Responsibility Research
 Center (IRRC) showed .that the credibility of voluntary decisions hinged on  "a balanced
 tone and the presence of numerous environmental performance indicators."72 A broader
 analysis of CERs, also conducted in 1995, suggested creating a formal evaluation process
 for reports that would recognize leading edge practice and reward firms generating the
 most credible reports.7*              •

    Need for Standardized Data. Various initiatives7*—including the Public Environmental
 Reporting Initiative, the UNEP Engaging Stakeholders process, the Global Environmental
 Management Initiative, the Global Reporting Initiative (CERES), and the Business Council
 for  Sustainable  Development—are  helping to  standardize  corporate  environmental
 reporting. The Tellus  Report identifies about two dozen such initiatives worldwide.75 The
 dilemma for the firm  is that the development and disclosure of information is costly, and
 may force firms to disclose information that is immaterial to their EP or FP (e.g., asking
 software manufacturers to disclose greenhouse gas emissions).

    A recent report by the Tellus Institute indicated  that standardization was needed in
 terms of,what information industry is reporting on EP and environmental programs, how
 data might be normalized (e.g., emissions per dollars of sales), and the level of reporting
 unit (e.g., firm, plant, process).76      .                                                .

    Need for Industry-Specific Measures. Some researchers have identified the importance
 of establishing the link between EP and FP on an industry-specific basis. They note that the
 results of multi-industry quantitative analysis may be confusing EP impacts with industry
 impacts.77 While industry-specific measures may be possible in some industries, for others
 the  diversity  of  products  may  make that level of  analysis difficult.78  The need for
 industry-specific  measures appears to be at odds with  the desire of.some analysts for
 standard data in making investment decisions.                                    •
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Timeliness of Data. TRI data,\in particular, has attracted the attention of researchers
attempting  to  show  the  link between environmental and  financial  performance.79
However, reporting lag times mean,that TRI data is available about two years after the
releases  were made.  In areas. of rapidly changing technologies,  such as the shift  to
waterborne paints and non-solvent cleaning agents, older data may not reflect the current
environmental operating performance of the firm. Similar problems exist with data on
hazardous waste  generation. Finally, enforcement actions may take  time to  process,'
implying that data on fines and other penalties may relate to practices that are no longer
used by the firm.
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                   4. MAKING CORE FINANCIAL DECISIONS:
                             CURRENT USE OF EPIs

 4.1. INTRODUCTION
     Each segment of the financial services industry participates in one or more of three core
 financial services: underwriting,  credit extension, and investment. Part 4 assesses the
 extent to which EPIs are used or might be used by  various FSI segments  in making
 decisions that affect a firm's access to—and cost of— insurance^ investment capital and/or
 credit.                                                - •
   , This report focuses on eight segments of the FSI:
    •   Commercial banks (the largest providers of credit)
    •   Mutual funds (with US $4.7 trillion under management)80             '  .
    •   Pension funds (with US $4.5 trillion under management)
    •   Life insurance companies (with US $2.3 trillion in assets)
    •   Property and casualty insurance companies (with US $1.4 trillion in assets)
    •   Venture capital firms (with assets of US $48 billion)
    •   Foundations (with US $200 billion in assets)
    • .  Investment banking
/   The first five segments, the largest in the industry, were included because they are the
 largest segments of the FSI.  Venture capital firms were included because they focus on
 investing in very early stage innovation (environmental or otherwise). Foundations were
 included because they make investments and  grants with  virtually no governmental
 constraints, and therefore have freedom to innovate in terms  of investment criteria (e.g.,
 use screens  that  incorporate environmental factors); have specific mandates  in their
 incorporation documents to help facilitate activities related to the environment; and control
 substantial capital. Finally, investment banking was included  as a result of its important
 advisory role to corporate clients as well as other members of the FSI.

    Other segments of the FSI—such as .savings and loan associations, credit unions, or
 commercial finance companies—were not included in this report because prior research
 indicated that environmental factors do not materially affect these segments at this time,
 nor do they seem likely to in the future.81
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                                  'i
    The exhibits on tire following pages summarize this information. Table 2 lists each
 segment identifies representative firms within that segment, describes the segment's role,
 and indicates the extent to which the segment has past experience with EP. For reference,
 Table V3 outlines key events, regulatory and otherwise, that have affected the provision of
 FSI's three core financial services. These events will be discussed throughout Part 4. •

    The FSI segments vary in terms of the time horizon for financing activities (e.g., long-
 term investing vs. short-term credit extension); targeted rate of return; tolerance for risk,
 size, and the importance attached to the interests of a corporate client's stakeholders;82 and,
 in some segments, level of expertise on environmental factors. In particular, underwriters
 and lenders have  experienced  the  impact of CERCLA liability for contaminated site.
 remediation. Both are now concerned about the potential long-term impacts associated
 with projected global climate change as it relates to underwriting policies and collateral
 asset values.

    Part 4 is divided into three major sections:
                   \
    •   Section 4.2 describes how the process of insurance underwriting has dealt with the
        downside risk associated with the poor EP of its clients. (Insurance underwriters
        were the first to feel the financial ramifications of poor firm-level EP.)

    •   Section 4.3 describes how credit officers have addressed environmental concern's.
        (As in underwriting, the primary focus to date has been on reducing the downside
        risk of poor firm-level EP as it relates to loan, collateral and operating cash flows.)

    •   Section 4.4  describes how investment managers and academic researchers are
        assessing both the downside impact of poor EP, and the potential for good EP to
        act as an indicator of upside potential.

    Within each section, an overview of the industry is provided, followed by an industry-
'wide discussion .of concerns relating  to  the  integration of EP into financial decision-
 making. Finally, summary observations are made on the current and potential role of EPIs
 in that particular decision-making process (underwriting, credit extension, or investment).
 Environment and Finance Enterprise                                                         26

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 Table 2: Overview of the Eight Segments of the FSI
 Primary Business: Advise corporate clients on        Indirect exposure through client concerns
 investments and financing options                 Loss of investment value or lender liability on credits
 Secondary Business: Invest and/or extend credit for   with real estate/asset collateral
 its own account           •            .
 Primary Business: Invest employee pension fund     Some pro-environmental activism (e.g., voting proxies)
 contributions                                    but generally constrained by fund's governance
                                                 guidelines
:::;::::-::::::•; i-:':K:;l:ฃ:;::::::?x:':-:5:::U:::K:^^
 Primary Business: Make grants to causes and         Some pro-environmental activism:
 initiatives that.are consistent with foundation's   '     -Voting proxies         '                '    .
 mission      "                                     -Initiating proxies on environmental issues
 Secondary Business: Invest endowment.funds to        -Investing in socially responsible/green' companies
 support grant making    .                          and/or funds
|Plil!iHfli;iงlliif|;i||pil;

 Primary-Business: Invest the capital provided by    - Targeted response to consumer demand for
 Primary Business: Provide startup or first stage       Varies with each investment as a key
 capital to cash-poor new business ventures       '   shareholder/member of management, face the same
                                                 issues that a company faces
"K:;::::::::::::::;**::.::.::-::.:*::*.;:^:::;:::;:::* :.;:>:::•: ::;:::^
ii^HHiHiiinijisijiiijjijjii^
lljllliillllljiilili^
 Primary Business: Extend credit                     Prior to foreclosure: loss of cash flow on loans with real
 Emerging Secondary Business: Invest          '  '     estate collateral
                               '                  After foreclosure: exposure to CERCLA liability on
                                                 loans with real estate collateral
Primary Business: Underwrite life insurance for
individuals         •
Secondary Business: Invest and/ or extend credit to
                                                 Prior to foreclosure: loss of cash flow on loans w/real
                                                 estate collateral
                                                 After foreclosure: exposure to CERCLA liability on
                                                 loans w/real estate collateral
                                              liGaslaa^
 Primary Business: Underwrite P&C insurance
 policies for corporations and individuals  -
 Secondary Business: Invest and extend credit to
 provide for future cash needs
                                                General Liability Policies: lasses from liability for
                                                contamination and asbestos
                                                Environmental Impairment Liability Insurance: losses
                                                from poorly-defined underwriting in late 1970s; new
                                                wave of underwriting in 1990s
                                                Global Climate Change: concern about exposure to
                                                catastrophic risk; offering of catastrophic options etc. to
                                                other investors to spread environmental risk y	
 EiwjTonmffnt &nd Ftnctncs Enterprise
                                                                                              27

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Table 3. Overview of Key Events in the FSfc 1970-1998
Yr.
70
72
75
76
77
80
82
84
85
86
88
89
90
91
92
Business & Regulatory
Events
First Earth Day
EPA created
UN Meeting: Stockholm
_.


CERCLA establishes "joint
and several liability"

Union Carbide, Bhopal
HWSA requires corrective
action at operating facilities
CMA: Responsible Care
Reporting of toxic releases
begins for Manufacturing
SICs

Exxon Valdez runs
aground
CERES formed
CAAA tightens air
pollution control
Michael Porter -
environmental regulation
' as a source of competitive
advantage
UN Conference - Rio
International Chamber of
Commerce: Business
Charter for Sustainable
Development
FSI
Investing



1
•

'



.
Socially screened mutual funds
become common

^
IRRC offers standard EP data
on industrial firms
Extending Credit '
,



•
Real estate industry collapse
begins in TX, CA, and NY,
resulting in massive
foreclosures by life insurance
industry



World Bank issues guidelines
' on environmental exposure
management
World Bank issues
environmental guidelines on
asset-backed finance
Maryland Bank and Trust Case
- 1st case of lender liability for
cleanup

Fleet Financial found 100%
liable forSuperfund cleanup

UNEP Statement on Banking
and the Environment signed
EPA issues "lender liability
rule"
FDIC sends guidelines on
environmental issues to all US
banks
Underwriting


Environmental
Impairment Liability
Insurance (EIL) begins to
be issued
First asbestos suits filed
against Man ville
EIL policies aggressively
marketed
•
Manville bankruptcy
Industry pulls back on
writing EIL because of
losses
"•
"Absolute pollution
exclusion" introduced for
General' Liability Policies
-
EIL market reappears
•

Hurricane Andrew -
creates great P&C losses
Enwronmsnt snd Fin&nce Entffrpnst?
28

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions

Yr.
93



94


95

96


97






98
Business & Regulatory
Events







.

ISO 14001 released
WBCSD: Financing Change.
The FSf, Eco-Egtdency and
Sustainable Development


TRI expanded
WBCSD: EP and Shareholder
Value


'~



USEPA NACEPT convenes

Investing
SEC puts SAB '92 into effect
requiring environmental
'liability disclosure
i






Introduction of special
investment vehicle: selling -
insurance risk for catastrophes
on stock exchange via options
and futures

Scudder Stevens/Stoiebrand
Environmental Fund launched


National Provident Insurance
(UK) releases "Carbon
Indicator, etc."
Swiss Bank Corp.
Environmental Fund launched
Aspen Institute Initiative
started





•
FSI
Extending Credit
FDIC issues Guidelines on
Environmental Risk
Minimization
ASTM E-1527- Standard Phase
1 Due Diligence for Real Estate
Collateral
Environmental Bankers Assn.
Founded '
"Brownheld" development1
becoming more common
EPA's "lender liability rule"
vacated
1ซ Meeting - UNEP Global
Banking and Environment
. (Geneva)
First Global Study on
Environmental Practices within
the FSI(Lending)
2nd Meeting - UNEP Global
Banking and Environment
(London)
EBRD launches major effort in
Eastern Europe to educate
bankers on environmental risk
management
Congress amends .
CERCLA/RCRA to reinstate
"lender liability rule"
Bank America signs CERES
Principles
International Finance
Corporation issues handbook
for banks in' developing and
transitional economies
3rd Meeting - UNEP Global
Banking and Environment
- (New York) •
National Westminster (UK)
aunches preferred rate for EMS
activities to middle market
companies
World Bank issues new project
finance guidelines
Credit Suisse becomes first
bank to be ISO 14001 certified
Swiss Bankers Association
publishes draft standard EP
reporting protocol for clients


Underwriting
SEC puts SAB '92 into
effect requiring
environmental liability
disclosure
Insurance industry
surprised by total HL
exposure


Industry rating group
downgrades CIGNA,
AETNA, and Home
because of EIL exposure


1 UNEP Statement on
Insurance and the
Environment signed
NAiC Footnote 24
announced, requiring full
• • disclosure of
environmental exposure
UNEP Conference on the
Insurance Industry and
the Environment (5/96)
Footnote 24 becomes
effective

' •
-




.


Emrironment and Finance Enterprise
29

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Corporate Environmental Performance as a Factor in Fmandal Industry Decisions
4.2. DOWNSIDE FOCUS: INSURANCE UNDERWRITING DECISIONS AND EP

4.2.1. Overview
   Of the eight segments  of the FSI,  only property and casualty (P&Q  insurance
underwrites  the potential financial exposure  associated with claims from  corporate
clients.83 A client's EP is examined when a policy is written, policy coverage is reviewed or
bank financing is arranged.

   P&C policies are normally written for one year. Until recently, all insurance policies
were renewed—and, in theory, reviewed—every year by the issuer.  A new multi-year
product has  been introduced, however, which provides  the corporate client with  the
security not available with a single-year product.

   The new product involves a new set of underwriting concerns, since the insurer is now
committed for an extended period of time. Claims for losses are filed for various types of
expenses,  including direct expenses (property or personnel) of the insured, claims made
against the insured by third parties, the lost revenue of a plant closing, the insured's legal
costs associated with lawsuits and claims by the insured and third parties, and the cost or
environmental restoration of natural habitat damaged in an incident.

   Until the last few years, the primary focus  of this industry has been on one issue: what
does a client's EP indicate about the risk of incurring some type of environmental liability
and  filing an insurance claim for those losses?  With the emergence of the possibility of
global  climate change, the industry's focus appears to be broadening to include a second
question: to what extent  does a client's EP contribute to global environmental problems
which may, in turn, lead to claims filed by the client or other policyholders?

4.2.2. Industry's Experience with Environmental Matters
   The P&C industry has more experience in dealing with environmental factors than any
other segment. It has acquired this experience in four phases.84

   Phase  1: Environmental Impairment  Liability Insurance: Initial Experience. In  the
mid-1970s, the insurance  industry started to offer customers Environmental Impairment
Liability Insurance (EIL). This product was  developed in response to claims filed by
corporate clients for environmental liability and asbestos-related problems.85 A handful of
underwriters identified this new market niche  and wrote a fairly high volume of insurance
up through the early 1980s. It soon became apparent to most underwriters that given the
volume and size of the claims being filed, they  did not sufficiently .understand the costs
and risks associated with these policies. Most underwriters stopped writing EIL policies.86
Environment and Finance Enterprise                                                        30

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Phase 2: General Liability Insurance  &  CERCLA. The industry's environmental
exposure increased in 1980 when Congress passed the Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA). CERCLA created  "retroactive,
strict, joint and several" liability for the cleanup of contaminated sites. It Became apparent
that clients could make claims.under  their general liability insurance policy for cleanup
liabilities established under CERCLA. In 1985, an "absolute" pollution exclusion clause
was added  to the nation's standard  Commercial General Liability Policy. This clause
effectively eliminate all environmentally related claims on newly issued policies. Although
this, clause has been included in most policies issued since 1985, there is still a substantial <
volume of claims being filed for policies written before 1985.  .

    In 1993,  the Securities and Exchange Commission required that corporations disclose
potential environmental exposures.87 In March 1995, the National Association of Insurance
Commissioners required  that P&C firms report their potential exposure to asbestosi and
environmental claims (a function of the potential exposure faced by their corporate clients),,
as Footnote 24 to their annual filing. The extent of reported disclosures prompted many in
me P&C industry to increase reserves.88

    Today most insurance firms have large staffs focusing on how environmental activities
and programs are related to environmental risks and the corresponding claims that are or
may be filed.89 The P&C's experience has given it the largest pool of knowledge and
expertise within the FSI  on how to quantify environmental risks and turn them into
financially meaningful analysis.   .                                •

    Phase 3: EIL Insurance, Revisited. The second era of environmental insurance started
in the late 1980s, when a few insurers—led by AIG (American International Group), Zurich
Re, and Reliance—reentered the market The new breed of EIL insurance is targeted at
specific industries, carries clear limits of coverage, and carries numerous covenants that
relate to the client's environmental practices, procedures, and management systems.

    Further growth in the industry occurred in 1992, .after  Fleet Bank announced that it
would require EIL insurance on all new commercial loans. This action was in response to-
Fleet's own  Superfund liability, which resulted from  a 1990 court decision concerning
property acquired through foreclosure (See  Section 4.3.2). While  only three  firms
reportedly provided the type of coverage Fleet required in  1992, by 1994 it was reported
that 19 firms offered or were developing appropriate EIL products.90

    The P&C industry is currently focused on understanding how assumed risks can be
differentiated by clients' progress in improving environmental practices and activities. By
differentiating risks, companies can  offer products  at lower  prices  to  clients  with
"superior" EP. In addition to EIL insurance,  insurance brokers offer risk management
services and will provide "detailed reviews of operations"  for clients.9*  There has been
some coverage in the trade press of the potential for industry to supplement its existing

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Corporate Environmental Performance as a factor in Financial Industry Decisions
information on a firm's EP using ISO 14001 certification as an underwriting screen.92 EIL
insurance is becoming  more widely available  around the-world, and has become a
competitive product offering as prices continue to fall and coverage expands.

   Phase'4: Environmental Risk to  the Firm: Climate Change. The P&C industry has
managed its exposure related to clients' EP through  more sophisticated underwriting,
more restrictive policy covenants, and the provision of risk management expertise to its
clients. Now the industry is facing a broader challenge: the potential impact of global
climate change (GCQ on all insured parties.

   GCC is  the hypothesized warming of the earth's atmosphere due to human releases of
carbon dioxide and other greenhouse gases from the combustion of fossil fuels, among
other factors. This wanning is predicted to destabilize me climate, leading to more severe
storms and more erratic weather. After Hurricane Andrew, which caused US $15 billion in
insured losses, the industry became concerned about the potential impact of GCC on storm
events and subsequent  insurance-related losses. Management  of potential GCC-related
claims is expected to play an increasing  role in  the  refinement of the covenants and
limitations  in  general liability insurance policies.93 The potential  for catastrophic losses
related to GCC has also led the insurance industry to investigate ways of spreading this
risk9* As  with CERCLA  liabilities, the reinsurance  segment of the  P&C business is
expected to bear the brunt of exposure related to GCC.

   .The United Nations Environment Program (UNEP) launched its Initiative on Insurance
and the Environment with a Statement of Environmental Commitment by the Insurance
Industry, November 23, 1995 (see Exhibit A).  As of January 1998,  approximately 70
insurance companies, predominately European and Japanese, have signed the statement95
This partnership between UNEP and the signatories has sponsored two global meetings to
date and created task forces focused on specific  environmental concerns, such as climate
change, that are particularly relevant to the insurance industry.96

4.2,3. EP and Underwriting: Summary Observations
   The  US underwriting  community  represents  possibly the single  largest  pool of
expertise with respect to environmental concerns within the FSI. Underwriters appear to
have developed the most sophisticated approaches to how the risk associated with EP and
other  environmental  activities can be measured, quantified, and integrated into financial
decision-making processes.97 However, mere is little information in the publicly available
literature on  how  these firms actually evaluate the risks related to EP, or how  that
evaluation might vary by client industry group (e.g., underwriting guidelines for a paper
mill versus a'chemical plant). This is an area where primary research might be warranted.
Environment and Finance Enterprise      .                                                 32

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 Corporate Environmental Performance as a Factor m Financial Industry Decisions
     Finally, there is little discussion in the literature on how this expertise might be used" to
 address broader environmental concerns on either the underwriting or investing side of
 the business (Section 4.4.4).


 4.3. DOWNSIDE Focus: CREDIT EXTENSION DECISIONS AND EP

 4.3.1. Overview          /    .'•   -                                       .
     The main providers of credit to corporations are commercial banks98 and life insurance
 companies,99 although investment banks100 also provide some short-term credit to facilitate
 specific transactions. Commercial banks are the largest provider of private sector credit in
 the world and, within the US, are the most regulated segment of the FSI.  Life insurance
 companies are primarily involved in real estate lending;  they  hold approximately  40
• percent of all domestic commercial mortgages, with little involvement in  other areas of
 credit extension.                                ,

     The nature of the collateral is the primary variable that affects the materiality of EP in
 credit extension decisions. Credits can be secured by real estate (i.e., land), by real property"
 (e.g., buildings, equipment, inventory), or as a general obligation of the firm.

     For loans secured by land collateral, the primary  concern is the contamination present'
 in the land and groundwater that flows through it at the time of the property transfer—as
 well as the corresponding regulatory issues and costs that would relate to the cleanup of
 the property. A secondary concern is the additional contamination the borrower could add
 to 'the  land and  groundwater while  it is in his or her possession.  The presence  of
 contamination can affect the  value of the collateral and  the foreclosure decision if the
 borrower fails to repay the loan.

    For loans backed by other assets (e.g., manufacturing plants, resort hotels, equipment,
 etc.), the creditor is primarily concerned with how EP will affect the predictability of cash
 flows, and, secondarily, with the long-term value of the collateral. In particular, credit
 officers are concerned with the impact of regulations related to ongoing questions (e.g.,
 carbon  tax or required scrubbers for coal burning power plant) and of broader ecological
 concerns  such as  climate change  (e.g., wind storms and the rising sea level for beach
 resorts) that may affect operations and collateral value. -

    In general commercial credit transactions, there  is often little or ho collateral.  Many
 researchers claim there may still be an opportunity  to  use  EP as a predictor of overall
 quality management and operating performance (Section 4.4.2), as well as the ability of the
 borrower to generate cash flow to repay the loan with interest.

    In addition,  lenders  are concerned with how client  EP  reflects on  their  own
 accountability on environmental matters (Section 4.3.5).

 Environment and Finance Enterprise                            .                 •            33

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
4.3.2. Real Estate Securitized Loans
    For real estate-backed  loans, the focus regarding environmental risk has been on
preserving the value of the real estate and on the obligations that the lender might incur
with respect to contaminated real estate it acquires through foreclosure.

    Until 1988, it was generally assumed that lenders did not have liability, under either
CERCLA  or state Superfund laws,  for  remediating contaminated real estate acquired
through foreclosure. However, in 1988, Maryland Bank and Trust sold a parcel of land it
had acquired in foreclosure 20 months earlier. The land was contaminated and required a
cleanup effort. Under state Superfund law, the bank was liable for cleanup costs because it
held the property too long to claim an "innocent landowner" exemption.101
                                                    r
    In  May 1990, Fleet Financial,  through  its subsidiary Fleet Factors,102  was held 100
percent liable for Superfund cleanup costs at a facility acquired from Swainsboro Paint
through foreclosure. The llth Circuit Court of Appeals in Atlanta Georgia, found mat
Fleet had had the potential to alter the operating practices of its client and was thus liable
for the contamination.103

    Reet responded by requiring new loans to carry  Environmental Impairment Liability
Insurance (Section 4.2.2). In 1992, USEPA issued a "lender liability rule" to shield lenders
from liability under CERCLA.10*  This provision was vacated in 1994, with a court finding
that USEPA had exceeded its authority in issuing the rule. In 1996, Congress addressed the
problem directly with the passage of the Asset Conservation, Lender Liability, and Deposit
Insurance Act of 1996 (Asset Conservation. Act), which amended CERCLA and RCRA to
protect lenders from "secured creditor liability."  However, that protection does not extend
to actions taken under state Superfund laws, or under certain lending circumstances.

    In 1992, while issues of federal liability were being addressed, the Federal Depository
Insurance Corporation (FDIQ issued guidelines requiring lenders to develop programs for
environmental risk management  (ERM).105

   In the wake of the 1989 Maryland Bank & Trust case, Bank of America, Chemical Bank,
and National Westminster became the first  lenders  to hire officers  to deal with
environmental risk.106  Now, most  major  lending institutions,  regardless of their FSI
segment, have technical (engineering, scientific, or both) and legal experts  on staff or on
retainer to manage environmental risk and other due diligence work related to credit
extensions with real  estate as  collateral.   A  large  consulting  industry performs
environmental site reviews on behalf of financiers and developers, and several electronic
database services exist to gather data on site contamination and prior usage for specific
pieces of property.107
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Both commercial banks and life insurance companies have continued to refine real
 estate due diligence processes as they gain experience in how environmental performance
 affects real estate values and cash flows from real estate. They have been helped by the
 Asset Conservation Act, which codified into law a lender's right to maintain an "innocent
 landholder" defense and  not  be held liable under CERCLA for  cleanup  costs if the
 borrower  takes  possession  only  to protect its collateral. The industry now appears
 confident that its real estate due diligence processes protect it against future environmental
 risks.

 4.3 3. Asset-Backed Commercial Credits         .   4'                 .
    The second market for credit extension*is project finance and other long-term, large
 asset-backed debt transactions. Asset-backed credits include infrastructure loans and loans
 for large industrial and service establishments, such as shopping malls, where the funded
 project is expected to generate enough revenue over its useful life to pay off the loan with
 interest. Traditionally,  these loans are for large" amounts -($10 million  or  more) with
 maturities of 15 years or.more.                            '                       .
                                           i "
    International lenders  have taken the.lead  in  establishing the environmental due
 diligence  processes  applied to  reviews  of  this  type of credit  extension.  In  1997,
 International Finance Corporation (IFC), the World Bank's private sector arm, updated its
 Environmental Appraisal Checklist. The  World Bank issued its much-anticipated official
 guidelines in November 1997,  which replaced guidelines that had been in effect since
    These two documents, combined with information released by European Bank for
 Reconstruction and Development109 and the Asian Development Bank, are serving as
 templates for commercial banks and other institutions in revising and expanding their own
 due diligence protocols for project  finance. The protocols .consider how the borrower
 approaches  environmental  risk,  what  systems  are 'in  place  for responding to
 environmental problems, and how environmental concerns are broadly integrated into the
 project's overall management. As a result, these new protocols go beyond real estate due
 diligence and broaden the concept of what is a material environmental concern in this type
 of transaction.                           '                                   .    '

 4.3.4. General Obligation Credits
. ,   General obligation credits are the only major type of credits that have no specific
 collateral. They are the functional equivalent of an unsecured credit extension, since such
 credits are paid off last in case of bankruptcy by the borrower.
, Environment and finance Enterprise                                .                        35

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    The most common credit is an open credit line that the borrower can draw on as
needed. Normally, the size of credit line is negotiated when it is first extended by the bank
and then reviewed for increases or decreases on an annual basis by the banker with the

borrower. Given the lack of specific collateral, a credit officer's concerns are more similar to
those of an investor than those of a lender with loan collateral.

    For general commercial loans, the issue for lenders is the relationship between EP and
the client's ability to generate cash flows to repay the loan.  Leadership in  this area is
coming- from the Bank of  America and  banks  in Switzerland,  the  United Kingdom,
Canada, and Japan. For example:

    •  At the UNEP meeting on Banking and the Environment in London of 1995,
       the Royal Bank of  Canada (RBC)  was the first  institution to  publicly
       speculate on the link between EP and creditworthiness. In 1996,  RBC began
       to examine borrowers' environmental practices,  programs,  and  systems in
       determining the viability of a loan, both in terms of whether it should be
      'made and at what rate.110

    •  In  January 1996, Sumitomo Bank Ltd; of Japan started  to offer  specially
     ,  priced eco-loans as  part of its SAFE (Sumitomo. Advanced Finance for
       Ecology) program. This program enables small and medium-sized Japanese
       companies to make fixed  asset  investments   that  capture  significant
       operating efficiencies related to the use of raw materials and  energy.111

    •  In mid-1997, the Swiss Bankers' Association  formally proposed guidelines
       on how EP might be linked to general credit decisions.112  It appears that
       many Swiss banks are following these guidelines.113

    •  In July 1997, the United Kingdom's NatWest Group launched a program for
       middle market firms  with superior environmental practices, programs, and
       systems. Such firms receive an interest rate  that is 100 basis points more
       favorable than a similar credit applicant.114

Given the infancy of these efforts, there is as yet no performance  track record to
evaluate.       _    •            •

    In addition, numerous private institutions have indicated that they have begun, at least
informally, to increase the level  of environmental due diligence for clients within  specific
industry  groups  such as mining,  petrochemicals, refining,  and beachfront property
development.  This involves an  assessment of how  clients manage environmental risks
beyond regulatory compliance, (e.g., how the client is managing the likelihood of increased
windstorms, rising sea levels, and other natural disasters).
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Corporate Environmental Performance as a factor in Financial Industry Decisions
4.3.5. EP and Credit: Summary Observations
 .   As a group, the organizations that extend credit—commercial banks, life insurance
companies,  and investment  banks—have  been  involved  with actively  managing
environmental risk since the late 1980s. Most institutions have an expert in-house staff
focused primarily on evaluating real estate environmental risk and exposure. Many banks
are also beginning to experiment with integrating environmental risk evaluation into their
non-real estate credit decisions.                  .              -
            /!<
    Both the life insurance and the commercial banking industries appear to have done a
fairly complete job in two key areas:

    •  Integrating  both  static  or steady-state  environmental  concerns  (e.g.,  soil or
       groundwater contamination, asbestos, lead paint), and current regulatory concerns.
    •   into their initial due diligence process for loans with real estate collateral

    •  Creating and  integrating environmental  covenants into their  standard credit
       contract when real estate is involved
                  .,.'".   t
However, for other forms of credit extension, the industry is  still working to integrate
more complicated environmental concerns.                     !

    Some of the areas being exploring, or that appear to need to be explored, are:

    • .  How  do. overall environmental  risks—including some  outside the
       borrower's control, such as regulatory policy and climate change—affect the
       credit decision-making process on large long-term credits?

    •  How does a borrower's current EP affect an asset's future value?

    *  How can monitoring a borrower's environmental activity and adherence to
       contractual covenants be done in a timely and cost-effective manner? '

  .  •  Can a borrower's EP be evaluated and quantified with a degree of precision
       that would allow for variable pricing depending on EP?       .

    •   What public value (positive or negative)  does being "green"  have to a
       financial institution?  Do customers care? Do stockholders care?
     ,. s
    Based on information gathered by the- authors in conversations with practitioners at
individual institutions,   presentations  made at  various  conferences, seminars, and
meetings, and in some of the papers identified in this, report, many of these questions are
being explored in some fashion by a handful of global institutions. At this time very little
data is in the public domain.  ,                       ,

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
4.4. UPSIDE AND DOWNSIDE FOCUS: INVESTMENT DECISIONS AND EP
                                                                      X
4.4.1. Overview
    Investors seek a rate of return composed of some combination of dividends, interest,
and appreciation in the value of a financial instrument ("security"). Based on the publicly
available literature on the subject, investors appear to be focusing on two broad questions related to
environmental performance:1'15

    •  What does  EP indicate  about  the  investment  candidate's  operating
       efficiency, regulatory  risk (primarily tied to Superfund  in  the US),  and
       market awareness, and hence its earnings potential or loss and growth rate?

    •  What does  EP  indicate about how other investors may  perceive the
       investment candidate's potential for earnings and growth, and hence the
       market value of its securities?

    Section 4.4.2 provides an overview of the research that has been  done to establish
quantitative links between environmental performance and financial performance using
various EPIs. Section 4.4.3 provides examples of commercially available environmental
data packages and "screens" that  provide information to those investors who want to
include environmental considerations in their investment analysis. Section 4.4.4 describes
the particular concern of each industry segment in relation to its potential interest in EP as
an investment screen.  •

4.4.2. Research on the EP/FP link
   Thinking about  the use of EP  as  an investment criterion has evolved over time.
Environmental criteria were first used by those interested in socially responsible investing
(SRI).116 SRI gained prominence in the 1980s as some investors chose not to invest in firms
doing business under apartheid in South Africa. Similarly, other investors chose to take
stands against firms  selling tobacco, liquor, armaments, handguns,  and electricity from
nuclear power  plants. Still other investors chose  not to invest in  firms  known  to be
adversely affecting  the environment in some way (e.g., major polluter,  "clear  cut"
harvester of rain forest timber). For these investors, FP was a secondary criterion.

   As industrial firms recognized the financial implications of improving their EP during
the late 1980s and early 1990s,  some members of the investment community started to
recognize that EP conveys information about FP in some situations.  Over the last few
years, a great deal of research has been published that specifically looks at the correlation
between the environmental actions of corporations and their profits, stock price,  and/or
other financial indicators (e.g., growth rates).  This research has also considered-the link
between EP and indirect indicators of FP, such as public image and employee satisfaction.
In general, this type of analysis is concentrated on the activities of US firms and industries.

Environment and finance Enterprise     '                                                   38

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Recent studies fall into three general types:                                •    •

    •  Analysis of market response to a specific event, such  as  legislation or a toxic
       accident              ,                 .

    •  Assessment of  performance of screened and unscreened  portfolios over  some
       specified time period

    •  Case studies and opinion research on what people think within the industry and
       information relevant to financial industry professionals in'looking  at industrial
       concerns as they pertain  to  environmental performance  and  its correlation to'
       financial performance

    The third type of research is the only one that uniquely reflects the active perspective
of the FSI (as opposed to the passive workings  of anonymous  "market  forces").   It
therefore speaks  more directly to this paper's objective of assessing, "... the extent to
which the  FSI  currently  recognizes  the  financial  implications  of  its  clients'  EF'
(Section 2.1).               ..   -                    .

Stock Market Response to Environmentally-Related Events:
         i              '                                       ,
    *  Blacconiere and Patten (1994) examined the impact of Union Carbide's leak
       at Bhopal on the stock valuation of other chemical firms. They found that
       this incident reflected poorly  on the industry and resulted in a negative
      .market reaction. That reaction was intensified for those firms that had made *
       "extensive environmental disclosures" prior to this incident117
                                                                * {    •   . -
    •  Blacconiere and Nprthcut  (1995) analyzed  the  impact of the Superfund  .
       Amendments and  Reauthorization  Act (SARA) on  the stock prices of
       chemical  firms.  Their  earlier research  corroborated  their  more recent
       findings: the impact of the legislation was negative, less negative for those
       that had made more extensive 10-K disclosures, and more negative for those
       where USEPA data revealed greater exposure to Superfund costs.118

   •   White (1996) explored the  market's reaction, to the Exxon Valdez incident
       and its impact on firms that had already established positive, neutral, or
       poor environmental reputations on the index of the Council on Economic
       Priorities (CEP). He found that it "paid to be green" in the aftermath of the
       Exxon Valdez  incident.  Firms with better environmental reputations
       experienced  a positive  impact from the spill, while  the  others  were>
       negatively affected.119
Environment and Finance Enterprise                .   •   .                                  39

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  Corporate Environmental Performance as a Factor in Financial Industry Dedsfons
     •  Bosch and Lee (1996) looked at how the markets perceived the impact of
        USEPA investigations into a firm's activities/ as reported by the Wall Street
        Journal from 1962 to 1990. Firms lost value if they lost to USEPA in a
        dispute over compliance, or even if they had been targeted by USEPA for
        investigation.120

     •  Hamilton. (1993) examined how the market responded to TRI data  and
        found that firms that had released comparable data before the first release of
        TRI data suffered the smallest drop in share price, while-those that  had
        previously released the least amount of data suffered the largest drop in
        share price.121       '.

 Portfolio Comparisons Using Various EPIs:

     • "Snyder  and Collins (1993)  performed a back test—that is, used historical
        performance to test a theory—on rates of returns for firms mat passed an
        environmental screen and those that did not. The screen was composed of
        data on firm  emissions  (in  pounds), compliance history, number of
        Superfund sites,  and  whether or not the  firm  was a nuclear power
        generator. The hypothesis was that the firms passing the screen would have
        higher costs and hence lower returns than those not passing the screen (e.g.,
        those enjoying an environmental subsidy). Instead they found that S&P 500
        firms that passed the environmental screen generated an increased rate of
        return (over. 70 basis points per annum) over the specified 22-year period.
        Snyder  and Collins noted  two criteria for a successful-screen: it should
        "leave a sufficiently large pool of stocks" from  which to build  a portfolio,
        and it should be based on objective, publicly availableNdata.122

     •  Clough (1997) considered a continuation and expansion of the work done
        by Snyder and  Collins in 1993 by looking at additional years of data since
        the time of their study. The results of this study are similar to those of the
        earlier work.123

     •  White (1995)-used a firm's green reputation, including whether or not it was
        a CERES signatory,  to assess returns over  a  four-year period.  The
        publication of the Council of Economic Priorities (CEP), Shopping for a Better
        World, was also used as the basis for determining reputation. He found that
        "investors in a portfolio of firms  enjoying above  average reputations of
        corporate environmental responsibility earn risk-adjusted returns greater
        than  either  the  overall   market  or  portfolios  composed   of   less
        environmentally-responsible firms."124
' Environment and Finance Enterprise         .                                               40

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
      Hart and Ahuja (1995) used data from the Investor Responsibility Research
      Center (IRRC) to look at the relationship between emissions reduction and
      firm performance  for  127 firms  from  1988  to  1989. The study tested
      hypotheses that reducing emissions in the first year would improve FP125 in
      the following year  or two, and that firms with higher emissions levels
      would be helped more than firms with lower levels. The hypotheses  were
      generally confirmed.126                                               '

      Cohen, Fenn and Naimon  (1995), compared the returns from a portfolio of
      S&P 500 firms mat were the environmental leaders in their industries with a
      portfolio of firms mat were the laggards in the same industry. It found mat
      the "low pollution"  portfolio outperformed the high pollution portfolio.
      However, the study left open the issue of causation: are low pollution firms
      good performers because they are relatively more  successful or are  they
      more successfuLbecause they emit less pollution?127

      Feldman, Soyka, and Ameer (1996) analyzed a sample of 327 of the Fortune
      500 firms and found that the volatility of the stock was reduced after the
      introduction  of  environmental management;  less  risk  implies higher
      valuation of. a firm's earnings.  As an environmental screen, it used the
      presence of  a corporate  EMS,  operating  performance  measures   (e.g.,
      pollution amounts),  and "environmental signaling," which included the
      amount and quality of information the corporation provides to the public.128

      Guerard (1997) compared an unspecified environmental screen provided by
      the firm of KLD and found no statistical difference between the performance
      of a screened and unscreened fund.129

      EX Antonio and Hutton (1997) compared the return on a portfolio of bonds
      from the Domini 400  index  with the return on  the Lehman  Brothers
      Corporate bond index and found no penalty for selecting the  socially
     ' responsible fund.130
             /
      Kessler and Gottsman (1998) compared the total financial returns of firms in
      the S&P 500 over a period of years to a series of subsets of the S&P 500  over
      the same years. EPIs were used as the basis for selecting the various subsets
      analyzed.  Although the  firms  with apparently  better  environmental
      performance showed a slightly higher return man the overall return of the
      S&P 500, the difference was not statistically significant when risk factors
      associated with the less diversified subsets were included.131
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Case Studies and Opinion Research:

    •  Ganzi and Dunn (1995), supported by UNEP and Salomon Inc., surveyed
       the banking industry to assess the extent of environmental activities at
       commercial and investment banks. Ninety institutions from 27 countries
       responded to survey questions about their environmental activities in three
       areas: internal bank management ("housekeeping" functions such as energy
       efficiency and recycling), credit extensions, and investment decisions. The
       study showed that although many institutions had established both internal
       environmental programs and real estate environmental  due  diligence
       programs, few programs were in place with respect to investments or other
       areas of credit beyond credit extensions with real estate collateral. This was
       one of the first studies of its kind.

    •  World Business Council on Sustainable  Development (1997) published a
       volume of case studies detailing the environmental activities of leading
       multi-national corporations in Europe and North America. These case
       studies  demonstrated positive  financial performance resulting from
       proactive environmental  activities: Improved  financial  performance was
       found to be associated with increased margins,  increased market share,
       and/or  new introductions  of  products marketed  on  the  basis  of
       environmental performance.

*   •  Gentry and Fernandez (1997), with support from the UN and Salomon Inc.,
       surveyed approximately 500 investment analysts  and CFOs  on how.
       environmental performance influences Wall Street. Although  the results
       showed  a high interest level, they were based on  a  response rate  of
       approximately 7 percent. The responding population did show a clear
       interest in environmental performance as a possible indicator of financial
       performance.

    •   Ganzi and Tanner   (1997), with the support of  the  National Wildlife
       Federation, conducted a follow-up study to Ganzi 1994 work (above). The
       study contacted 160 institutions, with a 31 percent response rate. Compared
       to the 1994 study,  there was a material change regarding how much focus
       banks were placing on environmental considerations. This change was most
       apparent  in responses  to questions about their current credit extension
       product lines (those not having real estate collateral), and their perspective
       on how the environmental performance of clients might affect investment
       decision-making in the near future (three years).
Environment and Finance Enterprise                                                       42

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Corporoie Enwroronentol Performance as a Factor in Financial Industry Derisions.
    *  Business in the Environment (1997), in a follow-up to a virtually identical
    .   1996 study, surveyed the FTSE 100  (the largest  100 publicly  traded
       companies in the UK) to assess their views on environmental matters and
       their environmental activities; The study created an index of performance,
       including such factors as  the use of internal  environmental audits and
       environmental communication. The 1997 survey results showed moderate
       expansion  of. existing programs  at  most  institutions,  with  some
       organizations making significant strides in the 12-month period between the
       two studies.
           • •  i
    None of the above research, regardless of category, is without critics.132 In each of these
studies, questions arise as a result of the different perspectives researchers bring to these
subjects, as well as the data problems summarized above (Section 3.4.6).

4.4.3. Environmental Screens for Investment Decisions               •
    While underwriters and lenders have a contractual means of obtaining information on
a firm's environmental practices  (e.g., through insurance or loan conditions)  and, in
theory, may have the.ability to influence actual behavior, investors have no such leverage.
They must rely on  CERs  and other  information obtained directly from the firm, from
publicly available data  and  the "value-added  data"  that  is provided by vendors of
"environmental screening tools."         .

    The way the information is packaged for the investment community depends on its
use. This section describes the product, offerings  of  three groups that  tailor  generic
information to,meet the needs of the FSI.133

    ป  The Investor Responsibility Research Center (IRRQ, a nonprofit group funded by
      several  hundred institutional investors  and corporations,  offers  the broadest
      database of all services, with data on nearly 1,500 companies. For the S&P 500, the
      IRRC presents all USEPA data, plus information collected via a proprietary survey
      completed by a company. For the remainder of the S&P 1500, only USEPA data is
      included. The standard company report is up .to eight pages in length and presents
      a consolidated version  of the information available from USEPA databases and the
      survey (see Exhibit I).                       '  •                        ,

    •  Innovest International; based in Canada and established in 1992, offers an extensive
      presentation of publicly available information—as well as information obtained in
      discussions with company management—for approximately  100 companies.  In
      contrast to the other products available today,  Innovest draws conclusions and
      formulates opinions as to what the data could mean  from a risk perspective (see
      ExhibitJ).                         .                   ,
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Corporate Environmental "Performance as a Factor in Financial Industry Decisions
    •   Environmental Information Services (EIS), established in 1995, performs extensive
       research and prepares purely factual reports of 50-100 pages on all aspects of the
       environmental activities and programs of Fortune 500 companies.  This service
       covers all publicly available information (e.g., 10-K and other SEC filings) and all
       governmental databases. Unlike Inriovest, this service does not draw conclusions
       nor make judgments about the link between the firms' EP and FP (see Exhibit K).

    In  addition to  these "off the  shelf products," ICF Kaiser and the Hartman Group,
among others, now have standardized  screening  models that  allow  the creation of a
customized portfolio.134

4.4.4. Assessment by Segment
    All eight segments of the FSI make  investment decisions. The use of  EPIs ' as
investment criteria by each FSI segment is discussed below.

    Investment Banfcs.135  Investment banks serve as the primary financial advisors to
corporate management; they play a smaller role in investing and lending their own capital.
This segment advises and then manages the process for raising additional capital via a
stock or bond offering. Separately, they perform extensive corporate research and analysis
in order to help corporations manage their investment portfolios. Investment bank clients
also include FSI firms such as life insurance companies and pension funds; In this advisory
capacity, investment banking has the ability to broadly influence investment decisions.

    Salomon/Smith Barney appears to be the only pure investment bank in the world with
two separate  units  dedicated to environmental management and environmental investing.
Based  on the firm's environmental report, these units perform research and  provide
internal information to analysts on a variety of issues to help  them "ask better questions"
when conducting company assessments.136 They  also offer investors a social investment
fund, the "First Generation Fund," and provide one of the nation's oldest social investment
management  programs.
                                                                     i
    Eaton Vance, through its subsidiary Winslow Management, has a separate operating
group   that  specializes  in  investments  that  meet  its  financial  criteria  and  are
environmentally focused. After passing  a financial screen,  investment candidates then
must either pass an environmental screen or are determined the "best-in-class" firm of an
industry.  In these cases, while it may prove environmentally problematic, the firm is
needed to ensure portfolio diversification.137

    Mutual Funds.138 It is difficult to generalize about mutual  funds as a class. Each of the
more than 8,000 funds139 offered in  the US has  different  target rates of return and
guidelines for investment. These  factors, in turn, influence the fund's investment time
horizon, risk tolerance, and other overall decision-making criteria.  There is  limited
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 information on how mutual fund managers factor environmental considerations into their
 selection of investments for each type of fund offered, such as growth funds.  The mutual
 fund industry has been a leader in providing, investors "socially responsible" investment
 options, including those that focus on "green" firms.140 These first generation funds have
 been of two general types: those that screen out egregious "environmental offenders and
 those that invest  in firms focused on specific market opportunities in environmental
 technologies or environmental businesses (e.g., Safety Kleen, a solvent recycler). A second.
 generation of funds, now emerging, uses environmental screens as an indicator of FP.
 Several large European financial institutions have launched programs using a  series of
 environmental measures or matrixes to identify firms with the best EP and FP. These firms
 include Storebrand, Norway's largest insurer, Bank Sarasin, a medium sized Swiss bank,
 the two largest Swiss Banks, Credit Suisse and Union Bank Switzerland  (UBS), Service
 Performance Group a Swiss boutique investment manager, and SNS, a Dutch investment
 manager, and Winslow Management, a boutique US based investment advisor U1142143.

    Pension Funds.144  Although some of  the biggest funds in the US have been activist
 investors on a variety of issues, including the environment, pension funds as a group are
 constrained by governance rules that require prudence and sole focus on the bottom line.
 In general, they invest for the long-term,  and tend to invest in the bonds and stocks of
 large publicly traded companies.      .

    Pension funds  are clearly interested in the  downside risk associated with potential
 investments. For instance, in-1993, one US pension fund hired the European counterpart of
 IRRC to evaluate the environmental liability exposure associated with an investment in a
 Swiss chemical manufacturer.14^

    Property and  Casualty  Insurance.146  P&C insurance  companies  invest insurance
 premiums to ensure a stream of cash flow that may be used to pay potential future claims.
 Traditionally,  the  profitability  of P&C companies has been  driven  by underwriting
 performance, not  by the performance of its investment portfolio. Thus, investment
 strategies have tended to be long-term and very risk averse.

    There are indications that this approach to managing P&C insurance profitability is
 changing. Many organizations, particularly in Europe,  are now  integrating investment
 management profitability into their overall models of product profitability. This, in turn, is
 changing the mix  of investment options, as insurers begin to move  away  from their
 extremely conservative approach to investment management.147

   The literature scan for this report confirmed the results, of prior primary research,148
namely that there-is  little  discussion regarding how the industry might integrate
 environmental considerations into its investment decision-making process.
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Corporate Ermrotmentel Performance as a Factor in Financial Industry Decisions
    Life Insurance.149 Aside from long-term mortgages (discussed in Section 4.3.2), the life
insurance segment relies  on investments in long-term bonds with maturity dates that
match the anticipated claims by policyholders, based on actuarial forecasts. Investment
strategies in this industry segment may be vulnerable to  EP because of the long time
horizons that shape investment strategy. Many publicly traded life insurance companies
have sister businesses or divisions in the P&C insurance  business. These relationships
would allow life insurance companies to draw on significant environmental risk expertise
and data related to EP in making investment decisions.

    Like their P&C counterparts, life insurers are also exploring ways to modify their
investment strategies, but the literature search indicated no discussion of how the industry
might factor EP of investment candidates into its evolving strategy.

    Commercial Banks.™*  Many of the largest US  commercial banks are pushing  the
boundaries  of the  regulatory limits  set  by the Glass-Stegall Act in expanding their
investment banking and management activities. Banks such as Citicorp, Chase, Bank of
America, NationsBank, and First Union are rapidly increasing the investment side of their
business! Since commercial banks are still governed by stricter regulations than traditional
investment banks, they are often involved in more long-term activities, and may maintain
a more conservative approach  to investment decisions.  These two factors may lead
commercial banks to a higher level of interest in integrating additional criteria, particularly
EPIs, in their decision-making process, where such criteria are seen as material.
                                J
    Venture Capital.151  With the exception of environmentally  mandated startup costs,152
EP is not likely to be a material factor in most investments by mainstream venture capital
funds or venture capital firms. Environmental factors  are generally not seen as significant^
given the high degree of other risks inherent in these types of transactions.153

   There is  some explicit  interest in investing in  actual environmental technology firms,
however.  For instance, the Calvert  Special  Equities  Program154 includes innovative
environmental technologies within its "socially responsible investing mandate." However,
there appears to be little interest in the environmental operating  performance of a firm.

   Foundations/Endowments.155 A few foundations  are serving as leaders in integrating
environmental factors  as they relate to financial performance into  their investment
management and program-related investment (PRI) activity. As with  mutual funds,  the
potential interest in,  and or  utility  of, EPIs varies widely  based  on a foundation's
philosophy and strategy.
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
4.4.5. EP and Investments: Summary Observations
    Investment is the least developed area in integrating EPIs into financial decisions. In
.contrast to the industry-wide crises that beset underwriters (asbestos and CERCLA) and
lenders (Maryland Bank & Trust and Fleet Factors/CERCLA), investment losses related to
poor EP tend to.be related to individual securities or specific  sectors, such as the coal
industry. Gains and losses from good or bad EP are hard to demonstrate except from a
historical perspective. In addition, the absence of a physical asset contractually linking an
investor and a firm allows investors to continually reassess their investment positions. The
process of continual evaluation  presents  an opportunity for investors to gradually
incorporate environmental concerns in their investment decision-making processes.

    There are at least two mainstream industry-driven initiatives  under way in the US mat
specifically address the role of EP in investment decisions. First, the New York Society of
Securities Analysts has held periodic forums over the last few years aimed at introducing
various concepts  on environmental risks to securities analysts. Its  upcoming series on
"Uncovering  Value: -the Links  Between  Environmental Performance  &  Financial
Performance" (see Exhibit L) is an example of its outreach and education program. The
Aspen Institute, a private think tank based in Washington, D.CV convened a task force on
environmental concerns in the spring of 1997. This initiative brought together members of
the investment community with financial representatives of US corporations to discuss the
environmental initiatives of these industrialists and to determine how information on these
activities might be communicated to the investment community (see Exhibit M). Both of
these  initiatives—and. others in  the European  Union  .(EU), UK,  Germany,  and
Switzerland—point to the need for additional research geared  towards  translating EPIs
into standard measures of F,P. If this connection is convincingly made, the next step will be
to communicate this knowledge to JFSI decision-makers so.they can decide how to use the
available information, based on their specific needs and approaches to risk management.


4.5. CORE FINANCIAL DECISIONS: SUMMARY
                             '                                    \
   Table 4 summarizes the basic financial criteria for each of the eight FSI segments and
identifies the  areas of  greatest potential  for integrating EP into the FP measurement
process. It  appears that the segments  with the longest time horizons, such as pension
funds  and life insurance companies, would gain the  most  from  using  EPIs.  These
financiers  would  have  the" longest exposure to downside regulatory risk—and the
opportunity for upside potential, as greater productivity is achieved with better EP.  The
P&C insurance industry would seem to benefit, at least on the downside, from ensuring
that its investment strategies were consistent with its concern about global climate change.
Investment bankers, in their role as the "institutional innovators" of the FSI, would seem
to have an interest in pursuing EPIs as a potential competitive edge (to the extent that
research and experience bears out the value of EPIs for certain sectors).
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Table 4. Considerations of Each FSI Segment
Note: This table is meant to convey the broad differences that tend to exist among FSI segments. It does not necessarily
apply to any particular firm.                                            '      .
                                   Targeted
                                Rate of Return
 Risk Tolerance
 Time Horizon
  SUMMARY OF
   POTENTIAL
INTEREST IN EPIs
Medium to High
                                '    High
          Low
        Moderate
                              Moderate
               ::::: ;y;::;::::: K ::ซ;: y: K :::::.:.: :;.;;-*:<;: <:.:
                          •Low to Moderate
     Varies         -   Medium to High


   Very Long                High*
     Long
 Usually moderate or high   Usually moderate to high       Usually short to
    but varies by fund          but varies by fund       medium but varies by
                                                             fund
      Medium
      ;•:,:•;;;>"::;:-::-:::.:::::::-:
      :;::c:::^!i:::_:::.:.::,
   Varies by fond
          High
                                High
   Medium
        Low
        Moderate
                              Moderate
Medium to long           Medium***
  Low to Moderate, but        Low, but changing         Medium to Long      Medium to High****
        changing
        Moderate                  Moderate             Short to Medium              High
  * Depending on governance requirements and guidelines
  ** Environmental factors may be extremely significant far some startup firms, and insignificant far others
  *** Expanded interest tied almost exclusively to asset-backed debt
  **** Overall approach to investment management is currently undergoing change
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                        5.  SUMMARY OF KEY FINDINGS^
                     AND POTENTIAL AREAS FOR STUDY
5.1. SUMMARY OF KEY FINDINGS
    FINDING 1, There appears to be no clear consensus on how to define EP at the firm or
plant level, nor on how to report such performance to the general public or to the FSI.

    Although a great deal of effort has been put into EP activities and the establishment of
EPIs by corporations and others, no agreement yet exists at the national or international
level as to what should be reported or how it should be reported. A wide range of current
approaches is presented in this report and new approaches are still being explored. It is
uncertain when/ or if, a clear consensus will be reached by the various parties involved in.
the discussions.                                                       ,        .
   FINDING 2. It appears that EP has the potential to affect a firm's rate of return, cash
flows, credit worthiness, the price of its publicly traded securities, and/or h'kelihood of
filing a property or casualty insurance claim. Although this  potential exists, these is a
fair amount of disagreement as to the materiality of this impact within the FSI.

   Each segment of the FSI appears to have its own perspective on whether EP is material
or not. Materiality for the FSI is based on the following questions:

   •  What is the value of enhanced EP (i.e., does it result in a 1 percent or 10 percent
      improvement in FP)?          .
   •  Is the data  available for most clients, at least within an industry or geographic
      region?         .           ,
                                                         i
   •  How hard is it to gather EP information?
   •  How hard is it to convert EPIs into financial information that can be analyzed by an
      underwriter, credit officer, or investor?
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
    FINDING 3. An unresolved issue for integrating EP into FF is how to determine for a
particular industry which of the many aspects of EP are relevant to firm-level FP.

    The quality of a firm's EP lies "in the eye of the beholder." Finns that have elaborate
environmental management systems may still be significant generators of emissions, while
firms without such  systems may actively be reducing their environmental impacts. Two
firms with the same level of emissions may be on different trend lines: one reducing its
emissions from much higher levels in the  past, and one increasing emissions as its
business grows. Firms may be improving on one indicator (e.g., toxic releases to air) while
regressing on another (e.g., nutrient releases to water). It should be noted mat the EPIs that
are relevant to a financier's evaluation may or  may  not be the same as those that are
relevant to the government,  or to environmental or community groups.
    FINDING  4.  The  FSI's  perspective  is  colored  by  its  past  experience  with
environmental risks, including lender liability for  lenders, asbestos and CERCLA
(Superfund) claims for underwriters, and ''social investing" for investors.
    In general, the FSI has had three types of exposure to environmental issues:

    •   "Housekeeping," where the, industry looked to its own environmental impacts
       such as energy use and wastepaper generation
    •   ."Socially  responsible  investing," where   investment  managers responded  to
       customer requests for "green" investment choices, possibly without primary regard
       for financial returns
    •   "Crisis management," where the industry dealt with insurance claims for CERCLA
       liability and lender liability for remediating contaminated real estate collateral'
   FINDING 5. Improving EP can reduce the '"downside" risk or increase the "upside"
potential for the client, and in turn the financier. EP can potentially reduce the risk of
loss (the downside risk) for insurers, lenders, and investors, or EP can help produce new
products or open  new markets, thus enhancing  a client's potential for earnings and
growth (its upside  potential) for investors.
   Enhancing EP  as it  relates  to financial performance means being able to change
processes  so that  more units  are produced with  fewer natural resources,  and/or
establishing new processes or products that provide similar or better benefits with less
environmental impact. Thus,  the financial benefits are likely to come in the form of
reduced costs and risk of liability. Neglecting EP may reduce the productivity of the firm,
increase the risk associated with its production activities, and degrade its public image.
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 I
 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    FINDING 6. Insurance underwriters and, to a lesser extent, commercial lenders are
furthest along in integrating environmental factors into their decision-making processes.
Both  underwriting  and  credit  transactions  generally  involve  a  physical  asset.
Environmental performance impacts this underlying asset, giving both underwriters and
lenders a direct material interest in their corporate clients'EP.

    Some lenders are beginning to broaden their perspectives. EP may be used as a credit
risk indicator and is being factored into some decisions about the pricing and availability
of credit, particularly for asset-backed lending. Lenders and underwriters have the most
obvious material interest in the EP of their clients due to their contractual relationships.

    .Lenders are concerned about performance —  the stability/sufficiency of cash flows —
which might  be adversely affected by  regulatory  actions,  such as USEPA  fines or
mandated shutdowns for non-compliance. They are also concerned about the quality of
collateral, which may be devalued either by contamination or regulatory changes that
negatively impact industrial activities' (e.g., carbon tax on energy production).
    FINDING 7. In contrast to underwriters and credit officers, investors are still in the
early stages of understanding the  potential impacts of  a firm's environmental
performance on its financial performance. This difference is due, in part, to the limited
availability of useful data.
                 y
    Investors face the classic  "chicken or egg" dilemma regarding the availability of data.
Without data it is difficult to assess whether, or to what extent, EP is a material factor in
investment decisions.  Yet, without a finding of "materiality," it is difficult to.justify the
development of consistent reliable, timely data sources for an appropriate range of EPIs.
An iterative six-step process will be required to resolve this dilemma.

 1   *   At a minimum, corporations must perceive EP as a source of opportunities •
       for cost and risk reduction. Beyond that, they may also see EP as a source of
      (competitive advantage and  as an opportunity for  increased market share,
       new markets, and/or new products.   •      ,
    •   Corporations  generate data  on  EP  to  meet the needs of  identified
      , populations, including internal  managers  (e.g.,  environmental audits),
       government regulators (e.g., Toxics Release Inventory),  and  stakeholders
       (CERs). Institutional investors—and if appropriate, individual investors—
       would need to make it  clear they want  EP data in order to induce the
       corporation to expend the time and money to produce the hard data.
    •   Business groups, governmental agencies, public interest groups, and the FSI
       would need to agree to a standardization of public reporting of corporate
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
       environmental management and performance (in terms of breadth of EPIs
       reported and consistency of EPIs across industries) to facilitate use by both
       internal and external  parties.  Standardization  involves  reaching some
       consensus on a methodology for defining and measuring EP.
                                                                   /
    •   Researchers in academia, government, and the private sector are attempting
       to quantify the link between EP and FP, both in terms of downside risk of
       poor firm  EP and upside potential for leaders  in sustainable business
       practices.                                                   .    '

    •   The  information  on EP,. once gathered, would need  to be  effectively
       communicated to investment analysts, and the FSI at large, to be integrated
       into the actual investment decision-making process.

    •   Given research findings (assuming results are consistent with the research
       done to date, identified in Section 4.4.2), financial industry analysts would
       then be able to translate myriad EPIs into workable financial tools for use by
       financial industry decision makers.                  •  .
                                               i
    Progress is being made on each of these fronts at varying rates.
   Finding 8. Assessing the materiality of a firm's HP is especially difficult for investors,
due to the fact that no material asset is involved; rather, the investor's stake is a financial
instrument. In  addition, investors must  evaluate both  downside risk and upside
potential.

   This review  of the literature suggests that EP is potentially a material  concern.for
investors that invest for the longer-term, are focused on economic fundamentals of steady
growth  and return,  and  are  relatively more risk-averse.  Thus incorporating EP into
investment  decisions—as   opposed  to  lending  or  underwriting decisions—would>
theoretically, appear to be of different value to different industry segments.

   -•  It may be most important to pension funds, life insurance companies, and
      P&C insurance companies, because  of their  size, long-term investing
      horizon, aversion to risk, and interest in solid fundamentals of a firm's long-
      term earnings potential performance.                                 .
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
       It may be important for investment banks, to the extent that there is client
       interest However, investment bankers, who have traditionally held the role
       of institutional innovators in the FSI  investor community, might have an
       interest in quantifying the relationship between EP and FP as a possible
       means of gaining a competitive advantage.

       It seems  least important for commercial banks and  venture  capitalists,
       which invest for short- to medium-term results.
       Given the diverse objectives  of mutual funds, it is difficult to generalize
       about the role of EP for this type of financial investment vehicle.
       It may be important to foundations and endowments, but as this 'segment
       controls a relatively small amount of capital, its interest is unlikely to be a
       driver for mainstream change^ •      .
    FINDING  9. The  FSI is  beginning  to  realize  that  industry's  environmental
performance in the aggregate can have spillover effects, which in torn can negatively
affect the financial  performance of its corporate clients—even those who adhere to
sound environmental management practices.

    The indirect effect arises where the EP of one group of industrial clients contributes to
the risk of property damage or operating losses that may be experienced by another group.
of industrial clients  and that reduces collateral  or security  value or results in higher
insurance claims.156                                         •    •
                              ••v
    •   For property and casualty insurance underwriters, this indirect impact may
       result in claims for losses.

    •   For credit institutions, this indirect impact may result in uninsured damage
       to collateral; loss of cash flows due to production interruptions; a reduction
       in collateral value due to a decrease in real estate value; and/or production
       technologies that are rendered obsolete by policy changes to address these
       problems.                 '                               .

    •   For investors,  this impact may increase the perceived risk of an income
       stream, thus reducing the value of the securities.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
5.2. AREAS FOR POTENTIAL RESEARCH
    There appear to be many unanswered questions about'how financiers can and will use
EP and EPIs in their core financial decision-making processes. At present, these questions
relate to  data availability, data usability,  and materiality of environmental considerations.
More knowledge of the thoughts within  the FSI on these questions would help focus the
efforts of industry in the measuring and reporting of EP and EPIs.

    To determine priorities for further research, each of the eight FSI segments included in
this report was evaluated according to the overall relevance of environmental factors in its
day-to-day  operations; the types of  financial activities in which it is., engaged; the
magnitude of its capitalization; and the  extent  to which its practitioners already assess
clients' EP (in part) as a function of FP.

    Based  on  this  analysis, it appears that the greatest untapped opportunity for
identifying effective ways for integrating EP  into assessments: of FP lies in the area  of
investment decisions. The specific FSI segments engaging in investment activities are:

              •  Investment Banks
              •  Property and Casualty  Insurance Companies
              •  Pension Funds
              • • Life Insurance Companies
    A  secondary priority for  additional research would be  asset-backed  lending by
commercial banks. While environmental  performance is occasionally integrated into such
lending decisions, especially when a development bank (e.g., World Bank) is involved, a
clear standard for this segment has yet to  emerge.

    Although other areas could be considered,  it appears that work with the FSI segments
identified above would most likely result  in the greatest impact for the effort expended.
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Corporate Environment Performance as a Factor in Financial Industry Decisions
                                          NOTES
        1  Key Terms.  Underwriter. Throughout this report,  the term underwriter refers to the
person who assesses risk of loss related to the issuance of insurance, not one involved with the new
securities offerings.  Securities: Vehicles for investment including common stock, preferred stock,
short-term, and long-term corporate debt.

        2 For an excellent current perspective on the subject from a European Union perspective,
see: The  Role of Financial Institutions in Achieving Sustainable Development. Report by the
European Commission, Delphi International and Ecological GmbH, Brussels, Belgium, November
1997.  For a United Kingdom investor's perspective, see: The Index of Corporate Environmental
Engagement, the Survey of the  FTSE 100 Companies. 'Business in the Environment, London,
England, January 1998.            •"

        3 The decision to limit the scope of this report to these eight segments was based on: (i)
earlier literature searches done by Environment and Finance Enterprise (E&FE) in 1994,1996, and
1997; (ii) primary research conducted in 1994,1996 and 1997 by E&FE with financial support from
the UNEP, Salomon Inc., USEPA,  and the National Wildlife Federation; (iii) presentations made by
various financial institutions at the UNEP Banking and the Environment conferences (in which E&FE
played a material role in selecting the agenda and speakers) held in 1994 (Geneva), 1995 (London),
and 1997 (New York), and (iv) personal conversations held by E&FE representatives with various
individuals and association representatives as part of the scoping process for this effort.

        4 Linking EP and FP is similar in concept to the well-accepted practice of quantitatively, or
qualitatively, relating  traditional operating performance measures  (e.g.,, raw  materials used,
inventory on hand, sales per employee, or labor turnover) to financial performance. Historically,
production inputs have been viewed as  raw  materials, labor,  and capital. Concern  about the
environment has broadened the original concept, in some schools of thought, to include the full
range of ways in which a firm uses environmental assets (e.g., clean air, fresh water, soil, etc.) as
inputs into its production activities or as a dump for waste products (e.g., releases to air, water,
and soil).  The "cost"  of using these environmental assets  may be zero,  may be set directly by
markets, or may be set indirectly through regulation or public concern. Unlike the supply of labor
(unless zero unemployment is reached and maintained) and capital, there are physical limits to the
aggregate level of utilization  that can be sustained over time (e.g.,  the capacity of a river to
assimilate waste products or the sustainable yield of a fishery). "To keep the impacts of a growing
population and a growing economy "within these limits implies that the cost of utilization may be
expected  to increase,  thereby encouraging  reduced use of  these environmental assets. These
reductions would come about through changes in technology or changes in  preferences. Finns may
be negatively affected by this process, (e.g., through higher  costs of regulatory compliance) or
positively affected (e.g.,  through  lower production  costs  or  the  creation  of new  market
opportunities).  This report  considers how a corporate client's  response  (reactive, compliant, or
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
proactive) to these forces may be factored into financial decisions by the FSI. .

       5 A  generic set of indicators provides the basis for developing industry norms.  Thus, a
financier may  use the same  measure for two different  industries, but  may evaluate firm
performance in relation to its industry norm.

       6 The focus of this report is on how measures of a firm's current and future EP might be
factored into financial decisions. The FSI has already integrated information on past EP, notably
SEC disclosures of environmental liabilities under CERCLA and similar state statutes, into its
decisions.

       7 Given a range of standard financial performance indicators—return on investment (ROI),
return on assets (ROA), growth rate,  price-to-earnings (P/E) ratio—each financier will consider
which is most relevant  to the financial decision at hand (e.g., short-term investment, long-term
credit extension).

       8 For an overview on the various EPIs, please see: White, Allen and Diana Zinkl, "Green
Metrics: A Status Report on Standardized Corporate  Environmental Reporting," Working'Paper
prepared for CERES 1997 Annual Conference, September 1997.

       9 Tibor, Tom and Ira Feldman,  ISO  14000 - A  Guide to  the New  Environmental
Management Standards. Richard D. Irwin, New York,  1996.  This is one of numerous guides
available to potential participants in the ISO 14000 process.

       10 Draft ISO 14031: Evaluation of Environmental Performance has been created in a group
setting. The several hundred group members include environmental technical experts as well as
representatives  from large  multinational  corporations,   governments,  academia,  and  non-
governmental organizations. The attached Exhibit H is excerpted from the draft version released
late in 1997 after the group's most recent meeting in Brazil.

       11 See Engaging Stakeholders: The Benchmark Survey, UNEP, 19%.

       12 Blum, Georges (Swiss Bank Corporation), Blumberg, Jerald (DuPont), and Age Korsvold
(Storebrand), EP and Shareholder Value, World Business  Council for Sustainable Development,
1997.              .               .

       13 Statement of Principles, Coalition for Environmental Sustainable Economies.

       14 For a way of analyzing industry differences that goes beyond the  Standard Industrial
Classification groupings, see Rondinelli, Dennis A. and Gyula Vastag, "International Environmental
Standards and Corporate Policies:  An Integrative Framework," California Management Review.
September 1996, 39(1): 106.

       15 Lober, Douglas J., "Current Trends in Corporate Reporting," Corporate Environmental
Strategy. Winter 1997,4(2): 15-24.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
       16 Liability for land contamination arises under CERCLA, RCRA (Corrective Action), and
under parallel state statutes.  The material impact of CERCLA liability on ,the underwriters and
lenders .is described in Part Four.  For discussions of the indirect impact of CERCLA liability on
stock performance,, see Cormier, Denis and Michael Magnan, "Investors' Assessment of Implicit
Environmental liabilities:  An Empirical Investigation,"  Tournal of Accounting &  Public Policy,
Summer  1997,16(2): 215-241.  Muoghalu, Michael, and John E. Rogers, "The Economic Impact of
Superfund's Litigation on the; Value of the Firm:. An Empirical Analysis,"  Journal of Economics &
Fmance, Fall 1992,16(3): 73-87.       >

       17 Liability for accidental releases to air and water would arise under a variety of statutes.

       18 Winans; Christopher,  "Setting The Standard; Effects Of International Organization For
Standardization's ISO 14001 On Pollution Insurers," Best's Review P&C, April 1997,97(12): 32.

       19 In addition to the sanctions applied by the regulatory body, there is the secondary effect
related to market valuation.  See Section 4.4.2 for a  discussion of research on  the effects of
regulations on stock performance.                 •             .     <

       20Examples include the consumer boycott of Exxon after the Exxon Valdez accident, and
consumer boycott of tuna that is not listed as "Dolphin Safe."

       21 See Section  4.4.2 for a discussion of studies relating environmental performance and
stock market valuation.                          .

       22 Hoffman, Andrew J., "A Strategic Response To Investor Activism," Sloan Management
Review, January 1996,37(2): 51.

       23 Wolf, Sidney, "Fear and Loathing about the Pubic Right to Know: The Surprising Success
of the Emergency Planning and  Community Right-to-Know  Act,"  Tournal of Land  Use  and
Environmental Law, 11(2): 217-324,  spring 19%.  See pp.  307-312 about industry's response to
release of TRI information.         .

       24 The initial article was  a. one-page viewpoint piece in Scientific American,  in April 1991.
This was followed by: Porter, Michael and C. van der Linde, "Green and Competitive: Ending the
Stalemate," Harvard Business Review, September/October 1995.

       25 For a discussion of. this evolution in corporate management thinking, see Zetlin, Minda,
"The Greening • Of  Corporate  America,"  Management Review, June 1990, Vol. 79: No., 6.
Schmidheiny, Stephan, Changing Course: A Global Business Perspective on Development and The
Environment, The Business Council  for Sustainable Development. Cambridge and  London: MIT
Press, 1992.  Hart, Stuart  L.,  "Beyond Greening:  Strategies for a Sustainable World," Harvard
Business  Review, January/February 1997.    •    •                           .

       26 Since then, this organization has issued two reports that make the link between EP and
FP  explicit:  Financing  Change:  The  Financial  Community Eco-Efficiency and Sustainable

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Development (19%) and EP and Shareholder Value (1997). See also Skillius, Asa, "Assessment of
Corporate EP for

the Finance Sector," paper presented at Conference of Nordic Business Environmental Management
Network, Finland, June 5,1997.

       27  Anecdotal  examples of  productivity improvements  and  marketing opportunities
associated with a proactive environmental stance were found throughout the literature review;
please see the bibliography for additional references. In addition, EPA and various states maintain
clearinghouses that provide information on pollution prevention and energy saving opportunities
with short paybacks.                                     .      •                       .

       28  "Too Little  Waste," Wall  Street Journal  August 5, 1994, speaks about the emerging
problem  of "too  little" hazardous  waste to support existing management facilities, because
"customers, primarily chemical and manufacturing companies, have had surprising success in
reacting to tougher regulations and cutting the amounts of waste they generate and .send to
dumps."

       29  "See Beyond ISO  14000:  Lucent  Technologies  Blazes Trail to Regulatory Relief,"
Environmental Management Today. March/April 1996, pp. 1-16.  Lucent is a participant in EPA's
ProjectXL.

       30  See  Blum et.  al., op. cit.  for a case example on Dow Chemical, which  realized an
improvement in yield and a reduction in waste disposal costs.

       ^See note above.

       32  For instance, in a survey  of chemical carriers and manufacturers, respondents rated
environmental, health,  and safety issues as 9.1, with 10 being the most important. The article notes
that environmental performance is a factor when manufacturers select carriers.  "Carriers and
Shippers   Find Common  Ground," Chemical  Week,  September  27,  1995,   Transportation.
Supplement, pp. 6.

       33 See Blum et. al.,  op. cit. for a case example of the Kvaerner engineering firm regarding
price premiums (pp. 48-49).

       34 See, for example: Magretta, Joan, "Growth Through Global Sustainability: An Interview
with Monsanto's CEO, Robert B Shapiro," Harvard Business Review. January-February 1997, pp.
79-88. See also Blum et.  al., op.  cit. for a case example from DuPont's agricultural products
division (pp. 40-41).

       35 For instance, in a 1996 survey of firms participating in ISO 9000, almost 40 percent of
firms  with sales greater than $1 billion cited perceived internal management benefits as the most
important  reason  for  considering participation with the  related environmental management
standard ISO 14000 (at a time when the standard was  not yet final).  The ISO 9000 Survey. 19%,

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 Irwin Professional Publishing and Dun & Bradstreet Information Services, January 19%, pp. 11.

        36 A wider market is the end result when the firm 'is not "screened out" by a group of
 investors as more investors use environmental screens to reduce downside risk.

        37 See UN Engaging Stakeholders, pp. 74 for a discussion of the tension between the "Anglo
"Saxon Model" which focuses on management indicators and the "Rhine Model" which focuses on
 input/output measures of EP.

        38 As the literature  reviewed revealed multiple competing approaches to organizing EPls,
 this discussion adopts a middle ground of four categories. This categorization scheme is intended
 to simplify and structure this discussion; it does not connote an alternative framework. These four
 categories are also sufficiently  generic to any basic business strategy so  that the FSI may  see
 parallels between EPIs and more familiar indicators of financial performance.

       . 39 Engaging Stakeholders: The Benchmark Survey. UNEP, 19%.  See Appendix 2 for a
 listing of the range of EPIs on which it evaluates CERs.

        40 Ditz, Daryl, and Janet Ranganathari, Measuring Up: Toward a Common Framework for
 Tracking Corporate Environmental Performance, World Resources Institute, July 1997.

       . 41 White, Allen and Diana Zinkl,  "Green Metrics: A  Status Report  on Standardized
 Corporate  Environmental  Reporting,"  Working  Paper prepared  for  CERES  1997 Annual
 Conference, September 1997.

        42For instance, an eco-tourist resort or a solvent recycling firm.

        43 For instance, Patagonia's decision to use organically grown cotton (rather than  cotton
 grown by traditional methods which rely heavily on pesticides) in its clothing is consistent  with a
 business strategy built on the existence of a high quality outdoor environment.

        44 For a discussion of the regulation repercussions of the Bhopal incident, see: Wolf, Sidney,
 "Fear and Loathing about  the Pubic Right to  Know: The Surprising Success of the Emergency
 Planning and Community Right-to-Know Act," Journal of Land Use and Environmental Law, Vol.
 11(2): 217-324, Spring 1996.

        45 Avila, Joseph A. and Bradley  W. Whitehead,  "What Is Environmental Strategy?
 Interview with Dow Chemical Chairman Frank P.. Popoff and. David T. Buzzelli," McKinsev
 Quarterly. September 22.1993. No.4. pp. 53.

        46 For instance, it is a complex task to compare two multinational conglomerates in terms of
 their operating practices and performance.  It may be simpler, and more informative, to compare
 the two on the basis of strategy and generic management practices.  Feldman, et. al. include this
 concept as part of their assessment of EP and stock performance.  See Feldman, Stanley J., Peter A.
 Soyka and Paul G. Ameer, "Does Improving a Firm's Environmental Management System and  EP
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      te Entrirontncnt&l Psrfomtonc6 os ft Factor in Ftnonctol Industry Decisions
Result in a Higher Stock Price," Journal of Investing, Winter 1997,6(4): 87.

       47 Based on the various research efforts performed by representatives of E&FE over the last
four years, as noted in endnote 2.

       * Balikov, Henry R., "The Value Of 'EHS Auditing1 In the United States: Making Sense Out
Of The Current Chaos,"  Environmental Quality Management 6(1): 23-26.  Buxton, Brian and Eric
Nielson, "How to be Lean, Mean and Green: Environmental Auditing," Financial Executive, July
1995,11(4): 29.

       49 McLaughlin, Susan, Valuing Potential EnvirgrimeTital LiaVriliKps for Managerial Decision
Making: A Review of Available Techniques. EPA 742-R-96-003,' December 19%. King, Alfred M.,
"EPA Identifies 37 Environmental Impact Tools," Management Accounting, March 1997, pp. 67.
Bailey, Paul E. and Peter A.  Soyka, "Making Sense of Environmental Accounting," Total Quality
Environmental^Management, Spring 19%,  5(3):1-15.  Demery,  Paul, "Is It Time  To Tackle
Environmental Issues?"  Practical Accountant, November 19%, 29(11):76-80.   Epstein, Marc J,
"Improving  Environmental  Management,  with   Full   Environmental  Cost.  Accounting,"
Environmental Quality _ Management, Autumn 19%,  6(l):ll-22.   Parker,  Jeffrey N.,  "The
Importance of Environmental Cost Accounting," Management Accounting (USA), December 19%,
78(6): 63.   Ranganathan, Janet and Daryl Ditz, "Environmental Accounting: A Tool For Better
Management," Management Accounting. London, February 19%, 74(2): 38-40.

       .^ Lober,  Douglas J., "Current Trends in Corporate Reporting,"  Corporate Environmental
Sfrategy, Winter 1997, 4(2): 15-24. Also Lober, Douglas J., David Bynum, Elizabeth Campbell and
Mary Jacques, "The 100  Plus Corporate Environmental Report Study: A Survey  of an Evolving
Environmental Management  Tool,"  Business Strategy and the  Environment, 1997.   KPMG,
                   of Environmental Reports, March 1997.

       31 For an overview of the development of these standards, see: Uzumeri, Mustafa V., "ISO
9000 and other Mete-standards: Principles for Management Practice?"  Academy^f Management
Executive, February 1997.   '

       52 Toxics  Release Reporting was mandated for manufacturing firms under Section 313 of
the Emergency Planning  and Community Right-to-Know Act of 1986. 1987 was the first year of
reporting. Under the Hazardous and  Solid Waste Amendments Act of 1984, EPA began to issue its
"larid^ban" rules (banning the land disposal of particular hazardous wastes altogether,  and/or
mandating treatment prior to land disposal for others) which substantially raised waste disposal
costs.  Finally, in 1990, Congress amended the Clean Air Act with more stringent air pollution
control regulations, including the regulation of hazardous air pollutants.

       53 See endnote 25  for additional sources.

       ป Alexander, Forsyth, "ISO 14001: What Does it Mean for lE's," HE Solutions, 28(1): 14-18.
January 19%.
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Corporate Environmental Performance as a factor in Financial Industry Decisions  ~
       55 Mullin, Rick and Kara Sissell, "Merging Business & Environment," Chemical Week,
October 9,19%, 158(38): 52-53.

       56 Industries vary in their interest and adoption of EMS depending on the nature of their
interactions with the environment.  As ISO 14000 registrations are just beginning, it is too early to
establish dear patterns of industry interest.  However, many observers expect that the same forces
that have encouraged firms to apply for ISO 9000 registration will also drive ISO 14000 registration.
In the same 1996 survey mentioned in endnote 35, 31 percent of respondents indicated that they
may pursue BO 14000 certifications. Survey respondents generally fell into six industry groups:
electronics (SIC 3600), industrial equipment (SIC 3500), chemicals (SIC 2800), fabricated metals (SIC
3400), instrumentation (SIC 38000)  and wholesale trade (SIC 5000). Trade press reports indicate
that initial certifications range from electric utilities to resort hotels.  The bibliography also lists
industries that are reporting ISO registration.      ,   -

       57Winans, op. cit.

       58 Sleeman, Stuart and Karen Coyne, "ISO 14000: A Primer for Industry Concerned with
Environment," Pipeline & Gas journal. May 19%, 223(5): 25.

             ISO 9000 Survey, op. cit.

             example: "IBM Aims to Cut Cost Risk by Demanding Strict Standards; Japanese Unit
Chosen to Enforce Rules on Environment," The Nikkei Weekly. May 26,1997, pp. 24.  See also: The
ISO 9000 Survey, op. cit.            .                     •      /  •    .
                             /
       61 Williams, Frances, Eco-Label Standards attacked by WWF, Financial-Times (London).
September 13,19%, pp. 4.

       62 Blumberg, Jerald (DuPont), Georges Blum (Swiss Bank Corporation) and Age Korsvold
(Storebrand), EP and Shareholder Value, World Business Council for Sustainable Development,
1997.                           •                    "   ,'
                          -                      v   • •           •               .     '
       63 For  example,  see:  Brown-Humes, Christopher,  "Certificates for Swedish Forests,"
Financial  Times (London).  February  28, 19%,  pp. 14.  Urry,  Maggie, "Sustainable Forests:
Overcoming Growing Pains," Financial Times (London). December 08,1997, pp. 3.
    *                      \                           •        .              -
       64 Exceptions include EPA mileage standards for new automobiles and energy efficiency
labels on appliances.

       65 The Envirofacts Warehouse address is http://www.epa.gov/enviro/index_java.html.   •

       66 Cushman Jr., John -H. "EPA is pressing plan to publicize pollution data: industries fight
move," The New York Times. August 12,1997, pp. 1.

       67"Envirofacts Online: The EPA's Web-Enabled Data Warehouse Gives the Public the Inside
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Corporate Environmental Performance as a Factor m Financial Industry Decisions
Line," Oracle Magazine, September/October 1997, Volume 11, No. 5, pp. 66-67.

        68 The potential for global climate change caused by combustion of fossil fuels is leading to
greater interest in the systematic disclosure of energy use and carbon dioxide emissions. National
Provident Institution (UK), an insurance company and investment advisor, and Imperial College
are preparing to offer clients access to a new risk indicator: the "Global Warming Indicator."
Announced in December 1997, the indicator is now being circulated to accountants, financiers, and
companies for review and comment, prior  to being put  into use.  This risk index focuses on an
industry's energy use.  Unlike EP screens that  link EP to business performance, it is intended to
show how actions to address global climate change may expose investors to regulatory risk and
potential technological obsolescence.

        69 See UN, Engaging Stakeholders,  op. at., WRI, Measuring Up. op. cit.  and White and
Zinkl, Green Metrics.

        70 It is important to note that the USEP A has regulatory jurisdiction over only some aspects
of a firm's environmental performance, primarily those involving emissions to air, water, and land
from production activities and from certain products (e.g., autos, small motors).  Other federal,
state, and local authorities have responsibility for other aspects of environmental performance (e.g.,
the Department of Agriculture and its farmland erosion prevention programs; state programs to
allocate water supply).  Still other aspects are  regulated by market  forces (e.g., some water
supplies) or quasi-markets (e.g., tradable permits). In addition, USEPA's regulatory reach varies by
industry.

        71 Skrzycki, Cindy, "Industry Groups Point Out  Errors in EPA's Online Scorecard," The
Washington Post. January 2,1998, pp. CIS.

        72 Investor Responsibility Research Center, Environmental  Reporting and Third Party
Statements, prepared for the  Global" Environmental  Management Initiative, March 19%.   The
GEMI/IRRC  report, cited above, made three recommendations for improvements. CERs should
include '".... [a] statement that all major risks  were included in the report, recommendations for
future performance  improvement areas,  and a prioritization  of  outstanding environmental
challenges facing the company."

        73 Lober, op cit., pp. 23.
                            i        '                                           f
        74 See the KPMG study, op. cit. for a list of initiatives. A March 1997 meeting in London
produced a report titled "Signals of Change" which noted that "surprisingly little progress has been
made in the  development of sustainability  indicators for business or government, or  any other
sector of activity." Unsigned article, "Unsustainable Lack of Standards," Financial Times (London),
March 5,1997, pp. 21.

        75 White and Zinkl, op. cit.                                    r

        76 White, Allen and  Diana Zinld,  "Green Metrics: A Status  Report on Standardized
                                                   i
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
Corporate Environmental Reporting," Working Paper prepared for CERES 1997 Annual conference,
September 1997.

        77 For a discussion of research issues,  see Griffin, Jennifer,  and Mahon, John K, "The
Corporate Social Performance and Corporate Financial Performance Debate: Twenty-Five Years of
Incomparable Research," Business and Society. March 1997.

        78 A recent article in Chemical Week highlighted the* problem of obtaining comparable data
from industry reports for a single industry. Monsanto's top environmental official was quoted as
saying that it would be difficult to develop the kind of ratios desired by environmentalists and
others because of the diverse nature of the chemicals business; see Staff, "Sustainability Concerns
Drive Demand for Data," Chemical Week. August 13,1997.

        79 Personal sources indicate that this problem was a major source of discussion at meetings
of New York Securities Analysts (February 1998), the United Nations Environment Program (May
1997), and New York Investment Analysts (September 19%).  For more general discussions of the
limitations of TRI data,  see:  Griffith, J.J.,  "The Toxics Release  Inventory:  Limitations and
Implications," Proceeding from the Sixth International Association for Business and Society,  K.
Rehbein (ed.), 1996, pp. 324-9.  Logsdon, J.M. "The Toxics Release Inventory as a Data Source for
Business and Society, Fifth International Association for Business and Society, D. Collins, ed., 1995,
pp. 648-53;

        80 Ganzi,  John,  Frances Seymour,  and Sandy Buffet "Leverage for the Environment:
Strategic Mapping of the Private Financial Services Industry," March 1998.

        81 These findings and the decision to limit the scope of this report to these eight segments
was based on: (i) earlier literature searches done by Environment and Finance Enterprise (E&FE) in
1994, 1996, and 1997; (ii) primary research conducted in 1994, 19%, and  1997 by E&FE with
financial support from the UNEP, Salomon Inc., USEPA, and the National Wildlife Federation; (iii)
presentations made by various financial institutions at the UNEP Banking and the  Environment
conferences (in which E&FE  played a material role in selecting the agenda and speakers) held in
1994 (Geneva), 1995 (London), and 1997 (New York); and (iv) personal conversations held by E&FE
representatives with various individuals  and association representatives as part of the scoping
process for this effort.

        82 Stakeholders generally include shareholders, creditors, suppliers, the firm's employees,
and the communities in which the firm operates.

        83 The property and casualty (P&C) insurance industry is in two businesses: "underwriting"
risk and managing investments.  In its underwriting function, the industry examines the. frequency,
and severity of risks of damage to personal or commercial physical assets ("property") or injury to
persons ("casualty"), and then places a value on insuring against, or "underwriting," .these risks.
The P&C industry has three main components: primary issuers, "excess of' insurers (from whom
the firm would buy insurance to cover losses over the limits covered on the primary policy), and
reinsurers (from whom insurance companies buy insurance to cover aggregate losses above some

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
limit on a pool of policies). • The latter two components tend to spread risk globally. While the P&C
industry is the dominant force in this financial area> commercial banks have expressed an interest in
underwriting this type of risk.

       84 This follows the discussion found in Ganzi/John T. and Brian T. Neubert, Research on the
Financial Impact of Environmental Events and Issues on the Property and Casualty Insurance
Industry. World Resources Institute, under contract to EPA, Fall 19%.

       85 In addition to CERCLA-related claims, the other material "environmental" risks facing
the insurance industry are claims for worker injuries due to releases of asbestos at plants where
asbestos was used in the manufacturing process.

       86 Tarnoff,  Stephen, "Manville Bankruptcy Boosts Costs for Other Defendants,"  Business
Insurance; March 19,1984.

       87 This move addressed  the financiers'  need for-information  on these exposures.  See:
Kazanski, Paul, "Recognition, Measurement, and Disclosure of Environmental Liabilities/'  Casualty
Actuarial Society Forum. Summer 1994, pp. 387.      ^

       88 For discussion of the problems of asbestos and environmental (A&E) exposure,  Footnote
24,  and  increased  reserves,  please  see:  Snyder,  John  H.  and  W.  Dolson   Smith,
"Environmental/Asbestos  Liability  Exposures:  A P&C  Industry  Black  Hole,"   Best  P&C
Supplement March 28,1994:  Simpson, Eric M. and W. Dolson Smith, "P&C Industry Begins to
Face Environmental and Asbestos Liabilities," Best P&C. January 29,1996.  Simpson,  Eric M. and
Mervyn ,S. Taylor, Cynthia S. Matthews, "Footnote  24  Ushers  in  a New Era of Asbestos,
Environmental Disclosure," Best Week P&C Supplement July 8,19%. Unsigned article, "Insurers'
Environmental and Asbestos Positions Improve," Standard & Poor's Credit Week; August 28,19%,
pp.33.                                   .

       89 Staff, Superfund and the Insurance Issues Surrounding Abandoned Hazardous -Waste
Sites," Insurance Services  Office, Inc.,  December  1995.   Anderson, Dan  R., "Financial  and
Organizational Impact of Superfund-Mandated Hazardous Waste Liabilities on the Insurance
Industry/" CPCU lournaL Spring 19%.

       90 .Staff, "Why Fleet requires environmental insurance as a loan condition," ABA Banking
Tournal, September 1992; Cocheo,  Steve, "Policies Shield Banks from Toxic Trouble," ABA Banking
Tournal. December 1993, pp. 53.

       91  Pelland,  Dave, "Promoting  Environmental Awareness:  Insurance Market  Conditions
Improving," Risk Management, May 1997, 44(5): 10; Hall, Evelyn, "EIL Insurance is Poised for
Growth," Best's Review - F&C, April 1995.                                 .       .     -

       92 Winans, Christopher, op. cit.  -

       93 Pelland, Dave, "Watching the Weather: Insurance Industry Examines Climate Change,"

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 Corporate Environmental Performance as a Factor in Financial. Industry Decisions
Risk  Management, November  19%.   Boulton, Leyla, "Debate  Warms Up," Financial Times
(London). May 29,1996, pp. 20.  Goddard, Sarah,  "Climate change a threat to insurers: industry
must address global  warming, scientist says," Business Insurance,  April 8, 19%.  Boehmer-
Christiansen, Sonja, "A Winning Coalition  of Advocacy: Climate Research, Bureaucracy and
"Alternative" Fuels -  Which is Driving Climate  Change Policyr  Energy Policy.  March 1997,
25(4)439-444. Powers, Yeung Imeda, "Seeking the Perfect Catastrophe Index," Best's Review P&C.
December 1997.

       ซ CPCU  Society,  Columbus Chapter,  "How Have the Catastrophes of 1992 Affected
Solvency, Capacity, and Reinsurance in the Property and Casualty Industry?" CPCU Journal, June
1995.  Dunleavy, Jeane, Robin Albanese, Matt Mosher,  Eric Simpson,  at. aL,  "Greater Risks,
Uncertain Rewards; Property and Casualty Insurance," Best's Review P&C. January 1997, 97(9): 56.
Borden, Sara and  Asani Sarkar, "Securitizing Property Catastrophe Risk," Federal Reserve Bank of
New York: Current Issues in Economic and Finance, August 19%, 2(9). Treaster, Joseph B., "Even
Nature Can be Turned Into a Security: High Yield and Big Risk with Catastrophe Bonds," New
York Times, August 6,1997.

       95 As of January 1998, no US insurance companies are signatories.  See: Allred, Carolyn,
"UN  Asking US  Insurers to Join  International  Environment Initiative," Business  Insurance..
November 3,1997.            ^     .

       96 Fossli, Karen, "Environment Conference: Insurers Turn Eco-Friendly,"  Financial Times
(London). March 30,1995, pp. 3. Fossli, Karen, "Big Insurers Unveil Pact on Environmental Risks,"
Financial Times  (London).  March  31, 1995, pp. 4.   Unsigned article, "Environmental  Pact
Announced," Financial Times World Insurance Report.  April 7, 1995. Unsigned article, "Insurers
Launch Joint Effort To Tackle Environmental Risks," Environment Watch Western Europe. April 7,
1995, 4(7).   Kirk,  Don Lewis, "Deterring pollution: group offers plan  for environmental risk
management,"  Business  Insurance.  April  10,  1995.    Williams,  Frances,  Business  and  the
Environment: "Green Politics at a Premium - Why  Insurers are Focusing On Ecology", November
29, 1995, pp. 12.   Kirk, Don Lewis, "Insurers pledge to reduce environmental risk," Business
Insurance.  December  4, 1995.  Staff,  UNEP Conference on the Insurance Industry and  the
Environment: Implementing Environmental Commitment in the Insurance Industry, UN, May 20-
21,19%.
  \                                                                   '
       97 Staff, The Impact of Catastrophes on Property Insurance, Insurance Services Office, Inc.
January 1994.  Staff, Superfund and the Insurance  Issues Surrounding  Abandoned Hazardous
Waste Sites. Insurance Services Office, Inc.,  December 1995.  Anderson,  Dan R., "Financial and
Organizational Impact of  Superfund-Mandated Hazardous Waste  Liabilities  on the Insurance
Industry." CPCU Tournal Spring 19%.         '      ,       '

       98 Commercial banks  accept  deposits and  extend  credit  to  both  consumers  and
corporations. Unlike investors, a commercial bank's focus on credit implies that a bank is more
interested in the borrower's cash flow and  ability to  repay the  loan with interest than in  the
underlying value of the borrower's assets, unless those assets are pledged as collateral.  Further, a
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
bank is not always able to sell its loans to a borrower or to a third party if the debt has a long
maturity date, as is  typically  the case with  asset-backed loans.   Globally, commercial banks
represent the largest pool of private capital.

        "The life insurance industry consists of two businesses: the selling of life insurance policies
to consumers, and the investing of funds obtained in the form of premiums from these consumers.
Life insurance  policies guarantee consumers a predetermined  monetary sum upon death or a
specified age, whichever occurs first. Life insurance companies are risk-averse and tend to employ
conservative investment strategies. Traditionally, the industry placed its assets in long-term bonds
and mortgages with maturity dates that matched the anticipated claims by policyholders based on
actuarial forecasts.  This approach is no longer considered adequate to generate the returns desired
and is being reevaluated.

        100  Investment banks function  as  the liaison between corporations that want to attract
investment capital and investors that have money to buy part, or all of a company." Investment
banking covers a wide range  of functions, but generally focuses on equity rather than  debt
transactions.  Investment bankers manage the buying and selling of stocks, bonds, and other
financial instruments for  their own account and on behalf of clients.   They also manage the
financing of new companies  via initial public  offering (IPOs) or private placements (the  sale of
financial instruments to a targeted group of investors).

        101 United States v. Maryland Bank  & Trust Co.. 632 F. Supp. 573,579 (D. Md. 1986)

        102 At the time, Fleet Factors was the eighth largest commercial bank holding corporation in
the US.

        103 United States v. Fleet Factors Corp., December 22,1988.

        104For a discussion of this topic see Pollard, Alfred, Clarification of Secured Party and
Fiduciary Liability Under US Environmental Statutes, Bureau of National Affairs, Inc., November 4,
19%, pp. 772-778.

        105 McCreary, Jean H. and Denise D. Pursley,  "Using Environmental Risk Management
Policy to Avoid Fjivironmental Liability," Commercial Lending Review. Fall 1997,12(4): 62.  Byrne,
John and Thomas J. Greco, "Rx For Banking's Environmental  Itch," ABA Banking TournaL February
1997, 89(2): 59.  Cocheo, Steve, "Policies Shield  Banks from Toxic Trouble," ABA Banking Tournal,
December 1993, pp. 53.

        106 Ganzi, John and Richard Eidlin,  Bank of America:  The Leading Environmental Bank— A
Case Study. Summer 1993.

        iฐ7 Vista Environmental Information, Inc., "Environmental  Product Endorsed by  ABA,"
ABA Banking Tournal. January 1993, pp. 75.  Corbit, L. Sanders and Rush B. Lincoln, HI, "Service
Demystifies Environmental Reports," ABA Banking Tournal, June 1993, pp. 78.  Unsigned article,
"Environmental Data Resources, Product  Helps  Assess Environmental Liability,"  ABA IBanking

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 Journal  October 1994, pp.  102. Claritas, NPDC, '"Tool  Evaluates Environmental  Risk," ABA
 Banking Journal March 1994, pp. 78. Practicing Law Institute, "Manual Assists in Commercial Loan
 Documentation:  Hillman on Commercial Loan Documentation, 4th ed.," ABA Banking Tournal
 June 1994, pp. 82.  Unsigned article, "Environmental Information and  Imaging Sensors, New
 Environmental Software Pegged for Small Banks," Institutional Investors, Inc. - Bank Letter. March
 27,1995, pp. 6.

        IDS  Staff, Environmental Appraisal O*><*"k1ist for  Financial Institutions Disbursing IFC
 Funds. International Finance Corporation, March 20,1997, pp. 19-21. For a discussion of the World
 Bank's current' position, see:  Steer, Andrew, "Ten Principles, of the New Environmentalism," IMF
 Finance & Development. December 1996, 33(4): 4.

        109 Bank of America  Environmental Services/Training Services (San Francisco, US), and
 GHK International  (Birmingham,  UK),  prepared under contract  to the European Bank  for
 Reconstruction and  Development, Environmental Risk Management for Financial Institutions: A
 Handbook, June 1995.

        110 Presentation made at London.Conference and in subsequent private communications.

        inUnsigned  article,-"81101110010 To Offer "Eco-Management Loans" Daily Environment
 Report, Bureau of National Affairs, Inc., February 1,1996, pp. B-2 and B-3.

        112 Handout  by Heimick Hugenschmidi of Union Bank of Switzerland and Otti Biseng of
 Credit Suisse at the UNEP Conference on Banking and the Environment, May 1997.

       . us This observation is based on private conversations, with Swiss bankers and from the
. following publication: Knorzer, Andreas and Gabriel Pace, Environmental Shareholder Value, Bank
 Sarasin & CIE, February 18,1998.

        114  Unsigned article,  "Insurers Launch Joint Effort. To Tackle  Environmental Risks,"
 Environment Watch Western  Europe, April 7,1995,4(7).

        115 It appears that most investors are not looking at this issue in any material manner given
 the limited articles and items published in the mainstream financial press.

        116 Unsigned article, "Survey: Ethical and Green Investing," Investors Chronicle, July 12,
 19%.   There is a large amount of literature on "socially responsible investing" and "green"
 investing as part of that movement.  This  approach to the use of EP is not within the scope of this
 report. The focus here is on the use of EP as a positive indicator of FP.

        nf Blacconiere, Walter G. and Dennis M. Patten, "Environmental Disclosures, Regulatory
 Costs, and Changes  in Firm Value," Tournal of Accounting & Economics,  November 1994, 18(3):
 357-77.   . .     •

        118 Blacconiere, Walter G. and W. Dana Northcut, "Environmental Information and Market
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 Reactions to Environmental Legislation," Working Draft, November 9,1995.

        ซ9 White, Mark A., "Investor Response to the Exxon Valdez Oil Spill," Conference Paper,
 Presentation to the Southern Finance Association Meetings, Sarasota, FL, November 1995.

        120 Bosch, J.C. and Insup Lee, "Environmental Regulations and Stockholders' Wealth: An
 Empirical Examination," Preliminary Working Paper, April 1,1996.
                                                              f

        121 Hamilton, James  T., "Pollution as News: Media and Stock Market  Reactions to the
 Toxics Release Inventory Data," Tournal of Environmental Economics and .Management, 1995, Vol.
 28:98-113.
        122 Snyder, Jonathan V. and C. H. Collins, "The Performance Impact of an Environmental
Screen," Winslow  Management, Environmental Management in a Global Economy—Conference
Proceedings, Winslow Management Co., 1994.

     /  123 Clough, Richard Read, "Impact of an Environmental Screen on Portfolio Performance: A
Comparative Analysis of S&P 500 Stock Returns," Duke University School of (the Environment,
1997.

        m white, Mark A., "Corporate EP and Shareholder Value," Conference Paper, Presentation
to Southern Finance, FL, November 1995.

        125 Specifically, return on sales (ROS), return on assets (ROA), and return on equity (ROE).

        126 Hart, Stuart and G. Ahuja, "Does It Pay to Be Green?" University of Michigan School of
Business Administration, September 1995.

        127 phj]ip/  Christine, IRRC Report:  "Low Pollution Means High Returns,  Pensions &
Investments," May 15,1995, pp. 6.  Cohen, Mark, S. Fenn and J. Naimon, Environmental and FP:
Are They Related?. IRRC, Vanderbilt University, Owen Graduate School of Management and the
IRRC, April 1995.

        128 Feldman, Stanley J., Peter A. Soyka and Paul G. Ameer, "Does Improving a Firm's
Environmental Management System and EP Result in a Higher Stock Price?" Tournal of Investing.
Winter. 1997,6(4): 87.

        129 Guerard, John B., "Additional Evidence on the Cost of Being Socially Responsible in
Investing," The Tournal of Investing, Winter 1997,6(4).

        130 D1 Antonio, Louis, Tommi Johnsen, and R. Bruce Hutton, "Expanding Socially-Screened
Portfolios: An Attribution Analysis of Bond Performance," Tournal of Investing. Winter 1997, 6(4):
79.
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. Corporate Environmental Performance as a factor in Financial Industry Decisions
        131 Kessler, Jon and  Laura Gottsman, "Smart Screened Investments: Environmentally-
 Screened Equity Funds That Perform Like Conventional Funds," Journal of Investing, Scheduled To
 be published: 7(4), Fall 1998.

        132 Griffin,- Jennifer J. and John  F. Mahon,  "The Corporate  Social Performance and
 Corporate Financial Performance Debate: Twenty-five Years of Incomparable Research," Business
 & Society. March 1997,36fl): 5.                              .   '

        133 Information was readily available on these three groups. Other environmental screens
 may be available, either to the investment community at large or to the clients of a particular firm.
 The inclusion of these does not constitute an endorsement.
  "
        is* ICF Kaiser, sales  material,  "Does Improving  A Firm's Environmental Management
 System and Environmental Performance Result in a Higher Stock Price?"  December 1996.  The
 Hartman Group, sales material, "The Significance of Environmental Actions on Public Company
 Stock Prices," Fall 1987.

        135 Endnote 100 provides a description of investment banks. ,
          .-*•
        136 staff, "Earth in the Balance Sheet-How to Help Wall Street Put More Stock in Your
 Company's Eco-Efficiency Efforts," Green Business Newsletter, pp. 6.

        i37 Winslow Management  presentation  to Environmental  Support  Center  Board of
 Directors, February 1997.

      '  138 Mutual funds are the fastest growing pool of capital in the world. Individual investors
 own over 80 percent of all mutual  funds, with the remainder owned by institutional investors.
 Mutual funds offer an extremely wide range of investment vehicles (primarily offered to individual
 consumers) that tend to be tailored to a specific set of criteria or focus.  In general, mutual funds
 invest in publicly traded securities, notably stocks and  bonds,  under the specific governance
 guidelines of the funds' incorporation papers and investment policy.

        139 Unsigned article, "Survey: Fund Management," The Economist, October 25,1997.
                                                                                         \
        i40 See the following for a discussion of the growth of mutual funds and the rise of interest
 in specialty funds: Krumsiek, Barbara J., "The Emergence of a New Era in Mutual Fund Investing:
 Socially Responsible Investing Comes of Age," Journal of Investing, Winter 1997,6(4): 25.

        141 Environmental Value Fund - Prospectus. Uni-Storebrand, Oslo, Norway, 1996,

        142 See:  Edmunds,  Marian, "Funding—A  Measure  of Performance," Financial  Times
 (LondonX November 28, 1997, pp.  7.  Staff, "US-Norwegian Alliance Spins Global Eco-Fund,"
 Institutional Investor. My 8.19%. No. 14. pp. 4.

        143 Staff, Swiss Bank Corporation, Eco Performance Portfolio—World Equities, September
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
1997, Prospectus Offering.

       144 Pension funds are employer-operated organizations designed to provide for employee
retirement benefits by investing funds received from both the employer and the employee through
payroll deductions. These funds operate under heavy government regulation/ notably ERISA, as
well as  the specific operating and investment  guidelines that are  established  during  the
incorporation process. These guidelines are periodically updated based on shareholder resolutions,
trustee actions, and some governmental guidelines. Fund policies tend to determine the overall
composition of investments (e.g., in a firm's own securities, international securities, real estate, and
government bonds).  These funds tend to have  long-term investment horizons and are generally
managed for low risk. US investment funds controlled about US $4.7 trillion in assets.

       145 House, Richard, "Balance-Sheet Poison," Institutional Investor, August 1993, pp. 23.
             ซ•
       146 In 19%, this industry collected US $250 billion in premiums, which was then invested.
Historically, the industry has been  invested in about 75 percent high-grade government and
corporate bonds, with maturity dates that matched the timing of expected claims, 19 percent in
equities, 2 percent in equities, and the remainder in miscellaneous investments or cash.

       147 Altaian, Edward and Vanderhoof, Irwin. The Financial Dynamics of the Insurance
Industry, 1995.  Altaian, Edward  I. and Irwin T. Vanderhoof,  The Strategic  Dynamics  of  the
Insurance Industry: Asset/Liability Management Issues, 19%.  Burgh, Edward  M.,  Mortgage
Investing by Life Insurance Companies,  1983.  Cummius,  David, Investment  Activities of Life
Insurance Companies. 1977. Davis, E.P., Financial Market Activity of Life Insurance Companies
and Pension Funds, 1988. Kirsch, Clifford E. The Financial Service Revolution: Understanding the
Changing Role of Banks. Mutual Funds, and Insurance Companies, 1997.  In addition to these
books, there have also been frequent seminars and conferences on this subject in recent years.
                               f    •>  *
       148 Ganzi and Neubert, op. cit. Ganzi, Seymour and Buffet, op. eft.

       149 The life insurance industry represents one of the largest pools of long-term investment
capital in the world.  As investors, life insurance companies tend to be risk-averse  and employ
conservative investment stages.  See also Upton)  Thomas S. and Michael L. Albanese, "Sharpening
the Focus on Investment Management/' Best's Review - L/H, January 1997, pp. 83.

       150See endnote 98 for background on commercial banks.

       151 Venture capital, also known as "private equity," provides capital to new, cash-poor, or
rapidly expanding business, •where high risk precludes financing through banks or other traditional
means. Venture capital tries to realize profits within three to seven years when the company goes
public, is acquired, merges with another company, or has its assets liquidated. In general, venture
capital is attracted by attributes of individual entrepreneurs or management teams, rather than
attributes of companies.                                                                   *
                                                                  t
       152 .Any  new business that involves  the usฃ  of hazardous chemicals,  volatile organic

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions'
compounds, or requires a permit to discharge into  the air or water will face environmentally-
related startup costs, which may be significant. The costs  of ongoing compliance may also'be an
issue for these firms.  Nothing in the literature review indicated that these regulatory barriers to
entry created an issue that actively conceited venture capital firms.     .                   '

        153 Silby, D. Wayne. "Social Venture Capital: Sowing the Seeds of a Sustainable Future," The
journal of Investing.' Vol. 6:4, Winter 1997.  Star, Marlene Givant, "IFC Report Details Emerging
Markets Boom." Pensions & Investments, September 30,19%.

        154 Silby, D. Wayne, "Social Venture Capital:  Sowing the Seeds of a  Sustainable Future,"
Journal of Investing. Winter.1997. 6(4): 108.         "    .

        155 Foundations are nonprofit organizations established to manage a pool of capital that
they invest  or lend, and to  distribute  grants  consistent with the mission or  philosophy of the
organization.  US-based foundations control about  US  $200 billion in assets.  Some  of the
foundations  at  the leading  edge of factoring environmental/ financial  performance into their
operating approach are the Jessie Smith Noyes Foundation, Wallace Global Fund, and the CS Mott
Foundation.

        156 Obviously, the contributors to global environmental concerns may be placing themselves
at risk as well.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
                              Table Of Contents
          '.
                                            *
Other Governmental Initiatives involving the FSI
   A    UNEP: Statement of Environmental Commitment by the Insurance Industry,  73
        Preamble November 1995
   B    UNEP Statement By Financial Institutions on the Environment &            75
        Sustainable Development, As revised - May, 1997
   C    European Union: The Role of Financial Institutions in Achieving Sustainable  77
        Development, Executive Summary, November 1997
   D    Department of the Environment, United Kingdom: Environmental           85 >-
        Reporting: An Approach to Good Practices. February 1997
Private Initiatives regarding Corporate Environmental Reporting
   _    CERES: Global Reporting Initiative                                     , 93
   F    Tellus Institute: GREEN METRICS - Excerpt Tables on from A Global Status   97
        Report On Standardized Corporate Environmental Reporting, April 1998
Information in ISO 14000 Series of Management Standards
   G    ISO 14001 Environmental Management System (Excerpts)                   100
   H    ISO 14031 Environmental Performance Evaluation (Excerpts)                100
Environmental Screens
   I    Investor Responsibility Research Center                             "    101
   J    Innovest - Eco Risk '21                '•                  <104
   K    Environmental Information Services                                      110
Investment-Related Activity .
  "L    New York Society of Securities Analysts (NYSSA>: Uncovering Value: The     118
        Links Between Environmental & Financial Performance
   M    Aspen Institute Briefing Document on Valuing Environmental Performance   120
Bibliography
   N    Bibliography                                                          123
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                            Exhibit A

                  Statement of Environmental Commitment by the Insurance Industry

                                     Preamble (November 1995)
           The insurance industry recognizes that economic development needs to be compatible with
human welfare and a healthy environment.  To ignore this is to risk increasing social, environmental
and financial costs. Our Industry plays an important role in managing and reducing environmental
risk, in conjunction with governments, individuals and organizations.
           We are committed to work together to address key issues such as pollution reduction, the
efficient use of resources, and climate change.  We endeavor to identify realistic, sustainable solutions.


           1. General Principles of Sustainable Development
           1.1  We regard sustainable development, defined as development that meets the needs of
the present without compromising  the ability of future generations  to meet their own needs, as a.
fundamental aspect of sound business management.
           1.2 We believe mat sustainable development is best achieved by allowing markets to work
within an appropriate framework of cost efficient regulations and economic instruments.  Government
has a leadership role in establishing and enforcing long term priorities and values.
           1.3  We regard  a  strong,  proactive insurance  industry as an important contributor to
sustainable development, through its interaction with other economic sectors and consumers.
           1.4  We believe that the existing skills and techniques of our industry in understanding
uncertainty, identifying and quantifying risk, and responding to risk, are core strengths in managing
environmental problems.                  .                       >
           1.5  We recognize the precautionary principle, in that it is not possible to quantify some
concerns sufficiently, nor indeed to reconcile all impacts in purely financial terms.  Research is needed
to reduce uncertainty but cannot eliminate it entirely.

           2. Environmental Management
           2.1  We will reinforce the attention given to environmental  risks in our  core activities.
These activities include risk management, loss prevention, product design, claims handling and asset
management.                 .
           2.2 We are committed to manage internal operations and physical assets-under our control
in a manner that reflects environmental considerations.    ,                            ,           .
           2.3   We  will periodically  review. our management practices, to  integrate relevant
developments of environmental management in our planning, marketing, employee communications
and training as well as our other core activities.
           2.4 We encourage research in these and related issues. Responses to environmental issues
can vary in effectiveness  and cost.  We  encourage research that identifies creative and effective

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
solutions.
           2.5   We support insurance products  and services that promote sound environmental
practice through measures such as loss prevention and contract terms and conditions. While satisfying
requirements for security and profitability, we will seek to include environmental considerations in our
asset management.
           2.6   We will conduct regular internal environmental reviews,  and will seek to create
measurable environmental goals and standards.
           2.7  We shall comply with all applicable local, national and international environmental
regulations. Beyond compliance, we will strive to develop and adopt best practices in environmental
management. We will support our clients, partners and suppliers to do likewise.
                                                          i
                             *                     '
                       '* .
           3. Public Awareness and Communications
           3.1   Bearing in mind commercial confidence, we are committed to share relevant
information with our stakeholders, including clients, intermediaries,  shareholders,  employees and
regulators. By doing so we will improve society's response to environmental challenges.
           3.2  Through dialogue with public authorities and other bodies we aim to contribute to the
creation of a more effective framework for sustainable development
           3.3   We will work with the United Nations Environment Programme to further the
principles and goals of this Statement, and look for UNEP's active support.
           3.4  We will  encourage other insurance institutions to  support this  Statement. We are
committed to share with .them our experiences and knowledge in order to extend best practices.
           3.5  We will actively communicate our environmental activities to the public, review the
success of this Statement periodically, and we expect all signatories to make real progress.

           Steering Committee:
       General Accident, Perth,  UK.                                            \
       Gerling-Konzern Globale, Cologne, Germany.
       N.P.I., London, United Kingdom.
       Swiss Re, Zurich, Switzerland.
       Sumitomo Marine & Fire, Tokyo, Japan.
       Storebrand, Oslo, Norway.
       United Nations Environment Programme, Geneva, Switzerland
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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                            Exhibit B

              UNEP Statement by Financial Institutions on the Environment & Sustainable
                            Development (As Revised - May 1997)

           We members of the financial services industry recognize that sustainable development
depends upon a positive interaction between economic and social development, and environmental
protection, to balance the interests  of this and  future generations.  We  further recognize  that
sustainable development is the collective responsibility of government, business, and individuals:  We
are  committed to working cooperatively  with these  sectors  within the  framework  of market
mechanisms toward common environmental goals.   /                          '    •      '     '   •

           1.  Commitment to Sustainable Development
           1.1  We regard sustainable development as a fundamental aspect of sound  business
management.
                            i •
           1.2 We believe that sustainable development can best be achieved by allowing markets to
work within an  appropriate framework of cost-efficient  regulations and  economic instruments.
Governments in all countries have a leadership role in establishing and enforcing long-term common
environmental priorities and values.
           1.3  We regard the  financial services sector as  an  important  contributor towards
sustainable development, in association with other economic sectors.
           1.4 We recognize that sustainable development is a corporate commitment and an integral
part of our pursuit of good corporate citizenship.

           i                    '                   •          .     •
           2.  Environmental Management and Financial Institutions
           2.1 We support the precautionary approach to environmental management, which strives
to anticipate and prevent potential environmental degradation.
           2.2 .We are committed to complying with local, national, and international environmental
regulations applicable to our operations and.business services.  We will work towards  integrating
environmental considerations into our operations, asset management, and other business decisions, in
all markets.   .                     •                    .   -                     .
           2.3 We recognize that identifying and quantifying environmental risks should be part of
the normal process of risk assessment and management, both in domestic and international operations.
With regard to our customers, we .regard compliance with applicable environmental regulations and
the use of sound  environmental practices as important factors in demonstrating effective corporate
management.                    '            '
           2.4 We will endeavor to pursue the best practice in environmental management, including
energy efficiency, recycling  and waste reduction.  We will  seek to  form business relations with
partners, suppliers, and subcontractors who follow similarly high environmental standards.
           2.5 We intend to update our practices periodically to incorporate relevant developments in .
environmental management:  We encourage the' industry to undertake research in these and related
areas.
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•Corporate Environmental Performance as a Factor in Financial Industry Decisions
           2.6 We recognize the need to conduct internal environmental reviews on a periodic basis,
. and to measure our activities against our environmental goals.
           2.7  We encourage the financial services sector to develop products and services  which
will promote environmental protection.

           3.  Public Awareness and Communication
           3.1  We recommend that financial institutions develop and publish a statement of their
environmental policy and periodically report on the steps they have taken to promote integration of
environmental considerations into their operations.
       ,    3.2 We will share information with customers, as appropriate, so that they may strengthen
their own capacity to reduce environmental risk and promote sustainable development.
          ' 3.3 We will foster.openness and dialogue relating to environmental matters with relevant
audiences, including shareholders, employees, customers, governments, and the public.
           3.4 We ask the United Nations Environment Programme (UNEP) to assist the industry to
further the principles  and goals  of  this  Statement by providing,  within its  capacity,  relevant
information relating to sustainable development.
           3.5  We will  encourage other financial  institutions  to support this Statement. We are
committed to share with them our experiences and knowledge in order to extend best practices.
           3.6  We will work with UNEP periodically to review the success in implementing this
Statement and will revise it as appropriate.

           We, the  undersigned, endorse the  principles set forth in the above statement and will
endeavor to ensure that our policies and business actions promote the consideration of the environment
and sustainable development.
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Corporate Environmental Performance as a Factor m'Finattdal Industry Decisions
                             Exhibit C
                             European Union

           The Role of Financial Institutions in Achieving Sustainable Development

                           Executive Summary
                          THE ROLE OF

                   FINANCIAL INSTITUTIONS

                          IN ACHIEVING

                 SUSTAINABLE DEVELOPMENT
                             REPORT        '    '    -

               TO THE EUROPEAN COMMISSION

                                BY

                 DELPHI INTERNATIONAL LTD

           IN ASSOCIATION WITH ECOLOGIC GMBH

                        NOVEMBER 1997

                          ฉ European Union, 1997

      This study was commissioned by the Directorate-General XI (Environment, Nuclear Safety
 and Civil Protection) of the European Commission. It does not however express the Commission's
     official views. The responsibility for the views expressed lies solely with the authors.
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                                  EXECUTIVE SUMMARY
 Introduction

        The European Community Programme of Policy and Action in Relation to the Environment
 and Sustainable Development (the Fifth Environmental Programme) (OJ 93/C 138/27) recognised the
.importance of financial institutions by stating that "financial institutions which assume the risk of
 companies and plants can exercise considerable influence - in some cases control - over investment
 and management decisions which could be brought  into play for the benefit of the environment".
 Despite this, little work has been done by the Commission on the role of the financial institutions in
 achieving sustainable development.

        An even more fundamental relationship is indicated by an alternative definition of sustainable
 development:  "a process of development which leaves at least the same amount of capital, natural
 and man-made, tojuture generations as current generations have access to".  This makes it clear
 that sustainable development is about capital allocation and thus should be at the core of financial
 markets activity.

        On a more practical level, financial institutions interact with the environment in a number of
 ways:
 •  as investors - supplying the investment needed to achieve sustainable development.
 •  as innovators  - developing new financial products to encourage sustainable development - e.g. in
   energy efficiency.
 •  as valuers  - pricing risks and estimating returns, for companies, projects and others.
 *  as powerful stakeholders  - as shareholders and lenders they can exercise considerable influence
   over the management of companies.
 •  as polluters - while not "dirty" industries, financial institutions do consume considerable resources.
 •  as victims of environmental change - e.g. from climate change.

        Financial markets present an opportunity for environmental policy, particularly useful in view
 of the  need for a wider range of policy instruments. In view of the indirect nature  of many of the
 interactions above, policies are likely to be most effective if they aim to complement and work with
 existing financial activity.

        To that end, a  transactional model  of the financial markets  is used, to indicate how it is
 possible to influence financial transactions. It illustrates the key roles of information and analysis.
The Commercial Banking sector

        The greatest potential of the commercial banking sector is in its relationship with Small and
Medium sized Enterprises, where banks can be very influential through their lending practices and by
providing information. Commercial banks have less influence over most larger companies. There is,
however, scope for them to influence consumer behavior through the financial products they offer.

        To date the  most commercial banks  have focused on two areas: Firstly,  many have made


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 Corporate Environmental Performance as a factor in Financial Industry Decisions
 considerable progress in developing internal environmental management systems to reduce their own
 environmental impact. Secondly, most banks include some environmental  analysis into their credit
 assessment process although this tends to be focused on liability.

        The United Nations Environmental Programme (UNEP) has established a statement on Banks
 and the Environment which over 90 banks have signed, including a substantial number from the EU. It
 is the leading international initiative on banks and environment and is certainly encouraging a number
 of banks to take the environment seriously.

        A smaller number of leading batiks have taken their activities further, and for instance have
 started to  take a -wider view of environmental factors  in  credit assessment, including developing
 checklists and other procedures.

        One, particularly  encouraging area of  activity  is providing practical  support to small
 businesses on how to manage their environmental impacts, through  information packs and other
 support.

        Where  banks have been less progressive is in developing new financial products with an
 environmental perspective  for  both business and individuals,  such as  energy  efficiency loans.
 Encouraging the development of such products appears desirable.           -  '    ''

        There has been considerable work in developing environmental management systems (EMS)
 and reporting for banks, including possibly an extension to EMAS. It is important that such initiatives .
 focus on the environmental impacts of financial  products rather than merely the impact of internal
 operations. In view of the generally systematic approach to business by commercial banks, further use
 of EMS appear to be an effective way forward for the sector.
The Investment sector                           .
                                                           i

        The potential of the investment sector lies in the influence it has over large companies. It can
send signals to industry in the pricing of new capital for companies and in the on-going valuation of
quoted companies as well as directly through the use of its rights as shareholders and owners.
                   i

        To date, as whole, investors are probably less interested in1 the environment than bankers.
However, a number, of pressures are emerging on the investment sector:

•  Leading  companies  have become  increasingly frustrated  .with the failure  of the  investment
   community to recognise and reward the environmental progress they have made. In particular, the
  ' international business organisation, WBCSD, has been active in this area, developing the concept
   of eco-efficiency and encouraging its use among investors.

•  There is growing interest from individual investors in environmentally responsible investment, and
   this has led to the development of some progressive environmental investment funds. Institutional
   investors have also started to explore this area, reassured by the good investment performance of
   such funds. As a "green" product with no price or quality premium, the potential market for such
   products is likely to be substantial..
                 /        _ '
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
•  Another avenue that some investors have pursued is shareholder activism. They have become
   frustrated with the indifference of investing institutions and are taking their concerns directly to
   large companies. This has proved  effective  in the  US, but is more limited in Europe where
   shareholders' rights are less developed - there may be scope to develop it in the EU.

•  Environmental NGOs have also started to target fund managers and investment banks over their
   investments and involvement with environmentally damaging companies. To date they have not had
   major success, but have started to influence the sector.

•  Finally, a few organisations among the investment sector have started to take environmental issues
   more seriously and may be creating some peer pressure for change. While much skepticism exists
   and should not be underestimated, there are signs that attitudes may be changing.

        A key  concern for the  investment sector is the  relationship between environmental
performance ami investment performance.  Here the evidence on balance suggests that environmental
performance does contribute to good financial performance. However, many in the investment sector
remain unconvinced, and action is needed both to persuade doubters and reinforce signals, e.g. through
the development of environmental taxation.
          t  • -
        To encourage the investment sector to incorporate environmental issues a number of obstacles
need to be overcome. Two key obstacles are market inertia in investment practices, and  the balance
between long term and short term analysis. However, the most important issue is probably difficulties
in obtaining good quality information in ways that the sector can understand and use. Ways need to be
found to provide relevant information to the sector.
The Insurance sector

       The potential of insurance sector in achieving sustainable  development lies in its ability to
price  various types of environmental  risk and to help  pay for environmental damage. Potentially
environmental issues can affect risks in  a number of areas, but to date the industry has taken an issue
based approach and has focused on the environment in two main areas:

•  Environmental liability has had a seriously adverse affect on the industry, particularly in the.US
   and has resulted in the industry taking a very  cautious approach to environmental issues. It is
   important that in any development of environmental liability in the EU the insurance industry be
   actively involved and reasonably supportive. Unrealistic expectations of the extent to which the
   industry can price environmental risks accurately should be avoided.

ป  The industry has also become clearly concerned about the potential impact of climate change on its
   business. Changing climate at best undermines the historic basis for evaluating risk and at worst
   could significantly increase losses, from increased storms and floods, to the. extent that even the
   very viability of the industry could  be threatened.  In response, the  leaders in the industry have
   developed a comprehensive set of measures, ranging  from ah increasing lobbying at the climate
   change convention, through working with governments on research and preventative measures, to
   adjusting premiums and their areas of activity.
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 Corporate Environmental Performance as a. Factor in Financial Industry Decisions
        UNEP has also launched an Insurance Industry Initiative on'sustainable development. It too -
 has been successful and has strong European representation. Members of the initiative have been
 particularly active in the areas of climate change and asset management.                     <

        Beyond these areas, however, there has been little research by the industry of the implications
 of sustainable development for the insurance sector at a fundamental level. Similarly, many outside the
 industry have a poor understanding of the practicalities of the industry, leading to limited work on how
 insurance could contribute to sustainable development.
 Companies, Investors and die Environment

        Companies increasingly  see environmental issues as being of relevance to their business
 development, yet financial markets, particularly investors are uninterested. Companies are increasingly
 aware of the environmental pressures they are under and have developed a range of practical tools to
 address them.     "               .                                  ,                        :

 N       There is increasing understanding of the financial implications of these pressures among
 leading specialists,  yet most  in the  financial  community  pay  only limited  attention  to them.
 Information is the key to financial evaluation, but there is limited useful information on environmental
 performance and management. The main existing sources of information are not geared to financial
•audiences:

 •  Environmental reporting is targeting multiple audiences and many companies do not report.

 •  The potential with annual reports is erratically exploited and lacks standardisation.

 •  Publicly available information faces substantial practical obstacles.

        To address  this  there  is  potential  to develop standardised  and  financially  useful
 environmental reports, potentially as part of the annual reports, {encompassing financial information,
 environmental  performance data and qualitative  information, on  environmental  policy   and
 management.
'  '                .•                                                       "      •
        An alternative approach is through the development of environmental rating agencies who
 can provide a summary analysis geared to the needs of the financial markets. At present such services
 have only limited appeal, but they offer long term potential.  An effective  way  of encouraging the
 development of these services would improve the quality of information made available through the
 public regulators.                                                                          .


 The Environmental Business Sector

        The environmental  business   sector  consists  of businesses  ranging from traditional
 environmental businesses, such  as  waste management,  to  emerging  "green"  pioneers, such as
 renewable energy and eco-tourism. They have a critical role to  play in  achieving sustainable
 development and thus ensuring they have access to private sector finance is crucial.
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 Corporate Environmental Performance as a factor in Financial Industry Decisions
                 .  \                                       •                     .
        Despite apparently good prospects, with rapidly growing markets, the financial performance
 of the sector has been disappointing to date. Indeed, the poor performance of many  high profile
 companies has been a major factor in creating a negative impression about the environment with
 financial institutions.

        A number effectors are identified for this. Several-of them are closely related to the public
 sector and policy issues, both in the way that the environmental markets are often dependent on policy
 development and in the active role of public sector finance in this area.

        In response to the  challenges faced  by environmental  sector companies, a  number of
 innovative approaches and specialist organisations have developed, including project finance, venture
 capital,  leasing,  environmental  and  ethical  banks,  specialist  environmental  financiers,   and
 environmental funds. However, the sector may place excessive emphasis on emerging sources of
 finance or stretch existing finance into new areas and there is a continuing need for innovation.

        To encourage the financial markets to support the sector, there is a need for measures at both
 a macro level, such as clear policy development and dissemination, and micro level, such as'training
 on financial markets for environmental entrepreneurs. There is scope to support innovation in finance
 to the sector. In addition, public sector financial support programmes to the sector could be adapted to
 work more closely with the-financial sector.
 Environmental Policy

        Environmental  policy  can be  developed in a number of  areas  to encourage  financial
 institutions to support sustainable development.

 •  The EU directly provides funding to protect the environment in a number of ways. Particularly
    where such support is .targeted at the private sector there is scope to ensure that it complements and
    encourages the involvement of financial institutions.
 •  There is scope for the European Environment Agency to improve the quality of information made
    publicly available, so that it can be used by financial institutions, and additionally to brief financial
    institutions on environmental pressures and policy development within the EU.
 •  There is increasing pressure to alter the structure of taxation in favour of environmental issues.
    Such  issues  would  help strengthen  the  contribution that  environmental performance  enhances
    financial performance. There is widespread support for such taxes among the financial community.
 •  Liability is  potentially another effective  market  mechanism.  However, as  it  requires  the
    involvement of the insurance industry to be effective, they should be actively consulted as to how
    best make it work.
 •  There is scope to expand both the EMAS scheme and the Eco-label scheme to encompass financial
    institutions and products. EMAS would encourage financial institutions to  take  a systematic
    approach to environmental  management.  'An Eco-label  on green financial products would .aid
    marketing and reward innovation.
 Financial Policy
                    \
        Existing European financial policy regarding  banks,  insurance and investment services is

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Corporate Environmental Performance as a Factor in Financial Industry Decisions ,
principally focused on creating a'single market for financial services. There appears only modest
scope to encompass environmental issues in most areas, as it is not .evident that the environmental
risks are sufficient to warrant special treatment by regulators.

        In  bank regulation there is a potential argument for making some  form of environmental
management compulsory or by requiring the disclosure of lending to high risk sectors.

        There is a potential for action in the areas of consumer protection, where the Commission has
a clear mandate and effective policy actions are possible, desirable and justifiable.                 .  .

        The EU also regulates  disclosure and listing requirements for companies and there  is
potential to develop a formal standard for environmental disclosure by companies.            <
Analysis                                 .         ;

        A key issue in the inclusion of environmental issues is the significance of environmental
issues - while potentially of some relevance, many environmental issues are of insufficient importance
to be a priority,  particularly in view of other concerns and  practical  difficulties.   Improving
information flows would be an effective way  of making it easier for  financial institutions to
incorporate  environmental considerations.  'There  is still potential to reinforce the link between
environmental performance  and financial performance,  notably  through the  use of  economic
instruments such as environmental taxes.

Recommendations                                .

        Ten policy options are recommended for consideration by the Commission. The options have
been chosen on the basis of the potential to have a major long term environmental benefit. In addition
many of the policy options chosen do not involve the expenditure of substantial-public funds or impose
major burdens on industry. Indeed, one of their key aspects is that .they are  likely to improve the
functioning of existing policy measures.

        The Commission should  take a  lead role in improving the flow of environmental information
relevant to the financial markets. This could be done:
1. through standardisation and  improvement of information currently being collected  and made
   available by environmental regulators                  .   .
2. through the development of environmental reporting standards targeted at the financial markets.

        The  Commission should  also  consider  taking action  to increase  the  demand for
environmentally responsible  investment.  Such  actions  would -create substantial demand .based
incentives for financial institutions to develop environmental expertise and products. Actions include:
3. as part of its involvement in consumer investment protection, requiring financial institutions to ask
   investors if they are concerned about how their money is invested environmentally or ethically
4. 'developing, as part of its eco-labeling scheme, a label for environmentally responsible investments.  .

        The Commission  should encourage  the development of  environmental  management at
financial institutions, through:                                     .
5. supporting information dissemination on best practice for financial institutions.

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 6.  the extension of the EMAS scheme to include financial institutions. This would require a greater
    focus on impacts of products.

        More formal control through the financial regulatory mechanism is possible, for instance by
 making environmental management mandatory, by requiring  disclosure of exposure to high risk
 sectors, by looking at the potential for voluntary investment agreements, and by looking at the role of
 the European Central Bank. However, they are probably not a priority at present.  ,

      '  The  Commission should consider ways to encourage the development of environmental
financial products for business  and consumers. One cost effective mechanism for the Commission
 would be:
 7. to support awards for innovation in environmental finance. This would provide an incentive for
   companies, and would enable publicity and dissemination.       .
            ; Commission could also consider the use  of direct financial support in the  product
development stage of new environmental financial products and initiatives, recognizing that the cost
and risks of product analysis and development are a major obstacle to their deployment, although this
may be best left to Member States.

        The Commission is also advised to  consider ways to improve its existing support to the
.environmental business sector:

8. by investigating the potential role for public sector investment banks to take the lead in encouraging
   private sector finance to support the sector
9. by improving the quality of information on the Commission's environmental support activities, and
   using financial institutions to disseminate it more widely
lO.by involving the financial markets more closely in these support activities, thus ensuring that the-
   recipients are aware of broader financing issues and the financial sector is able to step in as public
   sector support ends.

        Taken together these policy actions  could help actively involve  financial institutions  in
achieving sustainable development and could be a powerful tool in achieving the objectives of the Fifth
Action Programme.
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                   ExhibitD
      ENVIRONMENTAL REPORTING: AN APPROACH TO GOOD PRACTICE
 (PUBLISHED IN FEBRUARY 1997 BY THE DEPARTMENT OF THE ENVIRONMENT,
                                 UNITED KINGDOM)
INTRODUCTION
1.  The Advisory Committee -on Business and the Environment (ACBE) was originally
    appointed in 1991 by the Secretary of State for the Environment and the Secretary of
  .  State for Trade and Industry. The Committee comprises a number of leading business
    people, and  it is charged with giving Ministers advice on specific aspects of the
    interaction between business and the environment, from a business point of view.  A
    Financial Sector Working Group, led by Derek Higgs, Chairman of Prudential Portfolio
    Managers Limited, has examined the growing importance of environmental management
    to the financial community from the point of view of risk management.  This position
    paper sets out ACBE's views and proposes an approach to good practice for businesses
    to follow in  reporting on their environmental performance to financial audiences.'

2.  ACBE considers that improved communications on environmental matters between
    financial institutions and the businesses with which they deal will be in the best interests
    of both parties.  For investors, lenders and insurers (and their advisers), better information
    will lead to an improved evaluation of the financial risk associated with the  environmental
    performance of existing or potential clients. For the businesses being evaluated, the acts
    of collecting and presenting relevant information may themselves yield scope for
    improved management practices, leading to increased competitiveness. It may also lead to
    better terms being offered by financial institutions - or at least no penalties being exacted.

3.  These guidelines are directed at all businesses. ACBE appreciates that they will be more
    relevant to larger, publicly quoted companies than to smaller ones. Smaller companies
    can already claim dispensations from full reporting requirements as regards  their statutory
    accounts, and ACBE stresses that its guidance on environmental reporting should be
    viewed in the context of standard financial reporting requirements. ACBE urges smaller
    companies, however, to consider the benefits (in terms, for example, of maintaining
    compliance with regulations and retaining the business of important customers), as well as
    the costs, of collecting relevant environmental performance information in a reportable
    form compatible with that suggested by these guidelines.

4.  Nonetheless, a challenge evidently remains, hi the formulation of a language in which the
    financial implications of environmental performance can be communicated in terms which
    permit comparability over time and between like businesses.  ACBE's Financial Sector
    Working Group prepared a set of draft Guidelines for Environmental Reporting to the
    Financial Sector in  Spring 1996. They created much interest, among reporting
    businesses, the financial community, the professional institutions and informed observers.
    Almost without exception, respondents welcomed, in principle, ACBE's initiative. The
    Group held a workshop in October 1996 to discuss the.constructive comments from
    respondents: The final version of the Guidelines take these views into account.
           /

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
5.  It is emphasized that ACBE's Guidelines cany no official endorsement from financial or
    other authorities, and have no mandatory force.  Nonetheless, as the appended fists of
    those who contributed to the draft and those who responded to it show, the present
    version can be taken to be an authoritative set of guidance notes on good practice, the
    adoption of which should yield the desired improvement in communications between
    business and that important set of stakeholders, the financial community.

ENVIRONMENTAL INFORMATION AND THE NEEDS OF THE FINANCIAL AUDIENCE
6.  Several analyses and sets of guidance over recent years have made the point that the
    various stakeholders in a business have differing, if equally legitimate, requirements for1
    information about its environmental performance.  The financial community is concerned,
    generically, with the evaluation of risk in assessing whether to lend to, insure, or invest in
    a business (or to advise others about these matters). Annex 1 gives some concrete
    examples of environmental performance having a material impact on financial
    performance.
                                   i

7.  Without relevant,  quantified, and comparable data, the financial community will be
    making its judgments on risk with incomplete information. Further, financial institutions
    need to know whether there is evidence that the management of the business is properly
    UTcdntrol of its performance. Does it breach its permitted discharge limits and how
    closely does it operate to those limits? Do trends indicate steady improvement or
    deterioration? How often do unforeseen, accidental, events occur? Is it accredited to a
    recognized environmental management systems standard?

8.  Clearly, the institutions will find it valuable to examine adequately reported financial,
    physical and managerial information on these topics. The evidence is beginning to mount
    that businesses are being asked more frequently to provide it.  ACBE's Guidelines are not
    designed with a view to stimulating more environmental reporting as an end in itself; their
    underlying aim is to improve the capacity of the financial community to evaluate and deal
    with the implications of environmental risk. Greater insight  on the part of the financial
    world should also lead to benefits for the businesses prepared to report, fully and
    comparably, on their performance.
         {
9.  These Guidelines are concerned with presentation of environmental information in the
    formal documents, some or all of which all reporting businesses prepare: the Annual
    Accounts, the Operating and Financial Review in its Annual Report, and a stand-alone'
    environmental report if one is produced.  Only a few companies, at present, prepare all
    three sets of material, and indeed only a limited number make any reference to
    environmental matters in their published financial documents.
ENVIRONMENTAL REPORTING: FORMAL DOCUMENTS
The Annual Accounts
10. The professional accounting bodies (in the UK, across Europe and in North America) are
    currently examining their standards and conventions as regards the financial reporting of

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.  Corporate Environmental Performance as a Factor in Financial Industry Decisions
     environmental costs and liabilities. In the main, these studies conclude that existing
     accounting standards and practices will yield reasonably comparable, quantified
     information on material environmental costs and liabilities, whatever the reporting
     business.                         '

  10.1    Existing requirements for financial statements
         The  present requirements  of UK company law, and  existing  and  proposed
  accounting  standards cover   the   following  accounting  issues  of  recognition  and
  measurement which may have environment related implications:
     •  balance sheet provisions for liabilities and risks;
     •  estimation of the amount of a contingency;
     *  provisions for long term decommissioning costs;
     •  capitalization of costs;
     •  offsetting of liabilities and expected recoveries;
    r •  asset impairment and provisions for repair costs;
  as well as the following issues regarding disclosure in financial statements:
     •  the position and/or separate disclosure of environmental provisions in the balance sheet;
     •  environment related disclosures required in the Notes to the Accounts (valuation methods and
         accounting policies;  exceptional environmental  items; disclosure and  details  of 'other
         provisions'; contingent environmental  liabilities).
         Subject  to  the application   of  the materiality  concept,  these accounting  and
 1 disclosure requirements already apply to all companies regardless of size or sector.

  10.2    Discretionary financial disclosures and environmental costs
         In recent years there have been many examples of companies making discretionary
  disclosures of financial information, over and above the statutory-miriimum. Examples of
  such discretionary disclosures which, it  has been suggested*, it would be useful for the
  financial community to be aware of,  include:
     • the amount of environmental expenditure charged to the profit and loss account;   •
     • the amount of environmental expenditure capitalized, to the extent that it can be  clearly
        differentiated from other capital expenditure;           .
     • the amount of costs  incurred as a result of fines and penalties for  non-compliance with
        environmental regulations, and compensation to third parties, .where material.'
  There is some debate regarding:          .                                        ซ
     • the ease with which environmental capital expenditure can be separately identified; and
     • the actual usefulness of the information in interpreting corporate environmental performance -
        for example, is a low level of environmental  expenditure to be interpreted  more or less
        favourably than a higher level?                              •
        Nevertheless, it is important  that whenever such discretionary financial disclosures
  are made,  the accounting policies  and definitions  used are fully disclosed and that,
  wherever possible, comparative data compiled on a similar basis is also disclosed.

  10.3   Non-financial discretionary disclosure
         Finally,  there is some non-financial environment'related data  which, it has been
  argued*, could also be of use to the financial sector.  This  includes:
     • where environmental issues are relevant to a complete understanding of the financial position.
        and  performance of the  undertaking, a  description of  the  respective issues  and the

  Environment and Pinance Enterprise                                                '  • '            87

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
       undertaking's response to them.  Summary data of a non-financial nature can be very useful
       for this purpose. Clearly this is likely to affect businesses in some industries more than those
       in others;
    •  the policy that has been adopted by the enterprise in respect of environmental protection
       measures;                                                       '
    •  the improvements that have been made in key areas of environmental protection;
    •  the extent to which environmental protection measures, arising from changes in future legal
       requirements that have already been enacted or substantially enacted into law, are in the
       process of implementation;
    ••  reference to other quantitative or qualitative environmental information provided in a separate
       environmental report.                .

       This information is very unlikely to have to be included in' a company's audited
financial statements. Financial audiences would prefer to see such-disclosures being made
in the annual report itself, rather than in a stand-alone environmental performance report.
Such disclosures could be made within the Operating and Financial Review (see below).
Where reporting companies choose  to  disclose such information through a stand-alone
environmental report, there should  be cross references  to relevant data in  the  annual
accounts.
       ACBE strongly supports continuous experimentation by businesses with this type
of non-financial  discretionary disclosure through the unaudited section of  the  annual
report to shareholders,  but has no  wish to attempt to  prescribe their precise form or
content.

11. The Accounting Standards Board published a discussion paper earlier in 1996 on
    provisioning and the recognition of liabilities, which included a section on environmental
    liabilities. The Institute of Chartered Accountants in England and Wales issued a paper
    on "Environmental Issues in Financial Reporting' in October 1996.  The EU's Accounting
    Advisory Forum also published a report on environmental costs and liabilities in April
    1996, while other European level bodies are examining auditing practices and the
    preparation of 'opinions'. ACBE welcomes these studies and urges the preparers of
    reports to take account of their conclusions.

The Operating and Financial Review
12. The Financial Reporting Council strongly recommends listed companies to support
    Operating and Financial Reviews (OFRs) alongside their annual financial statements, as
    narrative amplifications of past performance and planned strategic direction. The OFR
    format, as drawn up by the Accounting Standards Board, explicitly provides for the
    inclusion of environmental information.  Listed companies should thus ensure that their
    OFRs include descriptive and quantitative details of the environmental risks they face, the
    environmental costs they have incurred, and the environmental initiatives they have taken.
    The discussion should be linked to amounts charged, provided for or disclosed in the
    Accounts, and it would thus cover capital and revenue expenditure, liabilities and
    provisions.                                    ,
Emrtronment and Finance Enterprise

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
13. ACBE considers that the OFR should also state whether a formal environmental
    management system is in operation, and the extent to which management action has led to
    changes in the business's environmental performance.  It should for example, include a  ,
    statement of the business's record as regards its compliance with environmental
    requirements, with an indication of significant infringements of them.  The policy for
    managing environmental risks should be stated; this will help to demonstrate and ensure
    appropriate Board responsibility towards environmental issues and their integration
    throughout the business.

The Environmental Report
14. ACBE is concerned to encourage more widespread dissemination by businesses of their
    environmental affairs to all audiences and  stakeholder groups. Often this will best be
   •done through the medium of a specially prepared environmental report. Such a report
    might be a separate section in a standard Annual Report aimed largely at the financial
    sector and shareholders, or a separate publication, targeted at a wider range of
    stakeholders. Individual firms hold different views about the merits of each approach, but
    ACBE feels that a stand-alone environment report is a complement to, not a substitute
    for, the inclusion of environmental information in the annual accounts.

15. When structuring a report for a financial audience,  the key messages to convey will be
    strategic, illustrating, in particular, the extent to which the company's environmental
    management system implements its environmental policy and is an integral part of its
    overall corporate plan and business operations. Data that can be benchmarked against
    similar companies will be especially valuable. More work is needed to identify appropriate
    measures of performance and develop guidance on measurement and monitoring.
    Reporting companies and their financial audience should work together to ensure that
    such indicators are useful and meaningful.              .     •

16. Factual information in an environmental report needs, of course, to be compatible with  .
    that in the OFR and the Accounts, and there should be adequate cross references between
    them.  The report should include physical  and technical data, and social information such
    as that on health and safety.  Consistency of preparation is needed to permit comparisons
    across time and with comparable businesses. Details should be included of the systems
    and controls used by the business to monitor compliance with its own policy and with
    regulatory requirements.

17. The report should where possible quantify the financial implications of the reported
  ,  physical performance measures, giving details of such matters as fines and prosecutions.
    Comparisons with peer group businesses,  perhaps with performance measures established
    by trade associations, would be helpful where possible.

18. There should be a Directors' Responsibility statement which' makes it evident that there is
    clear Board approval for the report.
Environment and Finance Enterprise                                          '                  89

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Independent Review
19. An authoritative, independent, review of an environmental report can be a major spur to
    improving the quality, integrity and credibility .of its content.  Different forms of review
    may be appropriate for different parts of the material presented: environmental liabilities
    and costs will be reported in the Accounts and thus subject to financial audit, while
    physical information in the OFR and environmental reports may be scrutinized by
    environmental auditors. Their skills differ and they are regulated by different professional
    bodies; it would be valuable if a coordinated approach could be taken by the two review
    functions. The following points should also be noted:

(i)  Independent verification  should be  encouraged but not made mandatory.  The pace of its
    development should  be determined by user  demand and the availability of suitably qualified
    verifiers.
(ii) The Auditing  Practices  Board, in consultation with the UK Accreditation Service, could be
    charged with  investigating the  feasibility of  developing  standards for verification of the
    disclosures, which should be compatible where possible with those of the Eco-Management and
    Audit Scheme.

20. ACBE appreciates that, with  the reporting field itself in a state of rapid evolution, a
    flexible approach to the auditing and review process for environmental information is
    required. The remit of the financial auditor in respect of the financial accounts is well
    established, but differing forms of scrutiny may be appropriate for environmental
    information, depending ori where it occurs.

    See, for example, the EC Accounting Advisory Forum (1996) and the European Federation of
       Financial Analysts (1995)
Environment and Finsncs Enterprise

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
ANNEX A: EXAMPLES OF ENVIRONMENTAL PERFORMANCE HAVING MATERIAL FINANCIAL
IMPLICATIONS                                                    ,
       0   Capital expenditures  required  for compliance  with  BATNEEC  process
           authorisations under EPA 1990
       1   Capital expenditure for the remediation of contaminated land - or provisions for
           this if a future liability can be foreseen
       2   Capital expenditures which may ensue from the need to respond to specific
           customers' requirements - the competitive 'licence to operate'
       3   Revenue expenditure on improved waste management, thereby minimizing the
           burden of landfill taxes
       4   Capital or revenue costs in improved management practices, e.g. to attain energy
           or materials utilisation rates per unit of output which match those of comparable
           competitors.
       5   The cost of dealing with unexpected environmental impacts - whether accidental
           discharges due to operator error or arising from inherently hazardous processes -
           and whether  in the form of physical damage to be rectified, or the payment of
           fines or damages imposed by the regulators or the courts:

ANNEX B: RESPONDENTSWHOSE VIEWS WERE TAKEN INTO ACCOUNT DM PREPARING THE
REVISION AND/OR THOSE ATTENDING THE WORKSHOP

Airpocket Design
Albright & Wilson
Auditing Practices Board
Bifia Waste Services
British Gas
British Secondary Metals Association                                                '
Central & West Lancashire Chamber of Commerce .
Confederation of British Industry
Chris Burgess
Credit Suisse
Deloitte and Touche                                        .
ECS Underwriting
EIRIS Services                              ,
Eclipse Research Consultants
En-Venture
Environment Agency        .               -               -   .
Environmental Industries Commission
H A Masons Metals
HSBC Gibbs
The Hundred Group of Finance Directors
The Institute of Chartered Accountants in England and Wales
Jupiter Asset Management
King Sturge & Co
Lloyds TSB Group                                                         <
London Chamber of Commerce & Industry

Environment and Finance Enterprise                                -   '             ^    .  ' •    91

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
London Transport
Loss Prevention Council
Morgan Grenfell Asset Management
Nuclear Electric
Pearson
PowerGen
The Royal Institution of Chartered Surveyors
Simmons & Simmons
Thames Water
UK Centre for Economic and Environmental Development
United Utilities
University of Hertfordshire
Wolverhampton Business School
Zeneca   •'  ,

ENVIRONMENTAL REPORTING WORKING GROUP
       Derek  Higgs (Chairman)
       Roger Adams                       Chartered Association of Certified Accountants
       Janet Asherson              Confederation of British Industry
       Brian Birkenhead            ,        National Power
       Robert  Charlesworth                  Auditing Practices Board
       Clare Craig                         Confederation of British Industry
       Bill Dale                            SBC Warburg
       Brian Griffin                        Royal and Sun Alliance Insurance
       Philip Hillman                       King Sturge & Co
       Philip Jones                         Institute of Investment Management and Research
       Mike Kelly       .                   NatWest
       Robert  Langford  •                   Institute of Chartered Accountants in England &
                                          Wales
       Andrew Lennard                     Accounting Standards Board
       JonSymonds                        KPMG
       Tessa Tennant                       NPI Global Care Investments
       Hilary Thompson                    NatWest
       Charles Duff (Secretary)              Department of the Environment
Environment and Finance Enterprise           .                                                  92

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                             Exhibit E

                          The Global Reporting Initiative A Project of CERES

                         Coalition for Environmentally Responsible Economies
         Welcome to the first in a series of briefings on key issues related to the Global Reporting
 Initiative (GRI).  We hope these briefings will stimulate discussion and elicit comments  from all
 stakeholders with an interest in .standardized corporate sustainability reporting.  Subsequent issues of
 Touchstone will cover reporting issues and treads in specific business sectors and environmental
 management   hi addition, Touchstone will  examine special topics and new frontiers in social
 indicators and environmental financial reporting.  We invite your comments and suggestions on this
 and future issues.

                                     . Allen L. White and Diana M. Zinkl, Tellus Institute
         GRI: The Vision - CRTs core mission is both timely and bold:  To establish, through a
 global,  voluntary, and  multi-stakeholder process,  the  foundation  for  standardized (or uniform)
 corporate sustainability reporting worldwide. We plan to accomplish this mission by developing three
 tools:  a set of core metrics applicable to all business enterprises; sets of sector-specific metrics
 customized to specific  types of enterprises; and a uniform format  for reporting  these metrics  and
 related information integral to a company's sustainability performance,  hi addition, GRI seeks to
' identify, or  help  create, a permanent institutional  "home" to monitor,  advocate, and continually
 upgrade the practice of standardized reporting worldwide. CERES launched GRI in the Fail of 1997.
' Founded in  19S9 as a coalition of social investors  and environmental organizations, CERES  has
 spearheaded corporate environmental accountability for the last decade.  This mission comprises a
 three-part program:                                       '
         *       The CERES Principles, a 10-point code of conduct endorsed by CERES companies
 to help guide corporate behavior toward sustainable policies and practices.
         *       The CERES  Report, a comprehensive, standardized, environmental  report form
 covering all  aspects of corporate environmental management and performance.  First developed in,
 1990 and revised annually through a collaborative industry-environmental-investor process,   the
 CERES Report has widely recognized  as leader worldwide in standardized reporting. In a 1997
 UNEP/SustainAbility survey of corporate reports worldwide, half of the 10 top-ranked reports belong
 to CERES companies, including the top two.                              .
         *       Ongoing collaborative relationship between CERES Companies and the Coalition,
 helping to catalyze significant and measurable improvement toward the environmental goals embodied
 in the CERES Principles. The CERES process emphasizes dialogue and collaboration on both public
 disclosure and reporting as well as on elements of corporate culture and stakeholder engagement.
         GRI  flows from  a  decade of CERES'  leadership in fostering  corporate environmental

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
accountability through public disclosure.   It seeks  to build worldwide support for standardized
reporting, and thereby mobilize the power of information and the marketplace to reward performance
and "raise the bar" on sustainability excellence.  While CERES and other initiatives have achieved-
notable progress, much work remains to accomplish truly universal acceptance.
       The potential rewards; are enormous.  Global  standardized reporting promises to elevate
sustainability reporting to the level of financial reporting by delivering a steady flow of consistent,
comparable,  and  verifiable  information  to  investors,  environmentalists,  consumers  and  other
stakeholders. Those behind GRI believe that the international movement mat has coalesced around
this objective is powerful enough to achieve major progress by the year 2000.
       Where are we today?
       Each year witnesses a  growing number companies voluntarily disclosing environmental
information, both as stand-alone corporate environmental reports (CERs) and as special environmental
sections within  corporate annual reports. Repotting firms cover all sectors, including manufacturing,
extractive, and  service.  Companies from all  regions of the world produce reports, including North
America,  Europe, Asia, Africa and Latin America.  With this continuing proliferation, it is fair to
assume that thousands of CERs will be produced annually by  the  year 2000,  with representation
spanning all business sectors and world regions, covering both industrialized and developing nations.
       Unfortunately, while the  quantity of information rapidly expands, it is far from clear that the
value of information has kept pace. The reasons behind this phenomenon become evident with even a
cursory look at a sample of reports.  Each firm utilizes its own format, its own indicators, and its own
metrics, thereby making comparisons  between reports impossible.   The result:   the  substantial
resources  firms spend on data development and analysis, report production, and report dissemination
yield far less value than they could and should. Report users-investors, environmentalists, consumers,
employees, and other stakeholders, and  other firms-have great difficulty in using  reports to inform
investment  decisions,  guide consumer product choices, and  benchmark performance  against
comparable  firms. These,  and many other valuable purposes remain under-served by the growing
quantity of Don-standardised information reported in non-uniform formats.  Should present trends
continue, the future of corporate sustainability  reporting faces an uncertain and, probably, unfortunate
future.  In a "business-as-usual" scenario with each firm designing  its  own  format, indicators, and
metrics, the reporting landscape is sure to evolve in .an increasingly chaotic fashion. Information
quantity will continue to grow rapidly, but information value will peak,  and perhaps even decline.
Customized  reports increasingly will frustrate, rather than satisfy, confuse rather than illuminate, the
many stakeholders who take sustainability information seriously and  seek to incorporate it into their
decision-making. At the same time, reporting firms, already unclear as to the  value of CERs to their
users, may eventually retreat from disclosure as a standard business practice.  This, of course, is
exactly the scenario GRI seeks to avert through a concerted, global effort toward harmonization of the
many disparate initiatives now underway.                •

       Building Consensus - A survey of reporting initiatives  worldwide reveals a wide array of
programs  sponsored  by  non-governmental  organizations,  governmental  entities,  and  business
associations.  At one end of the spectrum are programs that promote reporting as a valuable practice,
but offer no-specific guidance on  which indicators (e.g. energy efficiency; water use, air pollutants) or
specific metrics (BTUs per unit product, gallons per dollar value added) should be reported.  Other

Environment and Finance Enterprise                                                                '  94

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 programs, still voluntary, offer more specific guidance on indicators, but not metrics.  Still others are
 mandatory, but non-prescriptive with respect to indicators or metrics. And, finally, at the other end of
 the  spectrum, are a  handful  of programs, both voluntary and mandatory,   that  provide  some
 combination of a uniform format, defined indicators, and standardized metrics.  Among this latter
 group are:
        *      CEFIC-the European Chemical Industry Council        •
        *      CERES                                          .
        *      Danish Government "Green Accounts" Program
       . *      IRRC-Investor Responsibility Research Center
        * .     UNEP/SustainAbility                                    .  •
        *      VfU-the  German Association for Environmental Management in Banks, Savings
        Banks and Insurance Companies
        *      WRI-World Resources Institute
        In addition to these initiatives, two notable newcomers are the World  Business Council on
 Sustainable Development (WBCSD) Task Force on Eco-Efficiency and the Dutch government's non-
 binding reporting guidelines which will be issued in 1998.
        The proliferation of such programs worldwide attests- to the increasing rnainstreaming of
 reporting as an essential element of corporate accountability. Accountability is no longer the exclusive
 domain of social investors and environmental organizations.  Governments and many in the business
 community now actively support  environmental reporting-and for some sustainability reporting-as an
 essential element of responsible business practice.  The diversity and growth in reporting initiatives
 reflect this evolving convergence of NGO-business-government viewpoints.
        The intense worldwide  interest. poses a major  challenge,  and  opportunity,  for GRI.
 Harnessing this  burgeoning  interest will  require an  inclusive, balanced  and effective process
 encompassing the views and. talents of all stakeholders.  Moreover, achieving  the GRI vision of a
.uniform structure and standardized core and sector-specific metrics will require stakeholders to forgo
 special  interests for the larger goal of harmonized reporting.  GRI is about finding common  ground
 through a consensus process. It seeks to establish a foundation for reporting that will allow individual
 NGOs businesses,  and government initiatives to  go even beyond the metrics which emerge from the
 GRI process.  At the  same time, GRI believes that a uniform format and standard metrics  will be
 powerful forces in elevating environmental reporting to the level  of general acceptance and practice
 now accorded financial reporting.


        Participants and Structure  -  CERES  is  the  convenor and secretariat  of  GRI!  Tellus
 Institute, an independent, non-profit organization is providing technical expertise in support of GRI
 activities. An international steering committee oversees CRTs activities and comprises representatives
 from NGOs, corporations, professional accounting organizations and the United Nations. As of April
 1998, these include:

        *     Association of Certified Chartered Accountants (UK)                .
        *     Canadian Institute of Chartered Accountants (Canada)

 Environment and Finance Enterprise                                                        •>       95

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
       *       Council on Economic Priorities (USA)
       *       General Motors (USA)
       *       Investor Responsibility Research Center (USA)
       *       New Economics Foundation (UK)
       *       Salomon Smith Barney (USA)              .
       *   •    SustainAbility (UK)
       *       Swiss Bank (Switzerland)
       *       United Nations Environment Program (France)
       Additional Steering Committee representation is being actively sought within Asia and newly
industrializing countries,  In addition to the Steering Committee, GRI associates representing various
stakeholders are participating in the process.  These include NGOs, professional organizations, and
corporations from North America, Europe, Asia,  Africa and Latin America.  Although it is a
voluntary, non-governmental program, GRI will involve government representatives in the process at
an early stage. The Steering Committee will oversee the work of GRI Working Groups.  In its initial
phase three such groups have been formed:  (1) User Needs — to characterize needs of various
stakeholders for environmental information and ensure that these needs are reflected in the products of.
other Working Groups; (2) Format - to develop a uniform template within which information will be
reported;  (3) Measurement  ~ to identify  categories of information, performance indicators and
specific metrics. Other Working Groups will be phased in over the course of GRI, including Sector-
Specific Metrics, Social Accountability Integration, and Institutional Arrangements.  Finally, each
Working Group is charged with attending to certain cross-cutting issues:  North-South Implications,
Implications for Small and Medium Size Enterprises, and Communications.

       Schedule - GRI is scheduled to complete its work by December 1999, and will work to share
the results of this effort through the year 2000. A strategy will be in place to  shift ownership of the
GRI process and products to a permanent  institutional home capable of monitoring, refining, and
promoting standardized environmental reporting over the long-term. A major international symposium
is planned for-1999 as a forum for publicizing GRI's work and to set in motion .the process of
transitioning the GRI to a permanent institutional home.
       Contacts -  For more information on GRI, contact
       Judy Kuszewski, Director of Corporate Programs, CERES 11 Arlington Street  Boston, MA
02116-3411    Tel:    617  247-0700,   Fax:    617  267-5400,   email:    kuszewski@ceres.org.
http://www.ceres.org  OR Allen White,  Vice President, Tellus Institute. Tel:  617 266 5400, Fax:
617 266 8303, email:  awhite@tellus.org
Environment and Finance Enterprise

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Corporate EmriramneniaL Performance as a Factor in Financial Industry Decisions
                                           Exhibit F

                                         Tellus Institute

                         GREEN METRICS: A Global Status Report on
               Standardized Corporate Environmental Reporting (April 1998) Excerpts
       Table 1. Reporting Guidelines Worldwide, Industry Groups
Organization
r >-, r__, ฃ2--—--.-
iKSUSBy vfOUfB
The Association for Environmental
Management in Banks, Savings Banks, and
Insurance Companies (VHJ)
Business in the Environment
Chemical Industry Association (VCI)*
Chemical Manufacturers Association
(CMA)
Confederation of British Industry -
Environmental Business Forum
European Chemical Industry Council
(CEFiC)
Intenialional Chamber of Commerce
International Network for Environmental
Management
Japan Federation of Economic Organizations
(KEUANREN) '
Minerals Coucil of Australia
Prince of Wales Business Leaders Forum
Public Environmental Reporting Irritative
(IERI)
World Business Council on Sustainable
Development (with WEC and NRTEE)
Focus
Banking
Industry/
Germany
Genetic
Chemical
Industry/
Germany
Chemical
Indusiry/US
UK
Chemical
Industry
Generic

Japan
Australia
GenericA
International
Generic
Generic'
Reporting
Mandatory?


X



-





Gmddines
X
X
X

X
X
X
X
X
x •
X '*
X
X
Qualitative
Maries
X



^
X





s

Quantitative
Metrics
X




X


•



X
Evaluation/
Verification/
Certification








X



Guidelines available to members of VCI only.
Environment txnd Fmtnic& Enterprise
                                                                                       .97

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 Corporate Environmental Performance as a Factor tn financial Industry Decisions
 Table 2.  Repotting  Guidelines Worldwide,  Non-Industry Groups and Government
 Initiatives  ,
Organization
N0n~fadustry Groups
Association of Chartered Certified
Accountants (ACCA)
Canadian Institute of Chattered Accountants
Coalition for Environmentally Responsible
Economies (CERES)
Eco-Management & Audit Scheme (EMAS)
German Institute for Standards (DIN)
Internatioral Auditing Practices Committee
Investor Responsibility Research Center '
Social Venture Network
United Nations Environment Program
(UNEPySustainAbility

united JNanons intergovernmental working
Group of Experts on International Standards
of Accounting and Reporting (UN-ISAR)
World Resources Insitute (WRI)
Advisory Committee on Business and the
Environment-UK GoV\ (ACBE)
Denmark, "Green Accounts"
Netherlands, Environmental Management
Actofl993
New South Wales, Australia, Environment
Protection Authority
Focus
Financial
Environmental
Reporting
Generic
Generic/
Intentional
Europe
Germany

Generic
Generic/
International
Generic/Intern
ational

financial
Environmental
Repenting
Generic
.:f::::, ฃ':;::;::.:•-::?"ฃ:'::
Financial
Environmental
Reporting
Denmark
Netherlands
New South
Wales,
Australia
Reporting
Afondatory?

X
X
J






f^i^m^m

X
X(1998)

Guidelines
X
X
X
X.
X
X
"
X
X

X
X
?:?K>s;;;;;;;fS:S?B:
X
X
X*
X
Qualitative
ftfetrics

X







X
:':'S:T:;.:::::<::::>K?:?v


-

Quantitative
Metrics

X



X



X
X




Evaluation
Verificafioi
Certificatio

X
- X
,



X

,
'':::i.ii-i:\
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
Table  3.   Major  Repotting  Initiatives  Worldwide,  and  Their Recommendations  or
Requirements

&uma^^imiaiammmm\
Statement from ihe CEO
Corporate environmental policy
Company profile
New/modified product lines
New/modified production facilities
Flans, objectives, goals
Environmental j™TiปgcTHriit
Audits
T?.l.uui™nrLjซl 	 ' 	 1 	
umsigeiicy IAC^JIUUIUCSS
Kmpinyflft lecoflnition mechanism.
Environmental justice activities
IVhterials policy
Worker health and safety
Product stewardship. • -
Supplier relationships
Noncompliance and litigation
Stakeholder relations
Contact information
Certificalon process
Qian&afoelnfemn&m
Chemical releases
Accidents
Hazardous waste management
Energyuse ,
Wateruse
Non-Hazardous waste management
Vfeterialsuse
f-fon-product output
Environmental expenditures
Normalization of metrics
Bans, objectives, goals
CEE1C
;;:?;:;;ซ'?ฃ IS
X
X
, X .
X
X
X
X
X





X
X

X
X
,x


X

X
X
X
X


X


CERES
:;::.:.::fSffS: ;;;;;:'

x •
X
X
X
X
X
X

•
X
X
X
X
X
. X
X
X
X
X

X
X
X
X
X
X
X

X
X
X
Denmark
;:.:::.:-:::-:::::;:::;::::':::;:'


X



X





1








X

X
X*
X*
'X
X*




IRRC
^•liilpS;

X
X

,

X
X.


X




X
,- x




X
X
X
X
X
X


X
X
X
UNEP/
Sustain-
Abifity
;.ii'i;;?l;ili;J4?s
X
X
X


X
X
X


X

X
X
X
X

X
X
X

X
X '
X
X
X
X
X
X
X

X
VfU
:.;;:-:.;-:,: ::.::::::-:::-:•:-:::
i

X
v

X
X







X


X
X


X

X
X
x .
X
X


X
X
WBCSD
(under
devel)






• '





*•









X '


X
X

X




WRI
(propose
)
•;::;:f::x:^:S::
















*


,

X
- x
X
X

X
X
x. .



     ^Companies must report this information to the Danish government, but not for public disclosure.
Environment and Finance Enterprise
                                                                                           99

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 Corporate Environmental Performance as a factor in Financial Industry Decisions ,
                                         Exhibit G

                                             ISO 14001
                              t
                   Copyright restrictions preclude the inclusion of excerpts from ISO 14001.
                                            Exhibit H

                                             ISO 14031

                   Copyright restrictions preclude the inclusion of excerpts from ISO 14031.
          If copies of these documents are desired, the reader may contact ISO (International
 Organization for Standardization) worldwide, or ANSI or ASTM in the US and obtain them for
                                            a fee."
Environment and Finance Enterprise                                                                100

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
                                      Exhibit I

                            Investors Responsibility Research Center
                  IRRC Compliance Im
                            Trends
The table below shows the individual company trend and the trend relative to industry for
every company in the non-financial S&P 500 industry groups.  The size-adjusted index these
trends are based upon measures the total value of penalties per $1 million in annual revenue.
Negative trend values indicate improvement—4he company has reduced the fraction of
revenue assessed as environmental penalties.  Positive values indicate that this fraction, and
by  implication  the  company's total  environmental compliance costs, have  increased.  A
company that had no penalties in the earlier period, but has at least one in the later period will
have an infinite percentage change, indicated as +<ป%. A rank of "1" indicates a company
with the most favorable performance relative to its industry peers. Higher numbers indicate
less favorable performance.
Industry Group
Company
Index Value ;
1990-92 1993-95
Percent
Change
in Index
Company
Trend
Rank within
Industry Group
1990-92. 1993-95
Trend
Relative to
Industry
Aerospace/Defense
    Company A
    Company B
    Company C
    Company D
    Company E

Agricultural Products
    Company F
    Company G

Air Freight
    Company H

Airlines
    Company I
    Company J
    Company K
    Company L  .
15.86
 1.77
52.71:
 8.39
 0.30
16.11

 2.27
 4.45
 0.08

 0.00
\0.00

 5.57
 4.94
 0.63
 0.00
16.70
6.11
0.06
7.19
9.68
11.63
1.98
22.55
42.81
2.28
0.56
0.56
0.70
0.26
1.29
0.00
1.23
-61%
' - -96%
-86%
+15%
+3,776%
-87%
+893%
+862%
+2,750%
+ฅ%
+ฅ%
-87%
-94%
+104%
0%
-92%
improving
improving
 worsening
 worsening
improving
worsening
worsening
worsening
improving
worsening
no change
improving
2
5
3
1
4
2
1
3
2
1
4
1
3
4
5
2
improving
improving
worsening
worsening
improving
2   no change
1   no change
      1   no change
2   improving
4   worsening
I ,  no change
3   improving
Environment send Finance Enterprise
                                                                                  101-

-------
Banks (Money Center) (6 companies)
Hazardous Waste Cleanup Responsibilities
Superfund NFL sites: <
RCRA corrective actions required:
Permit Restrictions
RCRA permit denials, 1993-1995:
MMS facility shut-ins, 1993-1995:
•
Company Government
Figure Data
- o
o
Government
Data
0
0
Sample Bank
Cleanup Indices
Company Industry
NA NA
NA NA
Permit Restriction Indices
Company . Industry
NA NA
NA NA
Toxic Chemicals
Transfers & releases:
1992
1993
' 1994
1995
1996
Total, 1992-1994:
Percent change, 1989-1994:
Waste generation:
1992
1993
1994
1995
1996
Total, 1992-1994:
Percent change, 1 99 1 - 1 994:
. IRRC Emissions Efficiency Indexฎ ' . — * — company
Amount (Ibs.) Company Industry IRRC Em iSSKHIS Efficiency IndCX* "*" industry
780
784
1.109
2,673
780
77
1,109
1,966
NA
NA
NA
NA
. NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
• NA
NA

-
1990 1991 1992 1993 , 1994 I99S
.
Reported Spills
Amount
Oil spills >10,000 gal.
1993 0
1994 0
1995 0
Chemical spills > 10,000 Ibs.
1993 0
1994 , 0
1995 0
Total oil & chemical, 1993-1995
Percent change, 1990-1995:
, ?
Number
0
0
0
0
0
. 0
: 0
IRRC Spill Index - • company
Company Industry ' IRRC Spill Index "•" industry
NA
NA
NA'
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA


-
•
1990 1991 1992 199J 1994 1995
Compliance Datai993-iW5
Statute Penalties
RCRA
CAA .
CWA
SDWA
. TSCA
FIFRA
OSHA
MSHA
AEA
ESA
Year
1993
1994
1995
0
0
0
0
0
0
0
0
0
0

0
0
0
Total, 1993-1995: 0
Percent change, 1990-1995:
Total
value
0
0
0
-• 0
0
0
0
0
0
0

0
0
0
0
Penalty Indices , • company
Company Industry IRRC Compliance Index* ••*•• industry
NA
' NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
IRRC Compliance Indexฎ |
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA


1990 , 1991 . 1992 199} 1994 199$

-------
Sample Bank
Banks (Money Center)
Environmental Management & Policy
Senior officer:
Title:
Levels to CEO:
Reports to:
Env. staff:

Env. policy
Outside codes:
Evaluate environmental risks when selecting:
                             \
(  ] Suppliers
I  ] Partners
[  ] Clients
 7995 Form 10-K Environmental Disclosure
 Env. capital expenditures:Actual: not disclosed
                    Projected:  not disclosed
 Env. legal proceedings:  Gov't: none disclosed
                      Private: none disclosed
Secondary Industries
Environmental Auditing & Reporting.
                                                           | Sustainable Development Indicators
Audits for property transactions:

Env. report:
                         United Slates
Worldwide
 Energy use:
 Recycled material
 use:
Environmental Achievements & Projects
EPA Voluntary Programs:

   [  ]WasteWi$e
   [  ] Green Lights
   [  ] Energy Star
   Recycling:

  .   Waste recycled:
     Recycled material purchases:
    Asbestos abatement,' Bank Plaza.
    •Energy conservation.
    Waste recycling.
    Asbestos abatement.
News & Notes
      Sample Bank's Global  Power. & Environmental  Group
formed a joint venture with DynaMotive Technologies Corp. to
finance  future power generation projects. The projects call for
the design and construction of plants to produce low cost, clean
burning, renewable fuel from biomass.  The fuel produced is
then  converted  into . additives  that  destroy  air  emissions
responsible for global warming, ozone depletion and acid rain.
The estimated cost of a project is between $15 and $30 million.
(BW12/5/96)
      The Sample Bank's Global Power & Environmental Group
arranged financing  for the  La  Compagnie Greenfield  S.A.
project in Europe.. Sample Bank provided $130 million to build
the first waste-to-letter grade pulp de-inking and recycling pulp
.plant, which is scheduled  to begin operation by the second
quarter of 1997. (SW7/3I/96)

-------
Corporate Environmental Performance as a Factor m Financial Industry Decisions
                                               Exhibit J

                                           EcoValue '21™
                              Uncovering Hidden Value Potential
                                       for Strategic Investors

        1.   Eco-Efficiencv; New Source of Strategic Value Creation.
        It is now increasingly widely recognised by both financial analysts and investors that there is a
strong, positive, and growing  correlation between industrial companies' "eco-efficiency" and their
competitiveness and financial performance, whether measured as ROI, ROE, or total stock market
return.1   Indeed, recent back-test evidence indicates that a diversified portfolio of eco-efficient
companies can be expected to oat-perform its less efficient competitors by anywhere from 240 to
290 basis points or more per annum. In particularly  high-risk sectors such as chemicals and
petroleum, this "out-performance premium" can  be as great as 500 basis points . What is more,
this gap will only widen in future, as the forces  of tighter international  environmental standards,'
tougher disclosure requirements, and globalized competition  combine to increase  the financial and
competitive premium on superior eco-efficiency.

        Over the past  12  months, international  surveys by  Salomon Brothers  and others  have
documented a dramatic increase  in the degree to  which  major financial  institutions have  become
concerned with environmental risk as a core business issue. And from an investment perspective, eco-
efficient companies generally demonstrate superior strategic and financial management across the
board, and therefore tend to produce superior financial returns.  In short, eco-efficiency turns out to
be an extraordinarily good proxy for and predictor of superior corporate management, which in
turn generates financial out-performance and shareholder value.

        What has been missing until now is a robust and credible set of analytical models capable of
assessing mat risk  systematically, translating it into financial  terms,  and identifying hidden value
potential and investment opportunities in individual companies. Innovest Capital Risk Advisors, S.A.
 See, far example, World Business Council far Sustainable Development, Environmental Performance and Shareholder Value. 1997;
        European Federation of Financial Analysts, Eco-Ejfficiencu and Financial Analysis: The Financial Analysts View. 1996;
        1CF Kaiser, Does Improving a Firm's Environmental Management Si/stem and Environmental Performance Result in a
        Higher Stock Price? 1996; and Center for the Study of Financial Innovation; Measuring Environmental Risk. London:
   ,    1994. "Eco-efficiency" can be defined briefly as the capacity to create greater shareholder value with lower levels of
     '   resource inputs and environmental risk than one's corporate competitors.
 See, far example, Richard Clough, "Impact of an Environmental Screen on Portfolio Performance: A Comparative Analysis ofS&P
        Stock Returns", Duke University, 1997;  U.S. Environmental Protection Agency, "Environmentally Screened Index
        Investing," November, 1996; Mark A. White, "Corporate environmental  Performance and Shareholder Value,"
        University of Virginia, Mdntire School of Commerce, November, 1995; Stuart L Hart and Gautam Ahuja, "An
        Empirical Examination of the Relationship Between Pollution Prevention and Firm Performance,- "University of
        Michigan, School of Business Administration, September, 1994; and Jonathan Snyder, C.F.A. et al 'The Performance
        Impact of an Environmental Screen. " Winston? Management Company/Eaton Vance, 1993.
Environment and Finance Enterprise

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions  •
 has created the EcoValue '21 J analytics platform specifically to provide that capability, for the first
 time in North America.                        •                                     ,          .

        Even in the short  run, sophisticated and robust  eco-efficiency analytics tools  such as
 Eco Value '21 can generate investment out-performance in the order of 240 basis points or more.
 In the longer term, as the capital markets become more fully sensitised to the financial and competitive
 consequences of eco-efficiency, the out-performance gap is expected to widen significantly.. When this
 occurs, investment gains of 400-500  basis  points and even more  should become' consistently
 achievable.   The  Eco Value '21  analysis platform has been created specifically to exploit the
.substantial hidden value  potential inherent in the current lack of reliable, widely available
 market intelligence on the financial and investment consequences of the substantial differentials
 in  the relative eco-efficiency - and medium-term  financial performance - of publicly traded
 companies.

        A recent Price Waterhouse study of 1,100 major  U.S. manufacturing companies has revealed
 that over 62% had major but undisclosed environmental liabilities.  Innovest Capital Risk Advisors,
 S.A.'s, own analytical models have detected variances as great as 500% hi the environmental risk.and
 eco-efficiency profiles of  companies which  conventional  financial analysts and  rating agencies
 continue  to  regard as  identical credit and investment  risks!   By superimposing  its proprietary
 analytical models on top of conventional investment screens, Innovest Capital Risk Advisors, S.A. can
 identify hidden value opportunities, and thereby create superior returns for investors.

      ' EcoValue  '21  J is  the product of over'two  years'  development by Innovest Capital Risk
 Advisors, S.A., and its strategic partners, including Coopers & Lybrand LLP. It grew directly out of
 insights and research generated by the initial Capital Markets Task Force of the Business Council for
 Sustainable Development in Geneva.  The BCSD included  the chairman of several of the ..world's
 leading industrial  companies, including Volkswagen, DuPont,  Royal Dutch/Shell,  Mitsubishi, and
 Asea Brown Boveri, and served as the Principal Business  and Industry Advisor to the Secretary
 General of the historic Earth Summit in Rio de Janeiro in 1992. Innovest's founder served as the head
 of the initial BCSD capital markets task force.                                        .

        EcoValue  '21's intellectual capital base has been further enriched by comprehensive, 5-year
 back-tests on over  300 Fortune 500  companies.   These back-tests  have allowed  individual
 environmental risk factors to be identified, and their varying relative impacts on ROI, ROE, and total
 stock market returns to be calculated.  This has greatly assisted Innovest  in constructing robust models
 of both the financial consequences and hidden value potential inherent  in  environmental risk. The
 models have then  been refined further through beta tests with Chase Manhattan  Bank, Bank of
 America,  Union Bank of  Switzerland, the Zurich Insurance Group,  and  other leading financial
 companies.
2.      Leveraging Hidden Value Potential;

        From  the  standpoint of large-scale investors, one  of EcoValue  '21's major comparative
advantages is its ability to uncover hidden value potential in  major industrial companies.  The source
of the hidden  value potential which the EcoValue '21 platform has been designed to uncover and
exploit is threefold:                                .-
Environment and Finance Enterprise                                          •                     ,105

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
a)  Superior eco-efikiency turns out to be a remarkably robust - and empirically demonstrable -
    proxy  for  superior, more  strategic corporate  management, and therefore for superior
    financial performance, and shareholder value-creation.
b)  The considerable variations in eco-efficiency among competitors in the same industry sectors
    are currently not transparent to, or well understock by, mainstream Wall Street analysts.
    As a result, this value potential remains, for the present at least, almost entirely hidden.
c)  In the  longer term, the out-performance potential will become even greater.  As the capital
    markets become  more fully  sensitized to the  financial and competitive consequences of eco-
    efficiency considerations, they  will come to reward superior corporate  performers  even more
   .heavily.  Once this occurs, the out-performance gap will widen significantly, and investment
    performance gains of 500 basis points and even more will become achievable.  It is that value
    potential which the EcoValue '21 platform was specifically created to uncover and exploit

        Some proponents of eco-efficiency-driven investment approaches currently claim the ability to
out-perform comparable, unrestricted indices by as much as 500 basis points per annum.  In the short
term, Innovest Capital Risk Advisors, S.A. remains somewhat skeptical of such claims. Independent
third-party  back-tests do suggest, however, .that investment out-performance in the order of 140
basis points  is eminently achievable  B even  in the short term B  using the  Eco Value '21 J
platform.

3.      The Timing for Eco Value '21;

        The development of the EcoValue '21 platform is particularly well-timed, coinciding as it
does with a number of important, macro-level trends which considerably strengthen its ability to help
generate investment out-performance:

a)  Within  the  U.S. capital markets themselves, recent initiatives by the Securities and Exchange
    Commission, the  Federal Deposit and Insurance Corporation, and the accounting profession all
    herald an era of much greater environmental performance disclosure and scrutiny by financial
    regulators.   The SEC's Staff Accounting Bulletin  92 and the  newly-promulgated rules on
    environmental liability disclosure by  the American Institute of Certified Public Accountants are
  -  only two important examples. These  and other recent developments will dramatically increase the
    visibility  of environmental business risks for industrial corporations and their bankers .and
    shareholders, and therefore .the growing financial premium placed on superior eco-efficiency.

b)  The formation of  the U.S. Environmental Bankers Association, which includes such leading
    financial  institutions as  Chase Manhattan Bank,  Bank of America, and Nations  Bank, also
    underscores the growing interest of  America's banking sector  in understanding and managing
    environmental risks  and opportunities. Awareness of the financial consequences of environmental
    risk is currently at an all-time high, but there remains a dearth of sophisticated analytical tools and
    models  with which to manage and leverage it.

c)  At the  same time, major U.S. industrial corporations  are also demonstrating an unprecedented
    interest  in  improved  environmental performance information  and  analysis.    The  Public
    Environmental Reporting Initiative (PERI) consortium was formed for that specific purpose, and
    includes some of America's leading manufacturing  companies, including Amoco, IBM, DuPont,
    Dow Chemical, Rockwell, and United Technologies.  In  addition, trends toward improved
   .corporate waste tracking and greater public disclosure of corporate environmental performance

Environment and finance Enterprise                                                                106

-------
Corporate Environmental Performance as a Factor in Financial Industry Decisions
    will also serve to increase the financial and competitive.importance of eco-efficiency.

d)  Internationally, tougher environmental legislation and enforcement and competitive pressures are.
    all placing an ever-higher premium on  corporations' environmental performance throughout the
    industrialized world. These trends, led by the European Community, Scandinavia, and Japan, will
    dramatically increase investors' need for accurate information and analysis. The growing impact
    of lite ISO 14000 environmental quality standards from the International Standards Organization
    will tighten die  links between  environmental  performance,  international competitiveness, and
    profitability even further.                                             .

e)  In  1995 and 1996, over seventy  of the world's leading private  sector banks and  insurance
    companies have,  for  the first  time, signed formal  United Nations  declarations  committing
 .   themselves, to improving their  environmental  performance and  that of their major  industrial
    customers.  This too will increase both the visibility and  the  financial  significance of eco-
    efficiency.

f)  In 1996 and 1997, several new investment vehicles were created by major institutional investors in
    Europe, predicated on translating superior eco-efficiency into financial out-performance.  These
    new funds, and their'inevitable imitators in North America and Asia, will significantly accelerate
    demand for EcoValue '21 's proprietary data  and analysis.

g)  In the  emerging markets of the industrializing world, the major multilateral lending agencies
   . (World Bank, IFC, Asian Development Bank,  EBRD etc.)  are  also placing a much stronger
    emphasis on the environmental performance of the major projects and companies to which they
    direct tens of billions  of dollars in financing. Predictably, this new attitude on the part  of the
    funders is also reinforcing the financial importance of eco-efficiency.

h)  The financial and  competitive impact of the recent Kyoto Protocol is likely to be enormous. Once
    ratified, the Kyoto agreements will mandate cuts in the U.S. greenhouse gas emissions of as much
    as 35% below business-as-usual scenarios.  The potential financial impact on the U.S. electric
    utility  sector alone has been independently estimated to exceed $60  billion per year.  Policy
    developments such as this one clearly increase the demand for analytical tools such as Eco Value
    '21  which can help investors identify superior performers and hidden value.

        These developments,  both singly and in combination, have created a growing demand for
research and analysis capable of identifying both  the risks and opportunities created by the world-wide
drive towards eco-efficiency.  The  EcoValue '21 analytics platform is a direct response to that
growing need.                                         '  .

4.      Comparative Advantages of the EcoValue *21 Analytics Platform:

        In  identifying superior investment  opportunities, Innovest's proprietary  EcoValue  '21  J
analytical models create at least three powerful comparative advantages:
        a)  Superior  Algorithms and Predictive Power:    EcoValue  *21J 's  analytical  model
           includes both quantitative and qualitative analysis, using over twenty leading indicators as
           proxies for companies' capacity to manage environmental  risk profitably into the future.
           In  addition, EcoValue  '21J 's extensive  back-testing  allows  the  varying  financial
           consequences of the different environmental  risk factors to be modeled and  weighted

Environment and finance Enterprise        .                          •                              107

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
           individually.   Perhaps most important of all,  the EcoValue '21J  models are able to
           differentiate,  correlate and prioritize the varying  financial consequences  of  different
           environmental risk factors. These features give EcoValue  '21J  a level of predictive
           power,  sophistication, and robustness  unmatched by any other instrument currently
           available. In the longer term, the out-performance potential will become even greater.  As
           the capital markets become more sensitized and better informed about eco-efficiency
           considerations, they will come to reward superior corporate performers, and  penalize
           laggards far more heavily than is the case today. Once this  occurs, the out-performance
           gap will widen even  further, and gains of 400-500 basis points or more will become
           achievable.
        b) Proprietary Data Bases; EcoValue '21J' 's proprietary data  bases have been synthesized
           from more than 20 authoritative sources, including specialized data bases from  the U.S.
           Environmental Protection Agency, the Department of Energy, and the Bureau of Census.
        -  They also include detailed analyses of each company's capacity to manage environmental
           risks profitably, successfully and strategically into the future. Taken together, EcoValue
           '21's proprietary  data bases are arguably the  largest and most robust of their kind in
           North America.
        c)  Unique Value-Added Analysis: The entire field of environmental finance is a relatively
          , new one, and the world supply of professionals qualified to conduct sophisticated analysis
           of bom financial  and environmental factors  is extremely limited.  The  EcoValue '21J
           analysis team comprises senior alumni of such prestigious Wall Street Investment houses
           as  Salomon Brothers, Nomura Securities, .and Chase Manhattan Bank who  are also
           experienced environmental risk analysts.  In addition, the research team is supported by
           the Environmental Services Group at Coopers  & Lybrand'LLP, which has a wealth of
           both domestic and international experience in environmental due diligence, environmental
           cost accounting, and environmental litigation support.  Finally, the EcoValue '21J models
           have been beta tested with some of the leading financial companies in the world, including
           Chase Manhattan Bank, the Union Bank of Switzerland, and the AIG Insurance Group.

   ,   .  5.      The Analytical Model;

        At the heart of Innovest's analytical model is the attempt to balance the level of environmental
and eco-efficiency risk with the companies' managerial and financial capacity to manage  that risk
successfully into the future.  Risk alone is only half the  equation;  what is crucially important to
investors is how well that risk is likely to be managed. On the risk side of the equation, the models
address three fundamental types and sources of environmental risk factors:

               Historical Contingent Liabilities:
        •      Superfund
        •  .   State and hazardous waste sites
        •      RCRA                                      .    -
       ,         •                                                 i
        •      Toxic torts

               Operating Risk Exposures:
        •      Toxic emissions
        •      Product risk liabilities
Environment and Finance Enterprise                  •     .                 '           .              208

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
        •      Hazardous waste disposal
        •      Waste discharges
        • -     . Supply chain management risk

               Eco-Efficiency and Sustainability Risk:
        •      Energy intensity and efficiency
        •      Raw materials and natural                                          -. •         \
               resource use efficiency and intensity
        •      Product life-cycle durability and recyclability
        •      Exposure to consumer values shifts
                  1
        Potentially offsetting these three categories of risk in the rating model are two other critical
factors:

a)      The Company's financial and managerial capacity to manage environmental risk efficiency:

        Financial:        •                                     '
        •   '   Balance sheet strength
        •      , Insurance cover adequacy

        Managerial:   •                                                                        '
        •    <  Strategic corporate governance capability
        •      Environmental management systems strength
        •      Environmental audit/accounting capacity    '                                .
        •      Supply chain management                                '
        •      Training capacity and intensity
     .   •      Generic environmental management protocols (ISO 14000, EMAS,ICC Charter)
        •      Industry-specific   protocols  (Responsible  Care,  UNEP   banking  and insurance
               declarations.
b)      The Company's capacity to position itself strategically to profit from environmentally-driven
        opportunities.
Environment and Finance Enterprise                                            '      .                109

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 Corporate Environmental Performance as a Factor in Financial Industry Derisions
                                             Exhibit K
                                 Environmental Information Services

        Background   .                                  '
        EIS researches and writes detailed environmental reports on Fortune 500 corporations and
 industries, which it markets  to major corporations, financial firms, law firms, and consulting  &
 engineering firms.

        Products
        EIS writes in depth (50-100 pages) reports on major companies and industries which provide
 a complete track record of their environmental performance and policies, including:
 •   Environmental management and policies.                             •
 •   Auditing and reporting  practices
 •   Environmental expenditures
 •   Remediation liabilities
                  *^                           •>                            k                    '
 •   Superfund site liabilities                                          '.        _
 •   Toxic waste releases                                        -       ,
 •   hazardous waste generation
 •   Compliance history including violations and assessed penalties.
 •   Spills and accidental releases
 •   Detailed environmental contact information at the corporate, business unit and site levels.

        The information is taken from 12 major EPA databases, over 200 industry newspapers and
 journals, corporate SEC filings (Annual Reports and Form 10-Ks), various corporate directories, and
 EIS research. Much time and effort is devoted to accurately linking each piece of environmental data
 to the responsible company.  .

        EIS offers three environmental data products as follows:

        Company reports focus on an individual corporation, and in 30 to 120 pages, they provide:
 •   Environmental policies  and expenditures (see p. 7).
 •   Corporate level data (see p. 4).
 •   Site level data (see p. 5).
 •   State-by-state description of significant environmental events, as reported in the media (see p. 6).
 •   Detailed description of each Superfund site and RCRA hazardous waste site the company has
     been identified as a responsible party at.
 •   Listing of company sites, including address, contact person, phone, number of employees, and SIC
     code.
        Industry reports focus on the largest  companies within an industry and in 50 to  100 pages,
 provide:
 •   Company-to-company comparisons of environmental  performance indicators (see p.  3) 'with an
     industry .-average included.
 •   Environmental policies and expenditures for each company included in the industry report (see p.
'     7).   .    .     •      .                  '

        Brief environmental performance profiles give the reader an overview of the company and
 industry environmental performance through using four key indicators (see p. 8).

 Environment and Finance Enterprise                                                                 ^ ^

-------
 Corporate Environmental Performance as a Factor in Financial Industry Decisions
        EIS'has prepared 91 company reports and 9 industry reports which it updates annually. It has
 prepared 200 brief environmental profiles which will be updated as needed.

        EIS provides the following three services:
 •  In addition to corporate-wide summary data, it provides in depth, site level descriptions of key
    events.             ,                                    *
> •  It provides very timely information because it takes under a year, to research and write reports.
 •  It does custom research projects to meet it's clients' specific needs quickly and reliably.         ,

        Applicability to the Financial Community
        EIS  reports can provide financial managers with  an in depth view of the environmental
 Liabilities of major corporations and  industries. This data is  often not reported on a company's Form
 1Q-K SEC filing and thus provides  a fuller view of their actual exposure.  In addition, EIS reports
 provide:                     .

 • • Five year trend data that lets you evaluate environmental performance over time.
 •  Normalized figures based on revenues which helps you  compare data quickly between large and
    small companies.
 •  Corporate environmentaTpolicies which reveal priorities and management structure.
 *  Industry comparisons which put individual company performance in perspective.
 •  Site-level krformation gives you accurate compliance and enforcement data.
 •  State-by-state information summarize significant environmental events as reported in the medial.

        The following section consists of excerpts from several EIS reports and is meant to give the
 reader a better understanding of EIS'services.
EimrmmeKt and finance Enterprise

-------
Corporate Environmental Performance: as a Factor in Financial Industry Decisions
INDUSTRY LEVEL ENVIRONMENTAL DATA
       Spills and Accidental Releases       •*         .               .             -
       The following graph shows the cumulative total major spills (spills exceeding 1,000
• pounds) from 1990 through 1997.	

                                 Cumulative Spills: '90 - '97
Exxon
Texaco
Chevron
Amoco
— • 	 	 PIlilliiML.
Sun
Industry Average
Shell
ARCO
USX-Marathor
Mobil
Unocal
Ashland
Amerada
Coastal
Tosco
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:^?S^^

gxjij-S:
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                                10        20        30       : 40
                                         Millions of Pounds
50
60
    Source: U.S. EPA, Emergency Response Notification System.
       This section is 20 pages in the actual report and includes detailed information (both raw
and normalized data) on:             '                           '
•   toxic releases
•   hazardous waste generation .
•   violations & penalties
•   Superfund sites
Environment iznd Ftnsnce Enterprise

-------
Corporate Environmental Performance as a Factor in Financial Industry Decisions
CORPORATE LEVEL ENVIRONMENTAL DATA
Toxic Waste Management                     •
       The graph and table that follow show the amount of toxic wastes that were released
annually from 1990 through 1995 for ABC Company and the industry average. During the
research of mis report, 1995 were the latest available data. The data are normalized using
worldwide revenues to adjust for any potential distortion because of a company's size.
e
e
Pounds/$10



40.0
35.0
30.0
za.u
20.0
15.0
10.0
50
0.0
1




9


Toxic Release: Normalized
;;:r[[[ X % •: ;: :::::•::::::::.:::::.:
;::::r:::::::^::::::r::i::::. :::::::::::::::::::::;;::;;:;;:::::;:: -• - -V :::::::;::::;:::;:;:;:
:::::::::::::::::;;;;:;;::;:::::::::::::::::::i::::::::::::::::::::. .. ' • "•: ::::::::. :-^::::::::l
90 1991 1992 1993 1994 1995
	 Dow — '• — hdustry Average . •

       Source: U.S. EPA, Toxic Release Inventory.
Pounds of Toxic Wastes Released For Every $10,000 Sales

Dow .
Industry Average
1990
9.67
32.43
1991
11.01
34.91
1992
10.14
35.91
1993
9.23
34.51
1994
8.48
25.86
1995
7.48
14.97
Average
9.71
29.76
    Source: U.S. Environmental Protection Agency, Toxic Release Inventory.                   <
       This section  continues for 10 more pages in the  actual report and includes detailed
information (both raw and normalised data) on:
•   hazardous waste generation
•   violations & penalties
•   spills
•   Superfund sites
Environment and Finance Enterprise

-------
Corporate Environmental Performance as a Factor in Financial Industry Decisions
       SITE LEVEL ENVIRONMENTAL DATA

       Air Permit Enforcement Actions
       The following table shows ABC's air permit enforcement actions and penalties from 1990
through 1997. This information is sorted by state, city, plant name and then date. Repetitive plant
name, address, city, state, and date information has been omitted for ease of reading.

       Air Permit Enforcement Actions
PLANT NAME
EXXON RESIN FIN1SHNG
EXXON COMPANY USA







EXXON CHEM COMPANY

EXXON/GARDEN CITY PT

EXXON COMPANY USA
EXXON CO USA


EXXON COMPANY USA
EXXON COMPANY USA
EXXON CORPORATION

EXXON CHEM AMERICAS/BAYWAY


EXXON CORPORATION
BAYWAY REFINING CO.



EXXON NEVtt-LE ISLAND TERMI

EXXON COMPANY USA







CITY
BATON ROUGE
BATON ROUGE







BATON ROUGE

MORGAN CITY

PORT ALLEN
BILLINGS

.
GREENSBORO
BAYONNE
LINDEN

LINDEN


LINDEN
LINDEN



PITTSBURGH

BAYTOWN







SI
LA
LA







LA

LA

LA
MT


NC
NJ
NJ

NJ


NJ
NJ



PA

TX







SIC
2821
2911







2821

1389

1321
2911


5171
7011
5171

2911


2869
5171



5171

2911







ACTION
EPA COURT CONSENT DECREE
STATE ADMfN, ORDER
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE NOV ISSUED
11 3D APO COMPLAINT FILED
1 13D PENALTY COLLECTED
EPA COURT CONSENT DECREE
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE NOV ISSUED
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE NOV ISSUED
STATE NOV ISSUED
STATE NONCOMPLIANCE PENAL
STATE NOV ISSUED
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE NOV ISSUED
STATE NOV ISSUED
STATE ADMIN. ORDER
EPA NOV ISSUED
1 1 3D APO COMPLAINT FILED
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE ADMIN. ORDER
EPA NOV ISSUED
STATE NOV ISSUED
STATE ADMIN. ORDER
STATE NOV ISSUED
STATE ADMIN. ORDER
STATE ADMIN. ORDER
STATE NOV ISSUED
STATE ADMIN. ORDER
STATE NOV ISSUED
DATfc
6/15/95
8/21/90
8/21/90
. 5/9/91
3/23/92I
9/30/94
10/10/95
10/9/96
1/10/97
8/21/90
10/25/94
5/7/90
4/2/91
6/21/90
11/18/93
10/7/94
10/31/95
6/22/95
12/13/91
12/19/90
1/3/91
4/28/95
7/9/97
7/14/97
5/8/92
800/93
9/29/93
11/5/93
5/13/96
7/26/90
9/14/94
2/27/90
6/22/90
9/1/90
10/25/91
2/21/92
12/9/92
8/23/95
7/31/96
PENALT
$152,(


$17,1

$133.<
$36.<

•••



$170,'



$5.

$45,<
$3,i
$71,:
$


$3,:

$61,i
$
$



$10,

$6,
$5,

$39,

Source: U.S. Environmental Protection Agency, Aerometric Information Retrieval System.
       This section continues for 13 more pages of the actual report and includes site level data
on:
•   Water permit enforcement actions
•   Hazardous waste-management
•   OUandchemieatsjriUs
•   Superfund sites
                                                                                    114

-------
 Corporate Environmental Performance as a Factor in Financial Industry Decisions
         SIGNIFICANT ENVIRONMENTAL HEALTH & SAFETY EVENTS
                                          DELAWARE
                            r  '
       Wilmington. Delaware Sand and Gravel Superfimd Site
       Superfund Site Cleanup
       ABC, General Motors, and Chrysler agreed to pay much of the $40 million cleanup expenses
at the Delaware Sand and Gravel Superfund site near Wilmington, EPA announced April 18, 1995.
Contaminants at the site included benzene, arsenic, and other carcinogens. The defendants committed
to cleaning contaminated soil using vapor extraction technology.
            *
       Wilmington
       Proposed Penalty, False Claim On Label; FIFRA
       On October 7,1994, ABC's Wilmington, Delaware facility was issued an administrative civil
action under The Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) for violations involving
false claim on label (Docket* 95-H-02F) with a proposed penalty of $1,895,000.

       In March 28, 1991, the same facility was issued an administrative civil action under FIFRA,
with a proposed penalty of $2,405,000. The final order was issued on September 29,1994 with a final
penalty of $1,097,200.

       Penalty, Unregistered Use of Advertised Pesticide; FIFRA
       On  October  16, 1990, ABC's Wilmington, Delaware facility was issued an administrative
civil action  under  Federal Insecticide, Fungicide, And Rodenticide Act  for violations involving
unregistered use of advertised pesticide (Docket* 41I-F) with a proposed penalty of $10,000. The
final order was issued on May 21,1991 with a final penalty of $10,000.

       This section continues IS more pages in the actual report
Environment out Finance Enterprise
                                                                                      115

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Corporate Environmental Performance as a factor in financial Industry Decisions
ENVIRONMENTAL MANAGEMENT & POLICY
Environmental Expenditures
Worldwide Expenditures (millions of dollars)
Total Capital Expenditures
Capitalized Environmental Expenditures
Percentage Environmental
1997 1996 1995 1994
10,178 9,200 9,000 7,800
480 457 565 603
5% 5% . 6% 8%
        ABC reserves funds each year for estimated site restoration costs (to be incurred at the end of
the operating life of certain facilities and properties)  and environmental liabilities. The  company's
total, long-term liabilities accumulated at the end of 1997 were $2.6 billion, including charges made
against income of: 1997-146 million, 1996-S215 million, and 1995-S160 million.

        Corporate Environmental Policy
        The following is ABC's official published environmental policy:

    It is ABC's policy to conduct its business in a manner that is compatible with the balanced environmental
    and economic needs of the communities in which it operates. Further, it is the Corporation's policy to
    comply with all applicable environmental laws and regulations and apply responsible standards where
    laws or regulations do not exist. The Corporation is committed to continuous efforts to improve
    environmental performance throughout its activities. It will encourage concern and respect for the
    environment, emphasize every employee's responsibility in environmental performance, and ensure
    appropriate operating practices and training. The Corporation will communicate with the public on
    environmental matters and share its experience with others to facilitate improvements in industry
    performance.

        This section continues for 2 more pages in the actual report and includes:
•   Environmental codes of conduct
•   Environmental*auditing & reporting
•   Other corporate environmental policies
Environment and Finance Enterprise

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
        BRIEF ENVIRONMENTAL PROFILES
        Specialty Chemical Industry
Company
Ecolab
Ethyl
Goodrich (BF)
Grace (WR)
Great Lakes Chemical
Hercules .
Intl Flavors & Fragrances
Uibrizol
Morton International
IMatao Chemical
OM Group
Sigma-AWrioh
industry Average
Weightings:
Toxic Waste
Hazardous Waste
Spills
Enforcement
Total
Toxic Waste
Index ' Score
78
4.436
4,936
1,489
13,710
8,808
2,621
2,953
4,584
1.260
• o
5.483
4,196
25%
25%
25%
25%
100%
2
7
9
4
12
11
5
6
8
3
1
10

Hazardous Waste
Index Score
0.01
5.41
-126
0.39
3.47
4.92
3.12
9.54
5.74
2.52
0.00
, 5.92
3.53
2
9
. 4
3
7
8
6
12
to
5
1
11

Spills
Index Score
17
0
25
12
10
61 1
1
0
4
19
0
135
24
8
3
10
7
6
11
4
2
5
9
1
12

Enforcement
Index > Score
5.63
3.96
. 5.68
1.49
4.07
8.89
2.32
11.51
.4.67
5.11
.00
5.72
4.92
8
L *
9
2
5
11
3
12
6
7
1
10

Overall
Score
5.00
5.75
8.00
4.00
7.50
1025
4.50
8.00
7.25
6.00
1.00
! 10.75
6.50
Statistics:
Median: 6.63
Average: . 650
        BIS prepared brief environmental performance profiles on over 200 major corporations. Four
indicators were analyzed using EPA data as follows:

        Toxic Waste: Toxic Release Inventory        ,
        The average of the annual total releases and off-site transfers in pounds per million dollars of
        Hazardous Waste: Biennial Reporting System
        The average of the annual total RCRA waste generated at Federally permitted facilities, in
tons per million dollars of sales. Does not include wastewater.

       1 Spills: Emergency Response Notification System
        The average of the annual total spills, in pounds per million dollars of sales.  .              -

        Enforcement
      • The total number of enforcement actions per 10 billion dollars in sales.  '

        The companies are arranged according to industry in the  front  of the  report and than
alphabetically in the back. The industry sheets compare the companies to each other and an  industry
average. They score each company's performance for  the four indicators and overall. The overall
score is based on adjustable weightings for each indicator.
Environment and Finance Enterprise

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Corporate Ermromaentid Performance as a Factor in Financial Industry Decisions
                                         Exhibit L

       UNCOVERING VALUE:  THE LINKS BETWEEN
       ENVIRONMENTAL  & FINANCIAL PERFORMANCE
       A Luncheon Series at the NYSSA March 5, March 19, March 26, April 2 1998

       Co-Chairs:
       Lisa Leff, CFA, Smith Barney Asset Management
       Kathy O'Connor, CFA, Towneley Capital
       Christopher Rowe, Vantage Global Advisors
       Until  recently, both corporate  and financial analysts have tended to. view  corporate
environmental spending purely as a liability.  More specifically, this traditional view has valued the
financial  impact of environmental programs almost exclusively by measuring the negative risks
associated with non-compliance with EPA and state environmental regulations.

       Yet, intuitively, it makes sense that there exists a positive  link between environmental and
financial  performance.  Environmental  efficiency essentially means using  fewer resources and
generating less waste in the production of goods and services  — in other words, simple economic
efficiency.

       Recognizing this link, many corporations are now going "beyond compliance" and making.
environmental concerns a cornerstone of their business policy.  Companies in a variety of industries
have made significant commitments  to  environmental, performance, by adopting environmental
management systems, resource conservation and waste minimization programs, product stewardship
initiatives, and enhanced reporting to shareholders.  The challenge for Wall Street is to identify and
analyze both  the immediate and long term financial implications of these types of  corporate
environmental investments. This series of talks is designed to foster dialogue between the corporate
and  analytical communities around these increasingly  important issues,  with  the  goal  of
collaboratively uncovering and measuring the financial value of  strong corporate environmental
performance.

       About the Social Investment Security Analysts Group (SISA)

       The Social Investment  Security  Analysts (SISA) is  a group of investment professionals
collaborating to increase awareness and advance the level of dialogue in assessing the financial value
of progressive corporate practices. SISA's was formed as a direct extension of our need as investment
professionals to serve a growing base of clients concerned about the  social and environmental impact
of corporate policies.  Specifically, SISA's goals are to:

     - •  Educate  investment  professionals about  emerging issues  in  corporate  social and
          environmental responsibility.                                      '         .•
       •  Raise the level of awareness within the investment community about the value  of
          progressive corporate practices.
       • Provide opportunities for dialogue between corporate management and the investment

Environment and Finance Enterprise                                           '                118

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
          community  on how  progressive  business  practices  impact corporate growth  and
          profitability.
       •  Support investment practitioners responding to needs of institutional and individual social
          investment clients.
       •  Create systems to measure and value  corporate policies that impact workers, the
          environment and communities.           .              .
To join SISA, or for more information, please contact Rosalie Poss at NYSSA.

                                AGENDA

       Master of Ceremonies for the series:
       Linda Descano, Vice President, Environmental Affairs Salomon Smith Barney Inc.
       March 5      MINIMIZING ENVIRONMENTAL IMPACT,
                   MAXIMIZING EFFICIENCY AND COST CONTROL
                   FEATURED COMPANY: PITNEY BOWES
       Michael J. Critelli, Chairman and CEO, Pitney Bowes

       March 19     INCREASING SHAREHOLDER VALUE THROUGH
                   STRATEGIC ENVIRONMENTAL INITIATIVES IN THE
                   CHEMICAL INDUSTRY
                   FEATURED COMPANY: DUPONT
       Gary Pfeifier, Senior Vice President and Chief Financial Officer, E.I. duPont de Nemours
      'Dick Doyle, Vice President, Responsible Care, Chemical Manufacturers Association
       James H. Wilbur, Managing Director and Chemical Analyst, Salomon Smith Barney

       March 26     CREATING    BUSINESS     OPPORTUNITIES    THROUGH
                   ENVIRONMENTAL LEADERSHIP: SUSTAINABLE DESIGN AND
                   THE BUILDING INDUSTRY
                   FEATURED COMPANY: INTERFACE
       Ray C. Anderson, Chairman and Chief Executive Officer, Interface, Inc. and Co-chair,
       President's Council on Sustainable Development
       William A. McDonough, FAIA, Founding Principal, William McDonough + Partners and
       Dean, University of Virginia School of Architecture            .            .

       April 2       THE ENERGY CONNECTION: ENVIRONMENTAL
                   MANAGEMENT AND EFFICIENCY AT WORK
                   FEATURED COMPANY: SUN CO.
       Robert H. Campbell, Chairman, CEO and President, Sun Company, Inc.
       Robert Massie, Executive Director, Coalition for Environmentally Responsible Economies
Environment 'and Finance Enterprise                                                       ? 2 9

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 Corporate Environmental Performance as a Factor in Financial Industry Derisions
                                           Exhibit M
                               ASPEN INSTITUTE DIALOGUE ON
                         VALUING ENVIRONMENTAL PERFORMANCE

                                        BUSINESS PL AN

        The Opportunity
               The Aspen Institute has convened two planning meetings involving representatives of
 leading corporations and financial institutions, who identified largely unrealized opportunities for both
' corporations and financial institutions.

               For corporations,  there is an opportunity  to increase their economic value by
 improving their environmental management and performance and by more effectively communicating
 their actions to  financial institutions.   For financial institutions, more relevant  environmental
 communication will enable credit, investment, and insurance decision-makers to more effectively use
'this information in their valuations and assessments.

               This improved communication should lead to  lower cost of capital  and insurance
        premiums and more prized stock for leading corporations, and to an incentive for others to
        adopt improved environmental management.

               The participants in the two initial meetings posited several assumptions:
        >   that  data collected by  Yale University, Business in the Environment, World Business
            Council for Sustainable Development and others show that the strategic business value of
            enhanced environmental management and performance is not fully recognized in financial
            analysis;              .      ,
        •   that there is often a "green wall" inhibiting the flow of information between corporate
            environmental and financial officers;
        •   that  corporate environmental management and financial analysts tend to focus on  the
            downside, i.e. avoiding non-compliance  and reducing risk, rather than  on the upside
            potential for enhancing strategic value;
        •   that  corporate communication of good  environmental performance is frequently not
            framed in terms useful to financial analysts;
        •   that national  and international progress toward environmental goals will be more  rapid
            and more efficient if markets are driving Voluntary positive performance;
        •   that sound environmental management is indicative of a management culture that is also
            likely to be reflected in other areas, including community relations, employment diversity,
            and worker satisfaction, and that the combined effect of this culture may be a significant
            indicator of corporate value; and
        •   that  more and more  individual  and institutional  investors  are  concerned about the
            environmental and other societal  implications of their investments  and  are likely  to
            demand better ways to differentiate among companies on this basis.
        The Project
               The participants have proposed a dialogue to be conducted during the next twelve
months under the auspices of the Aspen Institute and using the Aspen approach — candid, not-for-
attribution discussions among people  with diverse perspectives:   It  will  consist of periodic,

Environment and Finance Enterprise                                                                120

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
professionally facilitated, one-day meetings held in New York by a group of 25 individuals.  The
group will be chosen primarily from corporate environmental and financial officials and from financial
institutions  such as  commercial  banks,  investment  firms, institutional investors, insurance and
reinsurance companies, and rating agencies; and to a lesser extent from individuals  with  relevant
experience in federal and state government, academia, and environmental organizations.        :

               A document or report will be created by the group during this process as a means of
communicating the  group's  conclusions  and recommendations to corporate managers, financial
institutions, and other audiences, and a  communications or marketing plan will be  proposed to
maximize the dissemination and adoption of the group's recommendations.

               The ultimate goal will be to help corporate management incorporate this value in their
decision making, and to communicate it effectively to financial institutions. This will assist financial
institutions  to  further the integration of these factors into credit,  investment  and underwriting
decisions. This in turn will help environmentally strong corporations realize the full economic value of
their environmental  actions,  and inspire less strong  corporations to improve their environmental
management and performance.                         '  .
        The Process                  .
               Meetings will be held in New York approximately every two months, normally in the
facilities of participating organizations.  Non-members of the group may be invited to attend on a one-
time basis to present research results or case studies relevant to the group's objective.

               The development of a report, will be the organizing tool for the;initial meetings.
Volunteers from the group, assisted by Aspen Institute staff, will draft proposals or suggested texts in
advance of meetings and prepare draft summaries of the discussions and conclusions after the fact.
Starting with three draft statements of opportunities and barriers - what they hope to accomplish -
being developed independently by a few corporate, financial, and government/NGO representatives for
the first meeting, the group will identify the framework  of the report and  will capture areas  of
consensus in  a format useful for communicating with the target audiences:  . first, senior corporate
management, and secondarily, financial  analysts and public policy makers.

               In the later stages of developing the report, a marketing plan will be developed to
ensure the broadest possible dissemination of the conclusions and recommendations. Participants will
be active players in this outreach effort and will be asked to seek opportunities for presentations within
their professional circles,  hi addition, other means of effecting change will be explored.

               The report will be printed under die auspices of the Aspen Institute, and while it will
reflect the combined views of the participants, individual participants will not be asked to endorse its
exact wording or to commit their organizations to it.                                .     .

        Participants                           .
               Approximately 25   participants will  be  selected  to  represent  the  following
        perspectives:
               Corporate (8-10):  environmental  managers, investor relations  or  other financial
        managers, strategic planners.                                          •   .
               Financial (8-10):  investment firms, commercial banks, insurance and reinsurance

Environment and Finance Enterprise -    •                                                            221

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 Corporate Environmental Performance as a factor in Financial Industry Decisions
        companies, institutional investors, accounting firms.
                Other (4-6): government, environmental groups, academics.

        The Aspen Institute
                The  Aspen Institute  is  a not-for-profit educational  organization  dedicated to
enhancing the quality of leadership through informed dialogue.  Its policy programs frame the choices
that democratic societies face by providing an  impartial and nonpartisan forum for dialogue.   It
convenes men and women who represent diverse viewpoints and backgrounds with a view to informing
their decisions and enhancing their effectiveness.                                                  <
Environment and Finance Enterprise
                                                                                            122

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Corporate Environmental Performance a$ a Factor in Financial Industry Decisions
                               EXHIBIT N


I.  MEASURING ENVIRONMENTAL PERFORMANCE

   \
A. What is Environmental Performance?
ป, Worster, Donald, The Wealth of Nature:  Environmental History and the Ecological
   Imagination, Oxford University Press, Oxford, 1993 •
•  World Commission on Environment and Development, Our Common Future, Oxford
   University Press, 1987                .


B. Why might Environmental Performance Matter?
•  Adams, Roger, "Value of the Green Business Club:  Environmental Strategies are of
   Enormous Benefit to Small Companies," Financial Times (London), October 16, 1997,
   pg.30                                         .
•  Pirrotta, Rich S., "Creating a PatK to Performance with Environmental Management,"
   Chemical Market Reporter, August 4.1997,252(5):21
•  Petzinger, Thomas Jr., "Business Achieves Greatest Efficiencies When at its Greenest,"
   Wall Street Journal Tulv 12.1997. Bl
•  Boulton, Leyla, "Companies Compete to Clean up their Act:  Benefits of Going 'Green1
   Include Improved  Public  Profile and Reduced  Materials  Costs." Financial  Times
   (London), April 15,1997. pg. 11                    '
•  Maxwell, James, Sandra Rothenberg,  Forrest. Briscoe  and Alfred Marcus, "Green
   Schemes: Corporate Environmental Strategies and their Implementation;" California
   Management Review. March 22.1997. 39(31:118             -         .   '  .
•  Hart Stuart L., "Beyond Greening:   Strategies for a Sustainable World," Harvard
   Business Review, January/February 1997
•  Magretta, Joan, "Growth through Global Sustainability: An Interview with Monsanto's
   CEO," Robert B Shapiro,  Harvard Business Review, pg. 79-88, January/February 1997
•  Florida,, Richard, "Lean and  Green:   The  Move to  Environmentally-Conscious
   Manufacturing," California Management Review, September 1996, 39(1):80
•  Green, Paula,  "Business Said  to be  Slow to Endorse Eco-Efficiency," Toumal of
   Commerce. Tune 30.1997                                 ,
•  Mannion, Richard F., "Enhancing Corporate Performance through Quality-Driven
   Pollution Prevention,"  National Productivity Review, Winter 1996,16(l):25-32
•  Rondinelli, Dennis A. and Gyula Vastag, "International, Environmental Standards and
   Corporate Policies:  An Integrative  Framework," California Management Review,
   September 1996,39(1):106                       .       '
•  Parnell, John A, Peter  Wright and Howard S. Tu, "Beyond the Strategy-Performance
   Linkage:   The Impact  of the Strategy-Organization-Environment Fit on  Business
   Performance," American  Business Review. June 19,1996,14(2):41-50
•  Unsigned Article, "Beyond ISO 14000:  Lucent Technologies Blazes Trail to Regulatory
   Relief," Environmental Management Today, March/April 1996, pg. 1-16
•  Garrod,  Brian  and Peter  Chadwick,  "Environmental Management  and  Business
   Strategy: Towards a New Strategic Paradigm," Futures, February 1996, 28(1):37-50

Environment and Finance Enterprise  '                        '                       •     123

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
   Hutehinson, Colin, "Integrating Environment Policy with Business Strategy/' .Long
   Range Planning, February 1996,29(l):ll-23
   Katzel, Jeanine, "How to Identify, Reduce, and Eliminate Environmental Exposures
   and Liabilities," Plant Engineering, January 1996, pg. 9
   Pisorio, Pasquale, "Green is Good - CEO Interview with Pasquale Pisorio of SGS-
   Thomson Microelectronics," Institutional Investor, September 1996
   Blumberg,  Jerald,  A. Korsvold and G.  Blum,  Environmental  Performance and
   Shareholder Value, World Business Council for Sustainable Development, 1996 -
   Hart, Stuart L.,  "A Natural-Resource-Based View  of the  Firm,"  Academy  of
   Manaeement Review, October 1995,2(X4):986
   Porter, Michael and Claus van der  Linde, "Green and Competitive:  Ending  the
   Stalemate," Harvard Business Review. September/October 1995
   Sarkis,  Joseph and Abdul  Rasheed,  "Greening  the Manufacturing  Function:
   Environmentally Conscious Manufacturing,"  Business  Horizons, September 1995,
   38(5):17    '                         ;
   Veroutis, Agis Dv Andrew L. Ullman, James A. Fava, Daniel C. Steinmetz and Edward
   J. Kerfoot,  "Achieving Competitive  Advantage Through Product Stewardship and
   LCA," Environmental Quality Management Winter 1996, 6(2):67-72
   Schmidheiny,  Stephan,  Changing  Course:   A  Global  Business  Perspective  on-
   Development  and  the  Environment,  World Business  Council for Sustainable
   Development, 1996
   Silverstein, Michael, "If s a  Green World After All," CFO: The Magazine for Senior
   Financial Executives. October 1995.11(10):14
   Starik, Mark and Gordon P. Rands,  "Weaving An Integrated Web:  Multilevel and
   Multisystem Perspectives of Ecologically Sustainable Organizations," Academy  of
   Management Review. October 1995, 20f4):908
   Unsigned Article, "Carriers and Shippers Find Common Ground," Chemical Week,
   September 27,1995, Transportation Supplement, pg. 6.              .
   Shrivastava, Paul, "Ecocentric  Management for a  Risk Society,"  Academy  of
   Management Review, January 1995, 20(1):118
   Dechant,  Kathleen, Barbara  Airman,  Robert M. Downing, and Timothy  Keeney,
   "Environmental Leadership: From Compliance to Competitive Advantage," Academy
   of Management Executive, August 1994, 8(3)
   Earle III, Ralph and R.  Gupta, "Environmental Issues  and International Business:
   Strategies for the Future," Corporate Environmental Strategy, Summer 1994
   Tyran, Jean Robert and Peter Zweifel, "Environmental Risk Intemalization  Through
   Capital Markets (ERICAM):  The Case of Nuclear Power,"  International Review of Law
   & Economics. December 1993,13(4):431-44
   Mason,  Julie Cohen, "When Environmental Responsibility Makes  Good  Sense,"
   Management Review, December 1991.80(12^:22      '
   Porter, Michael, "America's Green Strategy," Scientific American, April 1991, pg. 168
   Zetiin, Minda, "The Greening of Corporate America," AMA Manageirient  Review,
   June 1990, 79(6):10                                 .
Environment and Finance Enterprise

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions-
 C. Indicators of Environmental Performance (EPI)
               I          v

 1. EPI Group 1:  Finn Policies

 a. General                                                        .
 •  Atkinson, Anthony A., John. H. Waterhouse .and Robert B, Wells, "A Stakeholder
    Approach to Strategic Performance Measurement," Sloan Management Review, Spring
    1.9?7,pง,25                                                  •

 b, CERES - Coalition of Environmentally-Responsible Economies
 •  Hoffman, Andrew J., "A Strategic Response to Investor Activism/' Sloan Management
    Reyjew, January 1996,37(2)51
 •  Statement of Principles, Coalition for Environmental Sustainable Economies

 c. GEMI - Global Environmental Management Initiative
 •  Unsigned   Article,   "GEMI   Sets   a  New   Course," .  Environment  . Today,
    November/December 1995,3:14                          ,       .

. d. Chemical Manufacturers' Association - Responsible Care
 •  Avila, Joseph  A_ and Bradley W. Whitehead,  "What is Environmental Strategy?
    Interview  with Dow Chemical  Chairman Frank P. Popoff and  David T. Buzzelli,"
    McKinsey Quarterly, September 22,1993,4:53


 Z EPI Group 2:  Generic Management Practices

 a. Environmental Audits
 •  Power, Michael, "Expertise and the Construction of  Relevance:  Accountants and
    Environmental Audit," Accounting Organizations & Society, February 1997, 22(2):123-
    146
 •  Wilson,  Fred, "Proactive Companies Adopt External  Reports .and Enviro Audits,"
    Central New York Business Tournal, September 16,1996,10(19):3b       •
 •  Buxton,  Brian and Eric Nielson, ""How to be Lean, Mean and Green:  Environmental
    Auditing," Financial Executive, July 1995; 11(4):29
 •  BaHkov, Henry R., "The Value of "EHS Auditing1, in the United States:  Making Sense
  '  Out of the Current Chaos," Environmental Quality Management 6(l):23-26

 b. Environmental Accounting
 •  Feltmate, Blair W,, "Making Sustainable Development a Corporate Reality,"  CMA -
    The Management Accounting Magazine, March 1997, 71(2):9
 •  King, Alfred  M., "EPA  Identifies 37 Environmental  Impact Tools,"  Management
    Accounting. March 1997, pg. 67
 •  Weitzman, Martin L/ and Karl Gustaf Lbfgren, "On the Welfare Significance of .Green
    Accounting as Taught  by  Parable,"  Tournal  of Environmental  Economics  &
    Management. February 1997, 32f2):139-53
 *  McLaughlin, Susan, Valuing Potential Environmental Liability for Managerial Decision

 Environment tend Finance Enterprise •       '         •          •                 •            *25

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
   Making: A Review of Available Techniques. EPA 742-R-96-003, December 1996
•  Parker, Jeffrey N., "The Importance of Environmental Cost Accounting," Management
   Accounting (USA), December 1996,78(6):63
•  Epstein, Marc }., "You've Got a Great Environmental Strategy - Now What?," Business
   Horizons. September 19,1996, 39(5):53
•  Epstein,  Marc J, "Improving Environmental Management with Full Environmental
   Cost Accounting," Environmental Quality Management Autumn 1996, 6(l):ll-22
•  Bonne, Corinne and Helen  Howes, "Accounting for  the  Environment:   Full Cost
   Accounting at Ontario Hydro," CMA - the Management Accounting Magazine, June
   1996, 70(5):22
•  Bailey, Paul E. and Peter A. Soyka, "Making Sense of Environmental Accounting,"
   Total Quality Environmental Management Spring 1996,  5(3):1-15
•  Ranganathan, Janet and Daryl Ditz, "Environmental Accounting: A Tool for Better
   Management," Management Accounting-London. February 1996, 74(2):38-40
•  • Munter,  Paul,  Rene Sacasas and  Elaine Garcia,  "Accounting and  Disclosure of
   Environmental Contingencies," CPA Journal, January 1996, 66(1):36
•  Deveaux, Nicole, "Green Spending in Black and White," CA Magazine. September
   1995,128(7):41-43

c. Corporate Environmental Reports
•  Lober, Douglas J., "Current Trends in Corporate Reporting," Corporate Environmental
   Strategy; Winter 1997,4(2):15-24
•  Lober, Douglas J., David Bynum, Elizabeth Campbell and Mary Jacques, "The 100 Plus
   Corporate Environmental Report Study:  A Survey of an Evolving Environmental
   Management Tool," Business & the Environment 1997
•  White, Allen and Diana Zinkl,  "Green  Metrics:   a Status Report on  Standardized
   Corporate Environmental Reporting," Working Paper  prepared for CERES Annual
   Conference, September 1997
•  Skillius,  Asa and Ulrika Wennberg, "A  Critical Analysis of the  Current  Use of
   Environmental  Reporting and  Ranking in Strategic Environmental Management,"
   Draft paper presented  at  University  of  Leeds. (UK) Business Strategy and  the.
   Environment Conference, September 18-19,1997
•  Walden,  W. Darrell and Bill N* Schwartz, "Environmental Disclosures and  Public
   Policy Pressure," Toumal of Accounting & Public Policy. Summer 1997,16(2):125-154
•  Ditz, Daryl and J. Ranganathan, Measuring Up: Toward a Common Framework for
   Tracking Corporate Environmental Performance, World Resources Institute, July 1997
•  Freedman,  W.,  "Green Guidelines Clarify  Reporting,"  Chemical Week, February 5,
   1997,159(5):57-58  .                  .
•  Gentry, Bradford S. and Lisa O. Fernandez, "Valuing the Environment: How Fortune
   500 CFOs & Analysts Measure Corporate Performance," UN Development Program,
   Office of Development Studies, 1997
*  Unsigned Article, "Index of Corporate Environmental Engagement  A Survey of the
   FTSE100 Companies," Business in the Environment London, November 1996.  .
•  Berry,  Michael  A., Dennis A. Rondinelli, and Gyula Vastag, "Managing Corporate
   Environmental Crises:  Building Public Trust  through Effective Communications,"
   Corporate Environmental Strategy, 1996,4(l):73-79
Emrironment and Finance Enterprise
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Corporate Environmental Performance as a Factor in Financial Industry Decisions
    Kreuze, Jerry Gv Gale E. Newell and Stephen J. Newell, "Environmental Disclosures:
    What Companies are Reporting," Management Accounting, July 1996, 78(l):37-43
    Birchard, Bill, "Make Environmental Reports Relevant," CFO: the Magazine for Senior
    Financial Executives, Tune 1996,12(61:79-80         .                      .
    Kelly, Jim, "Could Try Harder: A Survey of the Green Elements of Company Reports,"
    Financial Times (London). April 17.1996. pg. 24
    Investor Responsibility Research Center, Environmental Reporting and Third Party
    Statements, prepared for the Global Environmental Management Initiative, March 1996
    Larsson, Lars-OUe, International Survey of Environmental Reporting,  KPMG  Bohlins
    Environmental Advisors, 1996
    United  Nations Environment Program, Engaging Stakeholders, Vol. 2:  The Case
    Studies, SustainAbility, Ltd. and the United Nations Environment Program, 1996
    Centre for the Study of Financial Innovation, An Environmental Risk Rating:  Scottish
    Nuclear, 1993
    Green, Paula, "New Program Enables Corporations  to Put Themselves to Pollution
    Test," Journal of Commerce, November 19,1992, pg. 4A       ,   ,
d. Environmental Management Systems

(1) General Systems
•  Coyne, Karen, "Environmental Management Systems," Environmental Solutions, July
   1997,pg.29                                                    f-   .
•  Marcus, Philip A., "Using EH&S Management Systems to Improve Corporate Profits,"
   Environmental Quality Management, Winter'1996, 6(2):11-21
•  Miller, Paul, "Strategic  Environmental  Management Preserves Profitability While
   Protecting the Environment/' Environmental Solutions, November 1996
•  Brown, Linda Gv Rebecca Ward and Eric Titus, "Using New LCA Performance Metrics:
   Getting the Most Out of Your EMS," Environmental Quality Management, Autumn
   1996, 6(1):3-10
•  Metcalf,  Kim  R., Phillip L. Williams,  J. Robert  Minter  and  Chris  M. Hobson,
   "Environmental Performance Indicators for Enhancing Environmental Management,"
   Total Quality Environmental Management, Summer 1996,5(4):7-ll
•  Colby, Susan J., Tony Kingsley and Bradley  W. Whitehead, "The Real  Green Issue:
   Environmental Management," McKinsey Quarterly, 2:132
•  Bom, Fabio and Giuliano Boccaletti, "From Total Quality Management to Total Quality
   Environmental Management," TQM Magazine, 7(5):38-42

(2) European Standard for Systems
•  Calster,  Geert Van,  "Commission  Decision Paves Way  for Expansion of  Eco-
   Management," Eurowatch, September 1997,9:14
•  Scott, Alex, "Europe Weighs  Its Standards  Options:   ISO 14000 Versus EMAS,"
   Chemical Week, April 2,1997, pgv33
•  McCafferty, Joseph, "Euro-Green:  The Regs," CFO: the Magazine for Senior Financial
   Executives, September 1996,12(9):22
•  Unsigned Article, "European Standards Body Says ISO 14000 Will Meet Requirements

Environment and Finance Enterprise                                                       227

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Corporate EnoiraimeniaL Performance as a Factor in Financial Industry Decisions
   of EU's EMAS/' Business & the Environment December 1994, 5(12)
•  Obbagy, Jane E. and Sara J. Bragg, "An Eye on Disclosure: the EC's Eco-Management
   and Audit Scheme," Prism, Third Quarter 1993

(3) International Organization for Standardization; ISO 14000 Series of Standards
•  Unsigned Article, "Matsushita Seeks ISO Certification from  Parts Suppliers," Japan
   Economic Newswire, November 10,1997
•  Unsigned Article, "Tenaga Wants ISO 14001 Certs for All Its Major Power Plants,"
   New Straits Times, November 5,1997
•  Unsigned Article, "Beyond the Generator in Search of ISO-Certified Kilowatts," Power,
   February 1997,141(1):12
•  Unsigned Article, "New  ISO  14000 Standards  Aim  to Help  Utilities  With
   Environmental Programs," Utility Environment Report, January 31,1997
•  International Organization  for  Standardization,  Draft ISO  14031  Protocol on
   Environmental Performance, November 1997
•  Zuckerman,  Amy, "Practicing Strategic Standardization Management," Metal Center
   News, October 1997, pg. 88
•  Tibor. Tom with Ira Feldman, ISO 14000. Times Mirror. 1996
•-  Jackson, Suzan L., "ISO 14000: What You Need to Know," Appliance Manufacturer,
   August 1997
•  Shah, G.C., "Use ISO 14000 as a Compliance and Productivity  Tool," Hydrocarbon
   Processing, August 1997, 76(8):75
•  Unsigned Article, "Canon to Set 'Green' Standards for Suppliers," Asia Pulse. July 16,
   1997                                                             '       .
•  Zuckerman, Amy, "The Future of ISO 14000 in the US," Iron Age New Steel July 1997,
   13(7):94  .
•  Unsigned Article, "IBM Aims to Cut Cost Risk by Demanding Strict Standards;
   Japanese Unit Chosen to  Enforce Rules on Environment," Nikkej^Weekly. May 26,
 .  1997, pg. 24
•  Martin, Raymond and Stuart  Sleeman,  "ISO  14000:   .Where to from  Here?
   Environmental Management System Standard," Pipeline & Gas journal. May  1997,
   224(5):28
•  Wescott, Russ, "Stepping Up to ISO 14000:  Integrating Environmental Quality With
   ISO 9000 and TQM," Quality Progress. April 1997, 30(4):149-150
•  Uzumeri,  Mustafa  V.,  "ISO  9000 and  Other  Meta-standards:    Principles for
   Management Practice?," Academy of Management Executive, February 1997
•  Litsikas, Mary, "Companies Choose ISO Certification for Internal Benefits," Quality,
   January 1997,36(l):20-26
•  Anderson, Rich, "Inside ISO 14000: The Competitive Advantage of  Environmental
   Management," Quality Progress. January 1997, 30(1):129
•  Begley, Ronald,  "Is ISO  14000  Worth  It?,"  Tournal   of  Business  Strateev.
   September/October 1996, pg. 50
*  Multiple Authors, "Survey of International Standards/' Financial Times (London),
   October 13-14,1995
•  Rondinelli, Dennis A. and Gyula Vastag, "International Environmental Standards and
   Corporate Policies:   An Integrative Framework," California Management Review,

Environment and Finance Enterprise                                                        228

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
    September 1996,39(1):106
 •   Williams, Frances, "Eco-Label Standards attacked by WWF," Financial Times (London),
    September 13,1996, pg. 4              '
 •   Sleeman, Stuart and Karen Coyne, "ISO 14000:  A Primer for Industry Concerned with
    Environment/' Pipeline & Gas Journal May 1996; 223(5):25
 •.-. .Willsbn, John S. and Ronald A. N. McLean, "ISO 14001: Is It for You?/' Prism, First
  •-Quarter 1996                                                   '
 •   The ISO 9000 Survey-1996,  Irwin  Professional  Publishing and Dun & Bradstreet
    Information Services, January 1996, pg. 11
 •   Alexander, Forsyth, "ISO 14001: What Does it Mean for IBs/' HE Solutions. 28(1):14-18,
    January 1996
 •   Rode, Douglas, "ISO Standards' Bottom-Line  Impact/' Electrical World, September
    1995,209(9):56
 •   Cascio,  Joe,  "A  Primer  On  Global  Environmental  Management  Standards,''
    Environment Today, June 1994, 5(6):42-43               !

 3. EPIGroupS: Operating Practices
 •   Urry, Maggie, "Sustainable Forests:  Overcoming Growing Pains," Financial Times
    (London), December 8,1997           .      .
 *   Brown-Humes,  Christopher,  "Certificates for Swedish  Forests,"  Financial  Times
    (London), February 28,1996, pg. 14

4. EPIGroup4: Environmental Operating Performance             -    ~'  '
•  Skrzycki, Cindy, "Industry Groups Point Out Errors in  EPA's On-line Scorecard,"
   Washington Post January 2.1998, p. C13'
•  Unsigned Article, "Sustainability Concerns Drive Demand for Data," Chemical Week,
  .. August 13,1997
*  Cushman Jr., John H., "EPA is Pressing Plan to Publicize Pollution Data:  industries
   Fight Move," New York Times, August 12,1997, pg. 1
•  Adhikari, Richard, "Envirofacts Assists EPA Programs," Informationweek, March 17,
   1997, pg. 622                        ,
•  Unsigned Article, "NRDC Gives Environment  Ratings  for  US Utilities,"  Reuters
   Financial Service, September 17,1996    . '     .     •
•  Griffith, J.J.,  "The  Toxics Release  Inventory:    Limitations  and  Implications,"
   Proceedings from the Sixth International  Association for  Business and Society,  K.
   Rehbein (ed.), 1996, p. 324-9                      .
•  Wolf, Sidney, "Fear and Loathing about the Pubic Right to Know:  The Surprising
   Success of :the Emergency Planning  and Community Right-to-Know Act," Journal of
   Land Use and Environmental Law, ll(2):217-324. Spring 1996
•  Logsdon, J.M., "The  Toxics Release Inventory as a  Data Source for  Business and
   Society," in Proceedings, D. Collins  (ed.), Association for Business and Society, 1995,
   pp. 648-53                                           N                   >
Environment and Finance Enterprise            .                      .                       129

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
ii.  CORE FINANCIAL DECISIONS
      A. General

   Delphi International Ltd., with Ecologic GMBH, The Role of Financial Institutions in
   Achieving Sustainable Development, Report to, the European Commission, November
   1997
   Clark, Terry and Daryl Mckee, "Environmental Management by Marketing Decision-
   Makers In Financial Services," Journal of Business Research, February 1997, 38(2):161-
   170
   Johannson, Lynn, "Greening the Zebra: The Role of Financial Institutions in Promoting
   Sustainability," Total Quality Environmental Management Spring 1996,5(3):12i-130
   Ganzi, John T. and Julie Tanner, Global Survey on Environmental Policies and Practices
   of the Financial Services Industry: The Private Sector. Fall 1996
   Descano,  Linda,  "Communicating Environmental  Performance to the Financial
   Markets," Conference speech  -  Sustainable  Profit:   The  Business-Environment
   Partnership, December 6,1996, Singapore
   Schmidheiny, Stephan, Financing Change: The Financial Community, Eco-Efficiency,
   and Sustainable Development World Business Council for Sustainable Development,
   1996, Cambridge arid London: MIT Press
   Skillius, Asa, "Assessment of Corporate  Environmental. Performance for the Finance
   Sector/'  Paper presented  at  Conference of  Nordic  Business Environmental
   Management Network, Finland, June 5,1997
   Unsigned Article, "Greening of Asia's Financial Sector," Business & the Environment
   December 1997, 8(12):9
B. Underwriting                                   .

1. General
•  Altman, Edward I. and Irwin Vanderhoof, The Strategic Dynamics of the Insurance
   Industry: Asset/Liability Management Issues, 1996
•  Altman, Edward I. and Irwin Vanderhoof, The Financial Dynamics of the Insurance
   Industry. 1995

2. Experience with Environmental Issues
  ป
a. Environmental Liability. Insurance

Environment and Finance Enterprise'   .                                  ,          •        230

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
•   Unsigned  Article,  "Frontier   Insurance  Groups,  Inc.  Acquires  Environmental
    Underwriting Manager/' PR Newswire, December 11,1997                 •
•   Kronenberg  III,  William,  "The  Environmental  Insurance Marketplace:    Rapid
    Emergence to Stable Growth," Rough Notes, July 1997, p. 56-58
•   Hunter, David, "Responsible Care Earns Discount On EIL Premiums," Chemical Week,
    Ju]y23xปb997,159(29):ll
               e, "Promoting, Environmental Awareness:  Insurance Market Conditions
    Imprg." Risk Management May 1997,44(5):10
•   WinamlfiChristopher, "Setting the Standard:  Effects of International Organization for
    Standardization's ISO 14001 on Pollution Insurers," Best's Review P/C April 1997,
    97(12):32     .             .
•   Smith, Laurie J., "Beyond  Profit and Loss;  Insurers Use Econometrics to Measure
    Financial Performance." Best's Review P/C April 1997,97(12V.40     ' ;     .
•   Hovey, Juan, "Expanding  Environmental  Market has Huge Unrealized Potential,"
    Rough Notes, March 1997, p. 26-28             .
*   Unsworth, Edwin, "Shipowners Mutual Expanding Coverage,"  Business Insurance,
    November 18,1996,30(46):57 ,               -
•   Prince,  Michael, "ISO Now  Offering  Voluntary Standards,"  Business Insurance,.
    November 11,1996
•   Lenckus,  Dave,  "Taking Initiative to  Prevent Pollution  Can  Reduce  Premiums,"
    Business Insurance, November 11,1996, 30(46):30
•   Ganzi, John  T. and Brian  T. Neubert, Research oh  the Financial  Impact of
    Environmental Events and  Issues on  the Property and Casualty Insurance Industry,
    World Resources Institute, under contract to EPA, Fall 1996
•   Unsworth, Edwin, "Managing Risks in the Marine Environment," Business Insurance, ,
    September 30,1996,30(40):18         ...
•   Zolkos, Rodd, "Opinions Differ  on Need for Standards," Business Insurance, July 15,
    1996, pg. 13                             .     .
•   Moyman,  Janet D.,  "Environmental Insurance:  A Critical Business Tool," Bankers
    Magazine, July 1996, pg. 22-29,
•   Zolkos, Rodd, "Market Can ;Quell Environmental Woes," Business Insurance, June 17,
    1996    ..   ,
•   Lenckus, Dave, "Offering Environmental Peace," Business Insurance, May 6,  1996,
    30(19):42-43    '  ••  '       •
ป   Rosenberg, David M., "Environmental Coverage for Non-Environmental Businesses,"
    American Agent & Broker, February 1996, p. 22
•   Insurance Bureau of Canada - Environmental Liability Committee, Proceedings from •
  '  an Industry Symposium on Improving the Climate for Insuring Environmental Risk,
    June 7,1995                      '     .
•   Miller, Philip D.  and Bern Mabee, "Geographic  Information Systems," Contingencies,
    May/June 1995, pg. 31                                                        -
•   Harries, Jim and Ross Angus, "Assuring Business," CA Magazine. April 1995, pg. 36-
  ;  37                   -  .            -       •    .        •        .              •
•   Hall, Evelyn, "ELI is Poised for Growth," Best's Review P/C. April 1995
•   Atkins,  Ralph,  "FT Guide to  Insurance and  the Environment,'' Financial Times
    (London). April 10,1995, pg. 10.

EranronmeRt and finance Enterprise      • •                     .         ,                 '131

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
*   Insurance Bureau of Canada  -, Environmental  Liability Committee, Improving the
    Climate for Insuring Environmental Risks, August 1994
•   House, Richard, "Balance-Sheet Poison," Institutional Investor, August 1993, pg. 23
•   Greenwald, Judy, "Greens' Lean On Insurers to Provide Answers," Business Insurance,
    July 15,1991                                           '             \
•   Brodeur, Paul, Outrageous Misconduct, 1985
•   Gladstone, Douglas E., "CGL Pollution Exclusion - Exclusion Stn&Ker man Critics
    Say," Business Insurance. October 29,1984
•   Katz, David M., "Pollution Excluded From CGL  Forms," National Underwriter.
    October 12,1984, pg. 34-36

b. Exposure and Claims Management - Environmental and Asbestos
•   Kass, Stephen L. and Jean M.  McCarroll, "Environmental Disclosure in SEC Filings,"
    Environment. April 1997. 39f3):4
•   Unsigned Article, "Cleaning Up the Corporate Act," WorldJnsurance Report. January
    24,1997
•   Sweeney, Patrick M., "Catastrophes, Asbestos Hurt Multi-Peril Writers," Best's Review
    P/C December 1996. pg. 71-73 and 105-106.
•   Linden, Orin, "Who's Afraid of Environmental Liability," Insurance Executive Report,
    Summer 1996                                           .
ป   Standard and Poor's,  "Insurers' Environmental and Asbestos Positions  Improve,"
    Standard & Poor's Credit Week, August 28,1996, pg. 33
•   Simpson, Eric M., Mervyn S. Taylor, and Cynthia S. Matthews, "Footnote 24 Ushers in
.   a New Era of Asbestos, Environmental Disclosure," Best Week P/C. July 8,1996
•   Anderson, Dan R., "Financial and  Organizational Impact  of Superfund-Mandated
    Hazardous Waste Liabilities on the Insurance Industry," CPCU Journal, Spring 1996
•   Unsigned Article, "Environmental Liability and  the Insurance Industry," Standard &
    Poor's, November 1995
•   Insurance Services Office, Inc.,  Operating Results [Includes section on Environmental an Asbestos
    Liabilities], March 29,1996     "                                    .
ซ   Simpson, Eric M.  and W. Dolson Smith, "P/C Industry Begins to Face Environmental
    and Asbestos Liabilities," Best Week P/C, January 29.1996
•   Unsigned Article,  "SEC  Disclosure  of Environmental Liability," Environmental
    Manager, January 1996, 7(6):10-12
•   Insurance Services  Office,  Inc., Supe'rfund and the  Insurance  Issues Surrounding
    Abandoned Hazardous Waste Sites. December 1995
•   Kazanski,  Paul,  "Recognition, Measurement,  and  Disclosure  of Environmental
    Liabilities," presented at Casualty Actuarial Society Forum, Summer 1994, p. 387.
•   Snyder, John H. and W. Dolson Smith, "Environmental/ Asbestos Liability Exposures:
    a P/C Industry Black Hole," Best Week P/C. March 28,1994
•   Bquska, Amy S., "Superfund: A Land Mine in the Insurance Industry," Environmental
    Finance. Summer 1991, pg. 177-189
•   Connolly, Dennis  R.,  "Litigation Schizophrenia:    Insurance  Coverage  and  the
    Superfund Law," Toxics Law Reporter.  February 10,1988
•   Schmidt, Charlie, "Insurers Ruled  Liable  for  Asbestos Claims,"  Best's  Insurance
    Management Reports, June 15,1987      -   •
    '•*
Environment and Finance Enterprise                                                        232

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Corporate Environmental Performance as a Factor in Financial Industry'Decisions
•   Tarnoff, Stephen, "Mariville Bankruptcy Boosts Costs for Other Defendants/' Business
    Insurance. March 19.1984

c. Global Climate Change
•   Powers, Yeung Imeda, "Seeking the Perfect Catastrophe Index/' Best's Review P/C.
    December 1997           .                          /
•   Hofmann, Mark A. and Carolyn Aldred, "El Nino Spurs New Predictions," Business
    Insurance, August 25,1997      .         ,
•   Gebhardt, Klaus A., "When it Rains, it Floods - Severely," Best's Review P/C August
    1997,98(4):81
•   Coffin, Bill, "The Sky is Warming," Best's Review P/C August 1997,98(4):52-55
•   Boulton, Leyla, "Insurers Ponder Environmental Risk Management," Financial Times
    (London). May 17,1996, pg. 3 '                    '.    .     ^ '
•   Flynn, Julia, Heidi Dawley and Naomi Freundlich, "Green Warrior in Gray Flannel,"
 .   Business Week May 6,1996, p.-96-lOO              ^
•   Boehmer-Christiansen, Sonja, "A Winning Coalition of Advocacy: Climate Research,
    Bureaucracy and Alternative Fuels - Which is  Driving Climate Change  Policy?,"
    Energy Policy. March 1997.25(4)439-444
•   Pelland, Dave, "Insurance Industry Examines Climate Change," Risk Management,
    November 1996, 43(11):64
•   Ck>ddard, Sarah, "Insurers Can't Cover Costs of Global Warming, Exec Says," Business
    Insurance. October 7.1996
•   Unsworth, Edwin, "Exposure Heats Up: Climate Change to Raise Claims," Business
    Insurance, Tulv 15.1996
•   Boulton, Leyla, "Debate Warms Up," Financial Times (London). May 29,1996, pg. 20
•   Goddard,  Sarah, "Climate Change a Threat to Insurers: Industry Must Address Global
    Warming, Scientist Says," Business Insurance, April 8,1996
•   Goddard,  Sarah, "Global Warming to Cost Insurers," Business Insurance, October 9,
   .1995      .                                                                  ,
•   Wilson, Nancy C.,."Surge  of Hurricanes and Floods Perturb  Insurance Industry,"
    Climate Alert. lulv/August J993
•   Heal, Geoffrey, "Risk Management and Global Change,"  Columbia First Boston Series
    In Money, Economics & Finance Working Paper, FB 91 20, September 1991

d.  Catastrophic Risks
•   Dunleavy, Jeane, Robin Albanese,  Matt Mosher, and Eric Simpson, "Greater Risks,
    Uncertain Rewards; Property and Casualty Insurance,"  Best's Review P/C January
    1997, 97(9):56
•   Brooks, Kristin and Alan Levin, "Exposure to Catastrophe Risk:  What Does it Mean
    for Your Rating?/' Standard and Poor's. 1996
•   Gutierrez, Alberto  A., "Claims Management Cuts Environmental Loss Costs," Best's
    Review. April 1996. 80-84
•   Mills, Evan, Energy Efficiency:' No-regrets Climate Change Insurance for the Insurance
    Industry, Lawrence Berkeley National Laboratory Center for Building Science, 1996
*   CPCU Society, Columbus Chapter, "How Have the Catastrophes of 1992 affected
    Solvency,  Capacity, and Reinsurance in the Property and Casualty Industry?," CPCU

Environment and Finance Enterprise        '   .                           •                 .233

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Corporate Environmental Performance as a factor in Financial Industry Decisions
    Toumal, June 1995
•   Deering, Ann and Stephen P. Leather-man,  "Insurers Must Do More to Survive
    Disasters," Best's'Review P/C. March 1995, p. 66
•   Cathcart, Sanders  B., The Impact of Catastrophes on Property Insurance, Insurance
    Services Office, Inc., 1994, New York
•   Gilbert,  Evelyn,  "Insurers,  Green  Groups  Cite  Common  Interests/'  National
    Underwriter, February 28,1994, pg. 12
•   Meakin, Thomas K., "Storm Losses did  not  Blow Away Insurer Stocks," National
   .Underwriter. Tanuarv25,1993, pg. 37-39   .
•   Roush, Chris, "Bracing for a New Storm of Claims," Business Week. August 30,1993
•   Snyder, John H-, "Hurricane Andrew: A Postmortem," Best's Review. January 1993
•   Coopers & Lybrand, International Insurance Industry Guide, 1985
•   Lombardo, John N., "Evaluating the Financial Security and Solvency of Reinsurers,"
    CPCU Journal June 1995, 5-7
•   Jones, B. A., "Reserving, for Pollution Lacks an Easy Solution," Best's Review, January
    1995,62-4

e. Spreading Catastrophic Liability Risk
•   Treaster, Joseph  B., "Even Nature Can be Turned Into a Security: High Yield and Big
    Risk with Catastrophe Bonds." New York Times. August 6,1997
•   Lonkevich, Dan, "Catex Signs Up Travelers, Other Large Eastern Carrier," National
    Underwriter," October 14.1996            .-.-•'•
*   Borden, Sara and  Asani Sarkar, "Securitizing Property  Catastrophe  Risk," Federal
    Reserve Bank of NeW York: Current Issues in  Economics and Finance." August 1996,
    2(9)
•   Unsigned  Article,  "Hurricane  Risk Hits  Capital  Markets in  Innovative  USAA
    Reinsurance Deal," Best Week P/C. August 5,1996
•   K-Karras,  Dena,  Chicago Board of Trade, "Transferring CAT Risk Using Exchange-
    Trade Insurance  Derivatives," Speech Presentation Materials, July 29,1996
•   Waters, Richard, "US Insurance Group Links  Bonds to Hurricane Losses,"  Financia,
    July 3,19%
•   Wojcik, Joanne, "Preparing for Future Contingencies," Business Insurance. August 7,
    1995

3. UN Initiative
•   AHred, Carolyn, "UN Asking US Insurers to Join International Environment Initiative,"
    Business Insurance, November 3,1997
•   UNEP: Insurance Industry and the  Environment: .. Implementing Environmental
    Commitment in the Insurance Industry, May 20-21,1996
•   Kirk,   Don  Lewis,  "Insurers  Pledge  to  Reduce  Environmental  Risk,"  Business
 '   Insurance, December 4,1995
•   Williams, Frances, "Business and the Environment: Green Politics at a Premium - Why
    Insurers are Focusing On Ecology," Financial Times (London),  November 29,1995, pg.
    12                                                                    -
• .  UNEP:  Statement  of  Environmental Commitment  by the  Insurance Industry,
    November 23,1995                                               •

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Corporate Emirmanmtal Performance as a Factor in Financial Industry Derisions
    Kirk, Don Lewis, "Deterring Pollution:  Group Offers Plan for Environmental Risk
    Management/' Business Insurance, April 10,1995         ,       '    '    ,
    Unsigned  Article, "Insurers  Launch Joint Effort to Tackle Environmental Risks,"
    Environment Watch Western Europe, April 7.1995.4(7)     •  •   .
C Credit Extension         \

1. General
•  Fenchel, Marcus, The Management of Environmental Credit Risks - a Survey of Banks'
   Practices and Strategies in Environmental Credit Risk Management in Europe and
   North America. February 1997 -                                        •
•  Coulson, Andrea B: and Rob Dixon, "Environmental Risk and Management Strategy:
   The Implications for Financial Institutions/' International Tournal of Bank Marketing,
   1995,.13(2):22-29
                                                                • P
2. Loans w/Real Estate Collateral
*  McCreary, Jean H. and Denise D. Pursley, "Using Environmental Risk Management
   Policy to  Avoid Environmental  liability," Commercial Lending Review, Fall  1997,
   12(4):62   ••••-•           .    ,
•  Byrne, John and Thomas J. Greco,  "Rx for Banking's Environmental Itch,"  ABA
   Banking journal. February 1997,89(2V.59
•  Advisory Gommittee on Business and the Environment, Environmental Reporting and
   the Financial Sector: An Approach to Good Practice, Department of the Environment
   (Great Britain), February 1997                                            •
•  Federal Financial Institutions Examination Council Notice on Revisions to CAMEL.
   'Federal Register, December 19,1996, FR61(245):67021
•  Pollard, Alfred, "Clarification of Secured Party and  Fiduciary Liability under  U.S.
   Environmental Statutes," Bureau of National Affairs, November 4,1996, pg. 772-778.
•  Ward, Elizabeth H., "Environmental Risk Management: the Why and How," Bankers
   Magazine. July/August 1996,179(4):19-24               .   .   .
•  Lowe, Frank, "Meet SFAS-121:  FASB's Recent Attempt to Bring Asset Values In Line
   With 'Real1 Values," Business Credit May 1996,98(5):12
•  Fiirash, Edward E-, "Getting over the Hump in CAMEL:. Capital Adequacy, Asset
   Quality, Management, Earnings, and Liquidity," Journal  of Lending & ^Credit Risk
   Management, April 1996, 78(8):7
•  Unsigned  Article,   "Borrowing   In  An  Era  of  Lender  Environmental  Liability,"
   Environmental Manager. May 1996, 7(10):6-8
•  Elliott-Jones, Michael,  Financing  Contaminated Real Estate:  a Survey of Insurance
   Companies' Policies, Foster Associates, Inc. Consulting Economists, April 1996   (
•  Mukatis, W. Alfred and James F. Neilsen,  "Real  Estate Lending Activities of
   Commercial Banks under Superrund," Real Estate Law lournal, 1996, pg. 358-67
•  Boulton, Leyla and David Lascelles, "Pragmatic Greenery," Financial Times (London),
 1 August 2,1995, pg. 24                                                           ,
• •  Cocheo, Steve, "Toxic Waste is Toxic to Bank Wallets," ABA Banking Tournal, July
   1995, pg. 12      :

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
•  Furash, Edward E., "Challenges and Opportunities," Magazine of Bank Management,
   May/June 1995
•  Clark, Chris, "Banks Weigh the Price of Liability - Financial Services Wrestle with the
   Burden of Environmental Regulations," Financial Times (London), June 21,1995, pg. 3
•  Unsigned Article," Canadian Imperial Bank of Commerce Focuses On Environmental
   Risks In Lending, Own Operations," Business & the Environment, May 1995, 6(5)  '
•  .Environmental Information  and Imaging Sensors, "New Environmental Software
   Pegged for Small Banks," Institutional Investors, Inc. - Bank Letter, March 27,1995, pg.
   6
•  . Chamberlain, Denise K., "Ten Rules for Developing an Environmental Risk Program/'
   journal of Commercial Lending, January 1995, 77(5):44
•  Unsigned Article, "New Task Force  Considers Environmental Issues," ABA Banking
   Journal, November 1994,.pg. 80
•  Environmental Data Resources, "Product Helps Assess Environmental Liability," ABA
   Banking ToumaL October 1994, pg. 102
•  Practicing Law  Institute,  "Manual Assists  in Commercial Loan Documentation:
   Hillman on Commercial Loan Documentation," 4th ed.," ABA Banking Journal, June
   1994, pg. 82
•  Qaritas, NPDC, "Tool Evaluates Environmental Risk," ABA Banking Journal, March
   1994,pg.78
*  Griggs, Malcolm D., "Taming Toxic Risks," ABA Banking Journal, January 1994, pg. 30
•  Cocheo, Steve, "Policies Shield Banks from Toxic Trouble,"  ABA  Banking Journal,
   December 1993, pg. 53
• - Corbit,  L. Sanders and Rush B. Lincoln, HI, "Service Demystifies Environmental
   Reports," ABA Banking Journal, June 1993, pg. 78
•  Vista Environmental Information, Inc., "Environmental Product Endorsed by ABA,"
   ABA Banking Journal, January 1993, pg. 75
•  Unsigned Article, "Why Fleet Requires Environmental Insurance as a Loan Condition,"
   ABA Banking Journal September 1992
•  American Bankers' Association, Amicus Brief for Rehearing USA  vs. .Fleet Factors
   Corporation, llth Circuit Court of Appeals, June 12,1990
•  McCammon, Anthony L.T., "Banking Responsibility and Liability for the Environment:
   What are Banks Doing," Environmental Conservation, 22(4):297-305
•  Murphy, Margaret, Lender Liability for Environmental Damage, White and Case,
   October 1,1989
•  International Finance Corporation Environment Division, Environmental Appraisal
   Checklist for Financial Institutions Disbursing IFC Funds. March 20.1997, p. 19-21
•  International Finance Corporation, Pollution Prevention and  Abatement Handbook:
   Policy Management - Key Policy Lessons, Draft, March 13,1997
•  Steer, Andrew, "Ten  Principles of  the New Environmentalism,"  IMF Finance &
   Development December 1996, 33(4):4                                            .
•  Giaccia, Andrew and Erin' Buckley Bradley, "World Bank Standards,"  Independent
   Energy, October 1995, 25(8):62-64
•  Henderson,  Douglas A., "Lending  Abroad:   The Role of Voluntary  International
   Environmental Management Standards," Journal of Commercial Lending, July 1995
•  European  Bank   for   Reconstruction   and  Development,   Environmental   Risk

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
   Management for Financial Institutions: a Handbook, June 1995
*  Werksman, Jacob D., "Greening Bretton  Woods," in Greening International Law,
   PhillippeSands,ed, New Press, 1994, pg. 65-84
                                                                             j
3. General Obligation Credit; Commercial Banks
•  Hugenschmidt, Heinrick (Union Bank of Switzerland) and Otti Biseng (Credit Suisse),
   Handout, UNEP Conference on Banking and the Environment, May 1997      •
•  Leggett, Jeremy, "Climate Change and the Banking Industry:  A Question of Both Risk
   and Opportunity," Bankers Magazine. July/August, 1996,179(4):25-29
•  Unsigned Article, "Sumitomo to Offer Eco-Management Loans," Bureau .of National
   Affairs, Inc. February 1.1996, pp. B-2 and B-3.
•  Snyder, John H. and Eric M. Simpson,  "'Good Bank/Bad Bank':   A Dangerous
 ,  Precedent?," Best Week P/C, December 26,1995. pg. 1-8
•  Casal, Elizabeth, Environmental Delineated Risk in Credit  Business, Credit Suisse,
   November 1995, pg. 15
•  Boulton,  Leyla, "Banking on the Environment," Financial Times (London), March 3,
  . 1997, pg. 4

4. Public Disclosure
•  Knorzer, Andreas, and Gabriel Pace, Environmental Shareholder Value, Bank Sarasin
   & CIE, February 18,1998 '        ,    •'   •                 ,
•  Tenna, Julie, "How Green Is Thy Bank?," US Banker, August 1997,107(8):14
•  Unsigned Article,  "Voluntary Disclosure of Environmental  Information,"'  Swiss
   Bankers Association, July 1997
•  NatWest Group, Environment Report 1996/7,  National Westminster Bank,  Pic, April
   1997               '                           .•".'.
•  Robinson, Jack, "Environmental Problems  Put Shareholder Value at Risk," Winslow
   Environmental News, July 1995
•  Ganzi, John T. and Richard Eidlin,  Bank of America: The Leading Environmental Bank
   - A Case Study. Summer 1993, EFE, December 1995

5. UN Initiative
•  UNEP: Banking and live Environment - A Statement by Banks on the Environment arid
   Sustainable Development                       .
D. Investments

1. General                      ,
•  Ganzi, John T., "Environmental Performance:   Does Wall Street Care?," Pollution
   Prevention News, April-May 1997
•  Cowe, Roger, "The Investor Green Issues and the Investor - Inadequacies of Current
   Reporting  Practice  and  Some Suggestions for Change/'  in Green  Reporting:
   Accountancy & the  Challenge  of  the Nineties  edited by Dave Owen, New York;
   London & Melbourne

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
•  Van Buren, Asians, "Shareholders Seek to Color the Corporate World Green," Business
   & Society Review, June 22,1994, 90:45
•  Nehrt, Chad, "Timing and Intensity Effects of Environmental Investments," Strategic
   Management Journal, 17(7):535-547
•  Caines, Richard, "Can Going Public with a Company's Environmental Track Record
   Really Help Defend Its Profitability?," Investor Relations. March 1995

2. Research on the EP/FP Link

a. Research Summaries                          .
•  Kurtz, Lloyd, "No Effect, or No Net Effect?  Studies on Socially Responsible Investing,"
   Journal of Investing. Winter 1997, 6(4):37
•  McWilliams, Abagail and Donald Siegel, "The Role of Money Managers in Assessing
   Corporate Social Responsibility Research," Tournal of Investing. Winter 1997, 6(4):98
•  Earle,  III, Ralph, "Environmental  Performance and Equity Value:  The  Link Gets
   Stronger," Conference:  CERES Annual Conference,  October 1, 1997, Presentation to
   CERES Annual Conference
•  Doughton, Sandi, "Investing in Principles," News Tribune. September 28,1997, pg. Gl
•  Unsigned Article, "Are  Financial and Environmental Performance  Interlinked?,"
   Environmental Accounting and Auditing Reporter, May 1997, pg. 3-8
•  Griffin, Jennifer J. and John  F.  Mahon,  "The Corporate Social  Performance and
   Corporate  Financial Performance Debate:   Twenty-five Years  of  Incomparable
   Research," Business & Society, March 1997, 36(1):5       ,
•  Koretz, Gene, "Doing Well by Doing Good," Business Week. February 24,1997
•  Balzer, Leslie, "Measuring Investment Risk: A Review," loumal of Investing. Fall 1995,
 .  4(3):5
•  Wall, Larry D., "Some Lessons from  Basic Finance for Effective Socially Responsible
   Investing," Economic Review, January/February 1995

b. Research Studies
•  Kessler, Jon and Laura Gottsman  "Smart Screened Investments:  Environmentally--
   Screened Equity Funds that Perform Like Conventional Funds,"  to be published Tournal
   of Investing. 7(4), Fall 1998
•  Cahan, Steven F., Betty M. Chavis, Richard G. Elmendorf, "Earnings Management of
   Chemical Firms In Response to Political Costs From Environmental Legislation,"
   Tournal of Accounting, Auditing & Finance. Winter 1997,12(l):37-65
•  Angel/ James J., "Does Ethical Investing Impose a Cost Upon the Firm?  A Theoretical
   Perspective," Tournal of Investing, Winter 1997, 6(4):57
•  D'Antonio, Louis, Tommi Johnsen, and R. Bruce Hutton, "Expanding Socially-Screened
   Portfolios:   An  Attribution  Analysis  of  Bond  Performance,"  Tournal of Investing,
   Winter 1997, 6(4):79
•  Feldman, Stanley J.,  Peter A. Soyka and Paul G. Ameer, "Does Improving a Firm's
   Environmental Management  System and Environmental Performance .Result in  a
   Higher Stock Price," Tournal of Investing. Winter 1997, 6(4):87
•  Guerard, John B. Jr., "The Cost of Being Socially Responsible in Investing:  Additional
   Evidence," loumal of Investing. Winter 1997,6(4):31

Environment and Finance Enterprise                                                         138

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 Corpora*e Environmental Performance as a Factor in Financial Industry Decisions
            ^_
    Cormier, Denis and Michel Magnan, "Investors' Assessment of Implicit Environmental
    Liabilities:   An Empirical Investigation," Journal of Accounting & Public  Policy^
    Summer 1997,16(2):215-241             .  .
    Guerard, John B. Jr., "Is There a Cost to Being Socially  Responsible in Investing,"
    Journal of Investing. Summer 1997. 6(2):11
    Blacconiere, Walter  G.  and W. Dana Northcut, "Environmental Information and
    Market Reactions to. Environmental Legislation," Journal of Accounting, Auditing &
    Finance, Spring 1997,12(2):149-178
    Guerard, John B. Jr., "Is  Socially  Responsible Investing  Too  Costly?/' Pensions &
    Investments. February 17.1997,25(4):26                      -
    Clough, Richard Read, "Impact of an Environmental Screen on  Portfolio Performance:
    a Comparative Analysis of S&P 500 Stock Returns/'  Duke University School, of the
    Environment, 1997
    Dalton, Brett, David Riggs arid Bruce Yandle, "The Political Production of Superfund:
    Some Financial Market Results/' Eastern Economic Journal, Winter 1996,22(l):75-87
    Kurtz, Lloyd and Dan DiBartolomeo, "Socially Screened Portfolios:  An Attribution
    Analysis of Relative Performance," Journal of Investing, Fall 1996,5(3)35
    Bosch, J..C and.Insup Lee, "Environmental Regulations and Stockholder Wealth:  An-
    Empirical Examination," Working Paper, April 5,1996
    Harper, Richard K. and Stephen C Adams, "CERCLA and Deep Pockets:  Market
    Response to the Superfund Program," Contemporary  Economic Policy, January 1996,
•  White, Mark A., "Corporate Environmental Performance  and Shareholder Value,"
  ' Conference Paper, Presentation to the Southern Finance Association Meeting, Sarasota
   (FL), November 1995
•  White, Mark A.,  "investor Response to the Exxon Valdez Oil Spill," Conference Paper,
   Presentation to the  Southern .Finance Association Meeting, Sarasota (FL), November
   1995
•  Hart, Stuart and  G. Ahuja, "Does It Pay to Be Green?," University of Michigan School
   of Business Administration, September 1995
*  Cohen, Mark, S. Fenn and J. Naimon, "Environmental and Financial Performance: Are
   They Related?," Vanderbilt University, Owen Graduate School of Management and the
   Investor Responsibility Research Center, April 1995
•  Ditz, J. David, "Does. Social Screening Affect  Portfolio Performance?," Toumal of
   Investing, Spring 1995,4(1):64
•  Repetto, Robert,  Jobs, Competitiveness, and Environmental Regulation:  What are-the
   Real Issues?. World Resources Institute, March 1995
•  Hamilton, James T., "Pollution as News:  Media and Stock Market Reactions to the
   Toxics   Release   Inventory   Data,"  Journal ' of  Environmental   Economics  and
   Management, 1995, 28:98-113
•  Blacconiere, Walter G. and Dennis M. Patten,  "Environmental Disclosures, Regulatory
   Costs,  and Changes in Firm Value," Toumal of Accounting & Economics, November
   1994,18(3):357-77
ป.  Barth,  Mary E. and Maureen F. McNichols, "Estimation and Market Valuation of
   Environmental Liabilities Relating to Superfund Sites," Draft - April 1994
•  Snyder, Jonathan V. and C. H. Collins, "The Performance Impact of an Environmental

Environment and Finance Enterprise                       -                  •          '     139

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  Corporate Environmental Performance as a Factor in Financial Industry Decisions
     Screen," Environmental Management in a Global Economy - Conference Proceedings,
     Winslow Management Co. 1994
  •  Muoghalu, Michael, and John  E.  Rogers,  "The Economic  Impact of SuperfunoVs
     Litigation On the Value of the Firm: An Empirical Analysis," Journal of Economics &
     Finance. Fall 1992,16(3):73-87
  •  Davidson III, Wallace N. and Dan L. Worrell, "A Comparison and Test of the Use of
     Accounting and Stock Market Data in Relating Corporate Social Responsibility and
     Financial Performance," Akron  Business & Economic Review, September 22,  1990,
     21(3):7                          '
  •  Wallace, Myles S., Sharon B. Watson and Bruce Yandle, "Environment Regulation:  A
     Financial Markets Test/'  Quarterly Review of Economics & Business, Spring  1988,
     28(1):6987
  •  Chen, Kung H. and Richard W. Metcalf, "The Relationship between Pollution Control
     Record  and  Financial Indicators  Revisited," Accounting Review,  January  1980,
     55(l):168-77        '
  •  Chugh, Lai C, Michael Hanemann and S.  Mahapatra, "Impact of Pollution Control
     Regulations on the Market Risk of Securities in the US," Journal of Economic Studies,
     May 1978, 5(1):64-70
  •  Roden, Peyton Foster, "Pollution Abatement, the P/E Ratio, and Cost of Equity in the
     Cement Industry," Mississippi Valley journal of Business & Economics, Spring 1975,
     10(3):45-55.                           '

  c. Environmental Screens                                                ,
  •  Edmunds, Marian, "Funding - a Measure of Performance," Financial Times (London).
     November 28,1997, pg. 7
  •  Boulton,  Leyla, "Global Warming Measure Helps  Investors  Check Risk," Financial
     Times (London). November 17,1997, pg. 8
•  •  Unsigned Article, "Environmental Performance Indicators Get More Attention  from
     me Financial Sector," Business & the Environment. December 1997, 8(12):2
  •  Hemmerick, Steve, "Micropal  Offers Style Analysis Tool," Pensions & Investments,
     September 15,1997, Technology, 26
  •  Unsigned Article, "Unsustainable Lack  of Standards,"  Financial Times (London),
     March 5,1997, pg. 21
  •  Boulton, Leyla, "United Kingdom: Top Companies Face Green Quiz," Financial Times
     (London). May 31.1996. pg. 7
  •  Lascelles, David, "Call for Code of Practice," Financial Times (London). April 3,  1996,
     PS-12
  •  Unsigned Article, "New Investment Tool Rates Environment and  Financial Health,"
     Environmental Management Today," March/April 1996, 7(1):14
  •  Costaras, Nicholas E., "Environmental Risk Rating for the Financial  Sector," journal of
     Cleaner Production. 1996,4(1):17-30
  •  House, Richard, "Rating Environmental Risk," Institutional Investor, March 1995,1
  •  Knight,  Peter,  "More  May  be  Less  -  Companies Claim  that  Published Green
     Expenditure is Increasingly Misleading," Financial Times (London), February 1,1995,
     pg.12
  •  Kieman, Matthew, "Wake Up Call for Wall Street," Environment Risk, pg. 27-30


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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
•   Little, Arthur D., "New Index Measures Environmental Performance," Prism, Third
    Quarter, 1995
•   Hansell, Saul, "It's Not Easy Being Green," Institutional Investor, January 1991

3. Observations by Financial Service Industry Segment

a. Investment Banks                                                    '
•   Winslow Management, Presentation  to Environmental  Support  Center Board  of
    Directors, February 1997                                    '
•   Unsigned Article, "Earth in the Balance Sheet:  How to Help Wall Street put More
    Stock in Your Company's Eco-Efficiency Efforts," Green Business Letter,  December
    1996,pg.l                                        .

b. Mutual Funds                                                            '    f
•   Krumsiek, Barbara  J., "The Emergence of  a  New Era in Mutual Fund  Investing:
    Socially  Responsible Investing Comes  of Age,"  Journal  of Investing,  Winter 1997,
    6(4):25
•   Prospectus Offering, Swiss Bank Corporation Eco  Performance Portfolio - World
    Equities, September 1997
•   Unsigned Article, "US-Norwegian Alliance Spins Global Eco-Fund," Institutional
    Investor, No. 14, pg. 4
•   Melnykovych, Andrew, "Investing Turns 'Green'; Interests Go Beyond Gash Yield,"
    Chicago Sun-Times. August 24,1997
•   Melnykovych,  Andrew,  "Environmentally-Friendly  Investing,"  Courier-journal
    (Louisville. KYV Tune 30,1997, pg. 1
•   Fischl, Jennifer, "Mutual Funds: .Time to Hedge," Financial World. March 18, 1997,
    166(3):4448         .                        .
•   Unsigned Article, "Mutual Funds," Bank Investment Marketing, February 1997
•   Unsigned Article, "Survey: Ethical and Green Investing," Investors Chronicle, July 12,
    1996                                .
•   Investment Company Institute, 1995 Mutual Fund Fact'Book. 1996
•   Lascelles, David, "A New Kind of 'Green1 Fund: Screening Eco-Efficient Companies is
    the Key," Financial Times (London) May 29,1996. pg. 20
*   Sparks, Debra, "Mission Impossible? Feeling Good About Your Investments is Not the
    Same as Making Money," Financial World, April 16,1994, pg. 48
•  • Knight, Peter, "A Taste for, Green Chips -  Investors are Taking  More Notice of the
    World Around Them but Not at the Expense of Profit," Financial Times  (London),
    December 8,1993, pg. 20
• "  Schneider, Paul, "Green Money:   More Investors are Seeking out Companies with
.   Good Environmental Records  and Finding that it Can Pay," Audubon,  March/April
    1993,95(2):64                 '
•   Brown, Donna, "Environmental Investing: Let the Buyer Beware," AMA Management
    Review, June 1990, 79(6):18

c. Pension Funds
•   Unsigned-Article, "Arcata to Act On Responsible Investment of Public Funds; First

Environment and Finance Enterprise                      '                                 141

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Corporate Environmental Performance as a Factor in Financial Industry Decisions
   California City Taking Action," Business Wire. November 18,1997
•  Saucer, Caroline, "Putting Your Money Where Your Heart  Is; Socially-Responsible
   Investing." Best's Review L/H. Tulv 1997.98(31:82
•  Schut, Jan H., "Where there's Smoke," Institutional Investor, July 1997, 31(7):147-149
•  Boulton, Leyla,  "Activists Take Up  Sharper Arrows:  Shareholders are Changing
   Tactics to Press Environmental Issues," Financial Times (London), May 13,1997, pg. 20
•  Schine, Eric, "CALPERS Grand Inquisitor," BusinessWeek. February 24,1997
•  Schut, Jan H., "Held Captive," Institutional Investor. February 1997,31(2):37
•  Chernoff, Joel, "World's Largest Managers Hold $17 Trillion," Pensions^ Investments.
   September 30,1996, p. 32
•  Freeman, John D.  and John Winchester, "How to Do the Right Thing:  Lessons in
   Pension Fund Management and Socially Responsible Investing," Journal of Investing,
   Winter 1994,3(4):39                            .              .   .   .
•  Marr, M. Wayne, John L. Trimble and John R. Nofsinger,  "Analysis of Economically-
   Targeted Investments:  Not this ETI1," Tournal of Investing.  Spring 1994,3(1)24
•  Parker, Marcia, "Fund Gets Major Proxy Concession/'  Pensions &  Investment Age,
   June26,1989
•  TIAA-CREF Special Trustee Joint Committee, TIAA-CREF the Future Agenda, 1987
•  Knight, Peter, "Attention Seekers in the Financial Market - Campaign Groups are
   Putting  Institutional Investors Under Pressure to  Take Action,"  Financial Times
   (London). November 1,1995, pg. 19
•  Mills, Roger W.  and Bill Weinstein, "Calculating Shareholder Value In a Turbulent
   Environment," Long Range Planning, February 1996,29(l):76-83
*  Philip, Christine, "CREF Adds Environmental Factor to Stock Equation/' Pensions &
   Investments, June 8,1992                                            ,
•  Philip, Christine, "IRRC Using "Green1 Bloodhounds," Pensions & Investments, August
   17,1992        .        ,

d. Property & Casualty Insurance
•  Webb, Robert, Investment Income - Underwriting and the Bottom Line, 1981
•  National Association of Insurance Commissioners, Investments of Insurers Model Act,
   1996                   .

e. Life Insurance
•  Kirsch,  Clifford, "Using Outside  Fund Managers  Presents Challenges,"  National
   Underwriter. March 24,1997. p. 11             '
•  Upton, Thomas  S. and Michael L. Albanese, "Sharpening the Focus on Investment
   Management/' Best's Review L/H. January 1997, p. 83
•  Briggs, Susan, "Insurers Improved Asset Mix in 1995/' Best's Review L/H, October
   1996, p. 24                                                 .    '
•  Davis, E.P., Financial Market Activity of Life Insurance Companies and Pension Funds,
   1988
•  Burgh, Edward M., Mortgage Investing by Life Insurance Companies. 1983
• . Cummius, David. Investment Activities of Life Insurance Companies, 1977
• . Gary, Mark, The Changing Role of Life Insurance Companies in the Private Placement
   Market, pg. 425-437

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 Corporate Environmental Performance as a Factor in Financial Industry Decisions
 f. Venture Capital
 *  Silby, D. Wayne, "Social Venture Capital: Sowing the Seeds of a Sustainable Future/'
    Journal of Investing. Winter 1997. 6(4V.1Q8
                             \                    '            •         " /
 g. Foundations/Endowments
 •  Solomon, Lewis D. and Karen C. Coe, "The Legal Aspects of Social Investing by Non-
    Profit Fiduciaries," Tournal of Investing, Winter 1997, 6f4):98
 •  McKeown,  W.B.,  "On Being True to Your  Mission:    Social  Investments  for
    Endowments," Journal of Investing, Winter 1997, 6(4):71
'•'  Viederman,  Stephen,  "Adding  Value  to Your  Grants,"  Foundation   News  &
    Commentary, January/February 1997
 Olasky, Marvin, PhUanthropically Correct: The Story of the Council ort Foundations. 1993
Environment and Finance Enterprise      .    .                                   . ^             143

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