A team of researchers led by Kettering University’s Dr. Thomas Ngniatedema from the Department of Business have presented empirical evidence regarding the importance  of corporate environmental consciousness and a company’s financial performance.

Ngniatedema and his research team, consisting of Dr. Suhong Li at Bryant University and Dr. Abdou Illia at Eastern Illinois University, used data from Newsweek’s environmental reports on the top 500 publicly traded companies in the United States. They compared the financial performance of organizations in the manufacturing and service sectors with their respective environmental metrics over the course of two years to look for profitable correlations. Metrics such as Environmental Impact Scores and Reputation Score were used in their study.

The Environmental Impact Score is a comprehensive, qualitative and standardized measurement of the overall environmental impact of a company’s global operations.

A company’s “Reputation Score” is a combination of an organization’s environment, social and corporate governance risks made up of issues such as: global pollution, climate change, local pollution, impacts on ecosystems and landscapes, overuse and wasting of resources.

“This study is an invitation to corporate investment in innovative pollution prevention because we found that companies that score well according to objective environmental criteria realize stronger financial returns than their counterparts.” Ngniatedema said.

The manufacturing industry included companies in sectors such as consumer products; vehicles; food and beverage; industrial goods; pharmaceuticals; technology; and utilities, while the service industry consisted of firms in sectors such as banking and insurance; financial industries; healthcare, media, travel and leisure; and retail.

“We found that firms in the manufacturing industry tend to be more green-oriented than those in the service industry,” Ngniatedema said.

Specifically, financial performance of Fortune 500 companies was improved in consumer products, food and beverage, healthcare and retail sectors when green operations were taken into consideration and therefore the industries received a higher environmental impact or reputation score. 

“It wasn’t that consumer trust increased, it was due to the integration of green practices in their operations. Certain companies that score poorly on environmental metrics have weaker returns,” Ngniatedema said.

For example, in the service-based retail industry, they found a positive green Reputation Score to be correlated with increased inventory turnover in back-to-back years of the study. Similarly, in manufacturing, food and beverages, a correlation was found between Environment Impact Score and increased profit margins.

Ngniatedema’s findings were published in the August 2014 issue of Environmental Quality Management. A follow-up of this study may consist of studying consumer habits to specifically tie green practices with their consumption of manufactured products and engagement with service industries. However, for now, the correlation between green operations and financial performance should encourage Fortune 500 companies to consider their overall environmental strategies.

“This study will motivate other companies to adopt green practices because as we found, it pays to be green,” Ngniatedema said.