Stocks in environmentally-friendly businesses give better returns to investors than polluters.
That is the verdict of a new report from the University of Sussex Business School and Birkbeck, revealing that there is a 30% lower chance of risk when investing in companies that fare better for the environment.
The research compared market-based returns and risks of stocks for environmental and polluting companies through their performance in the S&P 500 between 2005 and 2018.
Companies were deemed ‘environmental’ if their greenhouse gas emissions were lower than the average of their competitors.
The study found that environmental stocks produce up to 7% better annual returns than polluting ones.
The researchers claim more investment in environmental stocks could improve the overall efficiency of the financial market and justify greener investments for more investors.
Dr Panagiotis Tzouvanas, University of Sussex Business School, said: “Our study shows that it pays to invest in environmental stock and that it is justified from a portfolio selection point of view.
“Our findings show that stocks with superior environmental performance have higher equity valuation and benefit from lower associated risks and particularly lower idiosyncratic risk.
“We have found strong evidence that portfolio selection of firms with strong environmental performance is justified both in terms of market returns and risks.”