Cut your risk by being green

Written by Rebecca Gardiner

We all know it’s a good idea to run an environmentally friendly company. But does it pay off? New research from the Richard Ivey School of Business in London, Ont, says yes.

In a paper published in the Academy of Management Journal, Professor Tima Bansal followed 100 firms over a five-year period, assigning values to their environmental legitimacy. While environmentally friendly firms did not necessarily turn a larger profit than their non-green competitors, Bansal discovered their stock prices were less volatile.

“Firms that are more environmentally responsible have less risk,” she explains. “With less risk comes fewer fines and penalties and, to put it simply, as a result shareholders prefer to deal with them.”

Nevertheless, Bansal admits being “too green” can also be harmful. She uses The Body Shop as an example and explains how the company made a name for itself by promoting its environmentally friendly business practices. However, because of this promotional tactic, it was scrutinized more than most companies and ultimately criticized for not being perfectly green.

“It’s an on-off switch,” says Bansal. “Shareholders and customers tend to be wary of extreme positions — too green or too dirty. So it seems better to ride the middle ground. If you tout how good you are all the time, people tend to focus on what you are doing wrong.”

To help ensure your company is doing the right thing environmentally and financially, Bansal has a few suggestions.

“Pick the low hanging fruit,” she says. “Turn off your lights at night. Recycle your papers. Ensure all of your suppliers are environmentally responsible. Then be innovative about being environmentally friendly. Don’t necessarily advertise what you are doing, but create new processes, products, etc.”

Bansal suggests companies think about creating a recyclable product that benefits their bottom line as well as their customers.

“Xerox is a great example. They lease their photocopiers and leasing this product means ultimately it comes back to them. Therefore they strive to make longer lasting photocopiers and reuse a lot of the parts. This method is better for the company, the customer and the environment.”

Originally appeared on PROFITguide.com