Environmental Influences on Company Valuations

The benefits accruing from good environmental management of companies are most often linked to economic benefit and the concept of moving towards sustainable development. However, the link between environmental liabilities, assets, or performance, and the financial valuation of a company remains obscure at best. Operational improvements, for example from implementing a waste minimization programme, can give a clear short-term reduction in costs, and impact immediately on profits. Many environmental risk management programmes also need to deal with long-term issues such as historical land contamination and changes in manufacturing technology. These have a much more protracted and ultimately fundamental impact on the perceived capital value and future prospects of a company. This paper seeks to describe how the relationship between environmental and financial risk management is becoming clearer, and uses examples to show how this is brought into focus during merger and acquisition activities.