In this study, Mr. Soyka and collaborator Mark Bateman of IW Financial, Inc. provide a new, path-breaking analysis of corporate environmental disclosure, policy, and management practices. The analysis examined the information disclosed by the Russell 1000 (the 1,000 U.S. companies having the largest capitalization, or market value) regarding corporate environmental policies, goals, management systems, programs, performance, and public reporting. It represents the largest and most complete publicly available analysis of its type performed to date. The work was performed on behalf of the Sustainable Enterprise Institute, a recently formed not-for-profit organization dedicated to promoting sustainable business practices (see www.SustainableEnterpriseInstitute.org for details). Results indicate that while about 60 percent of Russell 1000 companies have an environmental policy of some form, most of these policies lack rigor and sophistication, as fewer than 28 percent have any of six key policy elements, and fewer than nine percent have any of three or more of these elements. Only about eight percent of these firms vest oversight responsibility for ESG issues and/or for its environmental policy in its Board of Directors, and only 1 in 18 has unambiguously delegated this responsibility to a senior corporate officer (e.g., Chief Executive Officer, Chief Operating Officer). In addition, only about 13 percent of Russell 1000 companies have published a corporate environmental, CSR, or sustainability report, and fewer still have reported key management activities such as extent of employee training or significant performance end points like regulatory violations or fines and penalties. And while 27 percent of Russell 1000 firms have disclosed their direct greenhouse gas emissions, only about 16 percent have a corporate climate change policy. The authors conclude that while there may be many firms that have more sophisticated environmental policies and practices than they have disclosed, the absence of adequate and complete disclosure leaves investors and other external stakeholders with a significant information deficit and materially increases investment risk. They advocate more complete, consistent, and regular environmental (or sustainability) disclosure, and for the many firms that have not established complete environmental policies and infrastructure, that they formulate and make public meaningful environmental policies, establish management systems and implementing practices, regularly measure performance, and regularly report progress, accomplishments, and challenges. Only in this way, can firms that espouse environmental leadership demonstrate that they deserve the ongoing support of the investing (and general) public. To download a copy of this study, click here.
This chapter addresses the intersection between EMS (and other advanced organizational environmental management practices) and the workings of the capital markets. It presents the results of extensive new research conducted by Mr. Soyka and his team to explore this topic. The chapter first describes the hypothesized relationships between EMS (and organizational environmental posture and performance more generally) and selected U.S. financial markets, then presents the research methodology. The bulk of the chapter then describes the research findings. The chapter closes with several conclusions addressing public policy formulation, improved corporate decision making, more effective internal environmental management, and indicated further research directions. Results show that there is a significant gap between the financial value of EMS and other environmental management investments assumed by many of their proponents and the perceived value of these systems within the capital markets. The chapter examines in detail the perceived shortcomings in the typical approaches taken to EMS design and deployment, and recommends specific improvements that could help to close these gaps. These findings have relevance to the design of voluntary environmental improvement programs managed or contemplated by public sector entities (e.g., environmental regulatory agencies), as well as to the formulation and deployment of more broadly effective internal environmental management programs within various industry sectors and individual companies. The topics explored here also may be of interest to academic researchers and educators.
In this presentation, Mr. Soyka described his pioneering work in quantifying the life cycle environmental aspects of the U.S. mail system. In collaboration with partners SLS Consulting and with guidance from the client at the U.S. Postal Service, Mr. Soyka designed and developed a new life cycle inventory model covering all stages in the mail value chain, from paper making through ultimate disposal of discarded mail in landfills. In his remarks, he described this peer-reviewed work and as well as recent updates and enhancements to the methodology. The presentation was delivered at the Advanced Workshop in Regulation and Competition, 28th Annual Eastern Conference of the Center for Research in Regulated Industries at Rutgers University, in Skytop, PA. This work addressed two major issues that are crucial to conducting life cycle analyses that yield actionable results: the treatment of fixed, or “network” pollutant emissions; and the allocation of emissions to individual products. Messrs. Soyka, Buc, and Glick developed approaches to dealing with these issues that are both elegant in their simplicity and rigorously correct, in contrast to the approaches taken in many other life cycle studies. Major study findings, which were comparable to those of several international or partial life cycle inventories of mail, include the following:
An analysis developed by Peter Soyka and Lawrence Buc of SLS Consulting was recently published as a book chapter. The analysis is based upon a cost-benefit analysis developed by Mr. Buc and Mr. Soyka that brought together an analysis of the carbon footprint of a major multinational bank, and a review of greenhouse gas mitigation options with respect to both impact and implementation cost. This work also was profiled in a presentation given at the 16th Conference on Postal and Delivery Economics on May 28, 2008. Messrs. Buc and Soyka arrayed the available options for greenhouse gas reductions in order of both the magnitude of reductions and unit cost, forming a cost (supply) curve in the process. They then examined different strategies for reducing the Bank’s carbon footprint. Their analysis showed that it is possible for Bank of America to make substantial greenhouse gas reductions at reasonable cost, but that it is very important to pursue mitigation strategies in a careful way. This is because the analysis also showed that some of the most high-profile strategies, and those that seem to be growing in popularity, are among the least cost-effective among many others. Messrs. Buc and Soyka conclude that Bank of America intends to be a sustainable company, by deploying its capital wisely in addressing its environmental and social challenges.
Peter Soyka gave an invited guest lecture to the Environment Industry Study of the Industrial College of the Armed Forces, at Fort NcNair in Washington, DC. His remarks were provided to a class of mid-career military officers representing U.S. armed services branches as well as those of several allied countries, and comprised his second such invited presentation during the past two years. Mr. Soyka’s presentation built upon his recent work in defining and describing the connections between corporate environmental management and performance improvements and indicators of corporate financial success such as profitability, returns on assets and invested capital, value of intangible assets, stock price volatility, and stock price performance. Mr. Soyka provided a brief but thorough and thought-provoking overview of this topic, and provided the participants with an analysis of a number of interesting trends and potential indicators of movement toward companies and capital markets that are more environmentally (and financially) sustainable.
This article presents a review of the readily available published literature addressing the actual costs of EMS implementation in organizations, and the corresponding benefits accruing to organizations as the EMS takes shape and thereafter. Formal environmental management systems (EMSs) have been implemented in a wide array of corporate and public sector organizations during the past decade or so. EMS advocates routinely tout the environmental and organizational benefits of environmental management systems, often on a prospective or anecdotal basis. Nevertheless, considerable doubt continues to exist about the net overall benefits of EMSs. This skepticism may be found at all organizational levels, from the board room to the shop floor. Doubts about the “business case” for EMSs therefore represent an important obstacle to further uptake of this important mechanism for driving continual environmental improvement and actively pursuing sustainability. Issues surrounding the respective benefits and costs of formal EMS implementation are thus of crucial importance. To date, however, these key questions have been informed by only limited empirical data. This article describes the analytical process used by Mr. Soyka and its results. He began by collecting, reviewing, and categorizing EMS implementation experience and results reported in the literature, and then summarized the information to form general conclusions about the resources required to fully implement EMS within an organization (generally, about $100,000), the associated benefits received (variable, but often substantial), and an overall benefit: cost ratio (usually greater than unity). The article also suggests the general features of a methodology that may be used to estimate the prospective benefits and costs of one or more EMS design alternatives under a broad range of possible conditions. Use of this methodology would enable an EMS implementer to overcome many of the limitations that are evident from the literature, and would facilitate development of an EMS that is squarely focused on both environmental and financial performance benefits.
As government environmental programs increasingly rely upon incentives, market mechanisms, and voluntary actions to achieve environmental performance improvements, it is becoming ever more important for regulatory agency personnel to understand the factors that motivate corporate behavior. Chief among these factors is financial success.
Environmental agency personnel, however, typically have little formal training in corporate financial concepts. Financial people, regardless of the specific thrust of their business, tend to view issues of risk, quality, and opportunity through both qualitative and quantitative lenses, and to use a lexicon that is quite different than that employed in the environmental policy and management arena. In this seminar, Mr. Soyka helped participants to become conversant with the concepts, terms, and types of information that define the realm of financial analysis, whether from an underwriting, lending, or equity investing standpoint. This enabled them to understand the financial expectations that are placed upon corporate executives and managers, which guide their behavior in a very direct and influential way. This understanding, in turn, helped enable environmental agency personnel craft and implement voluntary programs in ways that are attuned to the most important financial aspects of target companies, and are most likely to attract members and motivate improved environmental performance. The seminar provided an introduction to financial organizations internal and external to the corporation, and described major financial markets, the interactions between corporate officials and representatives of these markets, the types of information that are communicated and their typical formats, and the types of evaluations that are generally conducted by financial and public sector stakeholders. Mr. Soyka also discussed corporate governance, to which significant attention is shifting in the wake of recent scandals and broadening societal demands and expectations. More specifically, Mr. Soyka discussed the principal players within a company’s senior management and their roles, important concepts, terms, and definitions, and a description and simple examples of the basic financial statements required of publicly traded corporations. He briefly reviewed both traditional and emerging methods of financial analysis, so that participants could more fully understand which financial and operational indicators are of interest to financial analysts and why. He also discussed the company’s board of directors and its roles in ensuring that corporate management is acting in the best interests of shareholders. Finally, Mr. Soyka addressed recent changes in the regulatory landscape, particularly since the enactment of Sarbanes-Oxley.
At this invitation-only meeting of prominent environmental and sustainability thinkers and practitioners, Mr. Soyka gave a thought-provoking presentation posing the question of whether our current environmental protection programs in all respects focus on the right things and are designed appropriately. He supported his remarks by providing data from recent public opinion surveys and research demonstrating a low level of environmental literacy among the U.S. public, as well as several systemic flaws in the ways in which many of our environmental regulatory programs have been developed and implemented. He also recommended some alternative approaches to current, or typical practice, including a greater focus on instilling greater environmental knowledge (as opposed to awareness), recognition in program design of important interpersonal and organizational dynamics (e.g., the principal-agent problem), more sophisticated use of available environmental management tools such as formal environmental management systems (EMS), and a fundamental review, and in some cases, retooling of existing environmental regulatory programs to reflect both a stronger outcome orientation and changing circumstances since program initiation.
In this presentation, Peter Soyka explored whether and to what extent corporate energy efficiency initiatives could make a discernible difference to the overall bottom line. While the financial benefits of energy efficiency (EE) improvements in buildings are widely understood by energy management professionals, such programs tend to be viewed as a tactical, site-based, middle management issue. Moreover, despite the growing presence of many successful public and private EE programs and initiatives, few large-scale studies had been conducted to quantify the financial benefits or determine the strategic importance of these programs. In this presentation, Mr. Soyka described how he and his project team analyzed extensive data collected by the U.S. EPA’s Energy Star program over an extended period (more than 13,000 records), which allowed for in-depth analysis for the first time. Their general approach had two major thrusts: 1) determine whether lighting equipment upgrades repay their investment costs and generate incremental cash flows, and calculate the returns (net present value-NPV) of investments; and 2) based upon the initial results, search for organization-level impacts by performing multiple regression modeling to isolate and quantify any meaningful savings. The analysis demonstrated that positive financial returns were achieved in the great majority of cases; as well as a subtle, but statistically significant, positive impact of these investments on the operating margins of the publicly traded companies in the program for which we could obtain financial data. These findings suggest that, in the aggregate, the wealth created by the Green Lights program may be substantial, and that for the companies included in our second analysis, the financial benefits to participation in the program are of sufficient magnitude to be discernible at the corporate level. Based upon these findings, Mr. Soyka offered several conclusions:
Peter Soyka and Russ Marshall published this article oriented toward the federal agency environmental professional and executive management following the release, in April 2000, of a ground-breaking Executive Order, Greening the Government through Leadership in Environmental Management (EO 13148). This EO contains a number of far-reaching environmental management and performance improvement mandates for federal agencies, and remains in effect today. Messrs. Soyka and Marshall believe that the shape and content of EO 13148 reflect a continuing interest by the federal government in concepts and methods developed and successfully deployed in the private sector. They postulated that if fully implemented by agencies, EO 13148 would induce a profound change in the way that environmental issues are perceived and addressed, and require commitment of substantial time and resources. These challenging conditions were magnified by the decentralization and downsizing initiatives that were ongoing at that time within many agencies. At the same time, however, the authors suggested that the EO be viewed positively, as a stimulus for making targeted and appropriate organizational investments. They suggested a deliberate and somewhat cautious approach, focusing first on the EO provisions offering the highest value-adding potential. Moreover, they contended that the experience of leading private and public sector organizations is instructive, and suggests that the keys
to success include senior management commitment, use of cross-functional participation, obtaining appropriate tools and resources, and defining and populating appropriate performance measures.
Peter Soyka and Stan Feldman conducted this study to determine whether and to what extent mainstream investors actively consider environmental issues in making investment/divestment decisions. They conducted a survey of the attitudes toward environmental, health, and safety (EH&S) improvements among the portfolio managers of dozens of bond and equity investment funds. The survey findings profiled in this article shed some interesting light on this question. Key excerpts from this unique study include the following:
Peter Soyka directed a pioneering study defining and documenting a relationship between improved corporate environmental management practices and environmental performance, and market risk and stock prices. This peer-reviewed study, drew world-wide interest, and was profiled in the Harvard Business Review, Financial Times, and other prominent business publications. As part of this research, Mr. Soyka directed an evaluation of corporate environmental reports for completeness, evidence of sound environmental management practices, and use of appropriate environmental, health, and safety performance metrics. Under his leadership, the team developed a new theoretical model linking improved environmental management practices and on the ground performance to cost and risk reductions and, through effective signaling to the capital markets, positive changes in the perceived risk of the firm in the equity capital markets. They then validated this model using an econometric analysis of the largest publicly traded U.S. companies over an extended period of time. The sample consisted of 330 firms listed on the S&P 500, examined across two 7-year time periods. The analysis controlled for capital structure, productivity, industry & other important variables. Empirical results showed that improved environmental management quality and environmental performance (TRI emissions/fixed assets) yielded a reduced measure of systematic risk (Beta) of several percent, suggesting a lower firm cost of capital and higher stock price. Following publication of the study, Mr. Soyka served as a featured speaker at a number of national and international environmental management forums, at which he discussed this research and its implications for future environmental management initiatives, and their real and apparent value to the enterprise.
Peter Soyka is a co-author of two ground-breaking articles on environmental accounting published in a leading environmental management practitioner’s journal, Total Quality Environmental Management (TQEM). In these articles, Mr. Soyka and a former colleague postulated two paradigms for integrating environmental costs into mainstream business management decisions and functions, and provide practical advice (based on their consulting experience) on how diverse organizations can begin to more completely understand their true environmental costs, and thereby, make better investment and spending decisions. In this second of two articles, the authors build from the concepts presented in the initial article, emphasizing that there is no simple recipe for success in implementing environmental accounting. Instead, day-to-day needs and strategic objectives will determine how an organization can best make use of data on the costs and benefits of environmental programs and activities. This article is geared toward organizations that want to start implementing environmental accounting and create a foundation of success on which to build. In this context, key questions are (1) What are some logical starting points? and (2) Where do companies go from there? This article first describes some paradigms that may guide companies as they think about how to implement environmental accounting, then it presents a series of critical activities that are needed to make environmental accounting an integral part of ongoing business management functions. The ultimate goal of environmental accounting is to understand what business functions and activities are responsible for incurring environmental costs, and that those costs are allocated correctly. Unfortunately, many environmental costs are hidden, leading to significant cost misallocations, and in some cases, product/service mis-pricing. Despite the importance of this issue, the authors suggest a cautious approach, by seeking initial successes on which to build rather than a wholesale restructuring of important business management functions.
In this initial article on the topic of environmental accounting, Peter Soyka and Paul Bailey postulate two paradigms for integrating environmental costs into mainstream business management decisions and functions, and provide practical advice (based on their consulting experience) on how diverse organizations can begin to more completely understand their true environmental costs, and thereby, make better investment and spending decisions. Much as Total Quality Management (TQM) has helped companies decrease waste and enhance value, environmental accounting offers an approach and a suite of tools that can help organizations improve both
environmental quality and bottom-line business performance. Its focus is to bridge the world of finance and economics with the world of environmental management. Companies in all sectors have discovered that they can increase profits by meeting and even surpassing environmental regulations. Through environmental accounting, companies can discover more of these opportunities and, ideally, bring environmental concerns earlier into planning, decision making, and operations. The article introduces environmental accounting and some basic principles that should guide organizations' thinking on environmental accounting and environmental accounting systems. It also describes several different objectives for environmental accounting that imply different requirements and orientations. Although the focus of this article is on environmental accounting as an aspect of forward-looking management and decision making in companies, much of the discussion applies to nonprofits and government units as well.