Blank, Herbert D. and C. Michael Carty. "The Eco-Efficiency Anomaly." Innovest Working Paper, June 2002.

Reviews the performance of stocks ranked highly by the environmental research service Innovest for the 1997-2000 time period. Finds that an equal-weighted portfolio of the highest-rated companies outperformed an equal-weighted portfolio of all rated companies. This portfolio also had a higher Sharpe ratio than the S&P 500 in three of the four years.

The authors then use an APT model to create an "Innovest Enhanced S&P 500" for the time period, which also outperformed the S&P 500. The effect was also observable within industries, as highly-rated stocks outperformed low-rated ones in environmentally sensitive industries such as chemicals, forest products, mining, and steel.

Available at: http://www.innovestgroup.com/pdfs/Eco_Anomaly_7_02.pdf