Cohen, Mark A., Scott Fenn, and Jonathon S. Naimon. "Environmental and Financial Performance: Are They Related?" Investor Responsibility Research Center Working Paper, April 1995.

Compares the performance of "high pollution" and "low pollution" firms in the S&P 500. High- and low-pollution firms are identified using the IRRC Corporate Environmental Profiles Directory (1992). Pollution levels are defined within industry and normalized using revenues.

The authors then create industry-matched portfolios of high- and low-pollution firms, and compare their financial performance using ROA,, ROE, Total Return, and Risk-Adjusted Total Return (Change in Stock Price + Dividends / Initial Stock Price * Beta). Comparisons are made using the following environmental criteria: environmental litigation; number of Superfund sites, fines, oil spill volume, chemical spill volume, and toxic releases. The time period used for all financial measures was 1987-1991.

Finds that total return is, in most comparisons, statistically indistinguishable for high- vs. low-pollution portfolios on both a nominal and risk-adjusted basis. Also finds that Return on Assets (excluding interest expense) is significantly higher in the environmental litigation, oil spill volume, and chemical spill volume comparisons.

The authors conclude that "investors who choose the environmental leaders in an industry-balanced portfolio were found to do as well, and sometimes better than those choosing environmental laggards..."