Blended Value Investing: Integrating Environmental Risks and Opportunities into Securities Valuation.

Harold, Jacob, Spitzer, Joshua and Emerson, Jed (2007) Blended Value Investing: Integrating Environmental Risks and Opportunities into Securities Valuation. Skoll Centre for Social Entrepreneurship.

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Increasingly, investors are integrating environmental risk and opportunity into their financial valuations of public and private assets. This paper offers an overview of how environmental factors might be integrated into companies’ financial valuation. More speculatively, it suggests ways in which a blended value investor could potentially attain equal or better financial returns than traditional investors agnostic to the environmental implications of their investments. There are indications that financial markets are gradually integrating environmental considerations into securities valuations, emerging from a long period when such concerns had little if any influence on securities’ prices. If this assertion is true, the tools and perspectives of blended value investing can help an investor identify and profit from the financial manifestation of previously unpriced environmental value. Using the terms of finance, blended value investing may be a way to generate ‘alpha’ – or returns above the risk-adjusted performance of the overall market, which are typically attributed to an investment manager’s unique ability. Public equities and debt operate in relatively liquid, efficient markets that combine information from many investors and market influences to reveal clear prices for securities. Nevertheless, markets do not ‘explain’ how they arrived at a given valuation. Thus, for example, it is difficult to know how much of an oil company’s current share price reflects its commitment to alternative energy technology or to a recently announced reorganisation of its distribution network. In order to disentangle cause and effect, an investor or analyst must attempt to interpret the various pieces of information that contributed to the market’s valuation. In the matter of environmental opportunity and risk, more mainstream market participants are examining how environmental considerations can have a direct impact on securities prices. Accordingly, the mid-2000s may be an excellent time to be a blended value investor. To deploy such an investing strategy effectively requires an understanding of the standard tools of valuation as well as the development and use of new blended value methods.

Item Type: Other Working Paper
Keywords: environment, social responsibility, investment
Subject(s): Social entrepreneurship
Centre: Skoll Centre for Social Entrepreneurship
Date Deposited: 18 May 2011 13:16
Last Modified: 23 Oct 2015 14:05
Funders: William and Flora Hewlett Foundation

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