Corporate activity has a significant impact on the environment. Fortunately many companies are now taking responsibility by cleaning up pollution from their past activities and implementing environmental programs. Many investors would like to support companies that are leaders in environmental performance and would still like to get the same returns as other investors. Socially responsible investing has been growing as more investors choose to screen the companies in their portfolios.

This study looks at the environmental performance of companies in the S&P 500, and asks, "Is there a correlation between environmental performance and financial performance?" The results of Fortune magazine’s corporate reputations survey for 1994 and 1995 (environmental/community scores) are used to represent the perception of environmental responsibility held by financial professionals. The Council on Economic Priorities’ environmental ratings are taken as a measure of environmental performance based on more objective measures. Environmental performance is compared to the financial performance of both a company’s bottom line (income as a percentage of sales) and stock market performance (change in stock price for a two year period).

Statistical analysis was carried out using Pearson’s product moment correlation coefficient, a parametric statistic used to measure linear associations. Statistical significance was tested by determining critical values at a level of at least five percent. A positive and statistically significant correlation was found between the Fortune scores and both financial variables. The strongest correlation was found between the Fortune scores and income as a percentage of sales for a sample of 123 companies. The correlation is 0.25, which is significant at the one percent level. A case and control study found that in at four out of six comparisons, the more environmentally responsible company performed better financially. No correlation was found between the CEP scores and the financial variables.

I conclude that the perception of environmental responsibility by financial professionals is a better predictor of financial success than objective measures and from the point of view of the potential investor, it would be wiser to follow Fortune than CEP. I also conclude that it would be advisable for corporations to give priority to promoting whatever environmentally responsible activities they have underway.