What’s the Value of Environmental Cleanup?

What’s the Value of Environmental Cleanup?

How valuable is environmental cleanup? I’m on my way to Salt Lake City to participate in the American Bar Association Energy and Environment annual conference to talk about just that question.

American business spends billions of dollars every year on environmental cleanup. Despite more than 20 years of this kind of spending, there is still much to be done, which raises the question of how much cost is and should be involved in appropriate cleanup.

There are a number of factors that determine costs, and impact our ability to estimate them. Lots of work has been done to understand these factors, and recently this work has shifted the question toward quantifying the benefits of cleanup, not just the cost of conducting cleanup. A novel idea – don’t just track the expense, but actually understand the financial return that comes from a clean environment.

People have tried to put prices on environmental resources – the value of bald eagles, or clean rivers to name just a couple of examples. I think there is another way to look at the question. I think the value of those resources is built into the value of our companies. If we can understand the financial benefit to companies that proactively pursue a clean environment, that will point to the value of those clean resources.

I am speaking at the conference about exactly this issue. Specifically, I am presenting a model for how to calculate the financial value of environmental cleanup. Research shows that people demonstrate the value of environmental cleanup in their valuation of a company – how much they are willing to pay for a share of that company in part reflects their perception of how environmentally friendly that company is.

It turns out that we can use this research, together with a detailed understanding of a company’s assets and liabilities, to determine the return on investment for money spent on environmental cleanup. The results might surprise you – we find that environmental cleanup may result in some of the best Internal rates of return among common corporate investments.

So much for the idea that business and the environment can’t coexist.

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