Whether environmental factors matter: some evidence from UK property companies

The purpose of the paper is test whether what property companies say they do with respect to corporate social responsibility (CSR) in general and the environment in particular has an impact on corporate value as expressed by their return on assets (ROA).

The annual report for any UK‐listed company is a statutory document with its contents prescribed by legislation. This paper is concerned with a comparison of how real estate companies present themselves in their annual reports with their actual performance. To extract that information systematically, word frequency analysis (WFA) was undertaken on the contents of the annual reports of the top 20 UK‐listed property companies by value using a CSR vocabulary of words and phrases. The frequency of each of these was established in each annual report between 2001 and 2010. Two indices were created: a general CSR index based on the occurrence of a CSR vocabulary; and a green index based on the environmental vocabulary. These indices were then modelled against the ROA for each company.

As expected, ROA is positively related with both indices and is statistically significant in the GREEN equation, suggesting the firms with good performance are likely to invest more in sustainability. The size of firms is positively associated with both indices, indicating larger firms have better defined CSR. Return has a significantly positive coefficient with both indices, suggesting that the “greener” companies outperform others in the stock market.

The research uses new content analysis techniques to identify the relative commitment of property companies to CSR and the environment. The documents analysed are statutory and therefore less likely to be used to present aspiration rather than action. Overall the paper addresses only one aspect of corporate activity and will be best viewed in coordination with other approaches.