Sudheer Chava Discusses Capital Cost Reductions Introduced by Socially Responsible Investing

In his study recently published in Management Science, Georgia Tech Scheller College of Business Professor Sudheer Chava found that the emergence of socially responsible investing (SRI) has changed the debt and equity landscape such that companies with fewer environmental concerns have a significantly lower cost of capital. This is a relatively new variable in making the business case for improving environmental performance with technology upgrades or other costly strategic investments.

Conversely, for companies with more environmental concerns than strengths, interest rates were up to 20 percent higher, and Chava discovered that stock prices are also affected. Additionally, his findings suggest that these companies have fewer options for raising capital.

Chava discusses these findings and their impacts in a recent article published by Environmental Leader. He notes that investment firms are increasingly making sure that the companies in which they invest have long-term environmental strategies. Sustainability practitioners who are aware of this shift in investment strategy can paint a bigger picture for their colleagues in justifying future environmental investments.

Sudheer Chava is a Professor at Scheller College of Business, the Alton M. Costley Chair of Finance, and an affiliated faculty member of the Ray C. Anderson Center for Sustainable Business.