Oct. 24, 2007 Companies with effective climate management strategies and the ability to turn them to competitive advantage tend to churn out higher profits than their same-sector rivals, according to a new study by Innovest Strategic Value Advisors.

The Carbon Beta and Equity Performance (PDF) study, which tracked 1,500 companies over three years, is the first to link the ability to manage climate risks and opportunities with financial performance.

The study finds that the performance gap between climate leaders and laggards is growing wider as regulatory schemes tighten around the world. "In the longer term, the out-performance potential will become even greater as the capital markets become more fully sensitized to the financial and competitive consequences of environmental and climate change considerations," the report predicts.

However, these risks and opportunities vary widely depending on sector and geographic location, according to the report.

The report also finds that investors can't rely on self-reporting alone to evaluate a company's climate risk, calling corporate carbon disclosure "notoriously unreliable."

"Self-reported, non-verified data supplied by the companies themselves is, by itself, a woefully inadequate basis for actual decisionmaking by sophisticated investors," says Innovest founder and chief executive Matthew Kiernan.