Improving corporate environmental performance through economic value added

These days, corporate annual reports are full of references to shareholder wealth creation. In today's highly competitive capital markets, most chief executives understand that unless they are seen as value creators, investors will place their scarce capital somewhere else. Clear evidence of the growing importance, even dominance, of shareholder wealth creation is the growing use of a performance measure known as economic value added (EVA®). 1 Within ten years, it is almost certain that most large, publicly traded companies in the United States will be using EVA or something like it as a primary performance evaluation tool. Recently, many non‐American companies have also adopted it to better align the incentives of managers with shareholders and to signal their commitment to value creation. EVA is not widely known or understood among environmental specialists, and those who have heard about it often fear it. We find this attitude unfortunate. In this article, we discuss EVA and how its use can aid corporate environmental managers in promoting more proactive environmental investments, and in funding capital investments on environmental improvement, waste reduction, and pollution control in their companies. The use of EVA and other shareholder value measures can also improve general capital investment decisions by integrating environmental factors that affect the long‐term interests of the corporation into the managerial decision‐making process.