The impact of commodity price risk management on the profits of a company

It is well recognized that for the producing companies hedging the commodity price using financial products like forwards or futures has become an important part of the company's production process. But apart from the direct impacts of hedging on the production and hedging costs the use of financial products affects the financing of the company: hedging the volatile commodity prices leads to a reduction of the risk premium the company has to pay for its debt capital, since hedging contributes to more confidence of the investors in the redemption of the debt. In this paper we therefore analyze this dependency of hedging and financing and derive optimal hedging extents for companies in different market situations based on a long-term model. By hedging the commodity price, companies can realize a surplus in profits. Thereby, the optimal hedging extent for a monopolist is often up to 100%, whereas for companies in a polypolistic market the optimum is always less than 100%. These results are illustrated by examples for a producing company.     

中国煤电企业环境压力测试

中国煤电行业的发展伴随着各种环境风险,本文以典型煤电企业为例,在产能过剩、能效标准提高、环境保护税、全国碳市场、水资源税和非水可再生能源规划目标的风险约束下,建立环境成本内部化和环境风险分析工具,考虑不同压力情境下对煤电企业价值的影响,构建环境风险影响财务成本的压力测试框架。结果表明,对单个风险而言,产能过剩和碳市场风险对企业价值的影响是大多数地区在不同情景中面临的主要风险驱动因素。对于综合风险压力测试而言,各地区1 000MW超超临界机组乐观情景及悲观情景的企业价值距合理回报预期企业价值相差小,而300MW和600MW亚临界机组因能效水平低、经营成本高等原因在环境风险压力下企业价值偏离合理回报较多。随着环境风险严重程度的不断增加,环境压力测试有助于煤电企业和金融机构了解环境风险对企业财务状况的影响,从而对投资决策产生影响。     

COSTS AND EFFECTS OF A WATER PROGRAM FOR A SMALL STRIPPING COMPANY-SOUTHEASTERN OHIO1

The purpose of the study was to use economic analysis in determining the ability of a small strip mining company to incure the financial burden of carrying out various alternative mine drainage abatement programs. The quantity and quality of water with which the company has to deal were determined and treatment and diversion programs were costed out. The company's market area and the market structure were analyzed. It was found that pricing policies were determined by a dominant firm, so the target company had no control over its price per ton of coal. The costs and revenue of the firm were analyzed for the period 1960-1970 and, even without a water quality program, losses were incurred in six out of eleven years. Analysis of the average cost curve indicates that the per unit cost could have been reduced by increasing output thereby increasing efficiency. The conclusions of the study were that the small company could not unilaterally implement mine drainage programs because the added costs would seriously worsen its already precarious financial position. Even uniformly enforced legislation might reduce the small firms competitive position because of economies of scale associated with the large treatment facilities used by big mining companies.     

International renegotiations: the case of the Dominican Republic and Falconbridge

In 1969, Falconbridge Ltd agreed to expand greatly the facilities operated by its subsidiary in the Dominican Republic. Over the succeeding years, the company mined, processed and exported a large proportion of the country's nickel reserves. Due to worldwide market conditions, however, the company made losses rather than profits, and the Dominican government received little financial benefit from the company's operations. Matters came to a head in November 1987 when President Balaguer of the Dominican Republic unilaterally imposed taxes on company imports and exports. This action was significant because under a long-standing agreement with the Dominican government, Falconbridge was only obligated to pay income taxes and had an exemption in perpetuity from all other taxes. When the company refused to pay the new taxes, the government began to curtail nickel exports. Meanwhile, on world markets, the price of nickel soared. This paper briefly describes how the world nickel market has evolved, and then focuses attention on the relationship between Falconbridge and the Dominican Republic. It outlines the issues that arose, describes the renegotiation process itself and analyses how matters were resolved.     

基于价值创造视角的公司水风险管理研究

随着全球水资源供应不确定性与需求竞争性的加剧,水资源问题已从单纯的环境问题转化为经济问题,水风险逐渐与商业风险挂钩,公司面临的水风险不断上升。公司面临着物理风险、监管风险和声誉风险等水风险,公司水价值体现在业务连续性、经营牌照、声誉与品牌价值和创新价值等无形资产中。水风险与水价值二者相互联系又相互影响,通过公司水价值与水风险评估框架,了解区分水价值的不同方法,明确风险和不确定性如何影响水的价值,并利用水工具评估和管理公司所面临的水风险以及水对公司价值的影响,帮助公司化解其所面临的水风险,实现从公司水风险管理到价值创造的转变。     

Financing energy transformation: The role of renewable energy equity indices

The support of financial markets for the transformation of the energy system to a low carbon society seems critical for its success. But will they support this transformation on the basis of market incentives alone? This study analyses how equity indices that try to capture renewable energy investments perform compared to conventional benchmark indices. Especially financial market investors—such as pension funds, insurance companies, and mutual funds—use these to assess and guide their renewable energy investments. As such, we take the perspective of financial market participants, which mainly only indirectly invest in renewable energy. We also analyze whether renewable energy indices are to be regarded as an example of market environmentalism. We find that the renewable energy indices’ risk-adjusted return is very poor and suggests renewables is not a financially attractive portfolio investment yet. We also argue that renewable energy equity indices can be regarded as an example of market environmentalism, especially with respect to commodification and frame-shifting.     

Instruments and strategies to improve the eco-efficiency of products

This article examines what tools can be used to analyze and improve the environmental performance of a product. It discusses how companies can upgrade the environmental performance of products in a cost-effective way and enhance their competitive position in the market through product innovation. Based on current examples, it is concluded that a complete toolbox is available to assist companies in developing more eco-efficient products. Which combination of practices can best be applied depends on various factors, particularly the type of external demand(s) the company is facing, its available resources, its time horizon, and its environmental strategy. Experience shows that it is better for companies to be ahead of external criticism and act more proactively. This article shows how companies can follow four main strategies in which eco-efficient product development goes hand in hand with a better competitive position in the market: (1) an efficiency improvement strategy; (2) a market share improvement strategy; (3) a market development strategy; and (4) a product diversification strategy. Finally, the importance of product innovation is stressed in order to implement the eco-efficiency strategies mentioned above.     

公司能否担负起保护环境的社会责任与义务

简述了公司由计划经济向市场经济转轨和商品经济迅猛发展过程中,出现了将公共资源及环境被低效使用或滥用,从而导致环境的污染。在市场经济条件下,公司承担起应有的环境责任不仅是社会发展的需要,也是公司自身发展的需要。因此,必须自觉地担负起法律规定的环境义务和责任。     

The relationship of place to substance use and perceptions of risk and safety in urban adolescents

Geographic and substance use data were collected from 301 urban adolescents to compare the perceived and observed risk and safety associated with their home and activity space locations (routine locations). The geographic characteristics of the neighborhood surrounding each location was summarized according to features theorized to be risky, such as criminal activity and alcohol sales, and features theorized to be safe, such as recreation centers and churches. Data on socioeconomic status, derived from U.S. Bureau of the Census data, were also used to characterize locations. Adolescents' homes were typically perceived as safe despite observed measures of risk such as density of crimes and proximity to alcohol outlets. This held for both substance users and non-users. Differences in geographic characteristics for safe and risky activity spaces were observed for both substance users and non-users, with non-users appearing to be more sensitive to the presence of risky characteristics in the environment than substance users. Results highlight the need and provide a methodology to collect fine-grained activity space data instead of relying only on home residence when attempting to represent place and health behaviors with urban youth.     

Permitting a new mine: Insights from the community debate

When a mining company selects a site for development, the company begins a dialogue with the local community about receiving the necessary approvals for the mining permits. The dialogue focuses on how well the company can use science and technology to manage risk to the local environment, and on how much economic benefit will be gained by the local community for accepting the risk. A useful approach to better understand how the debate affects the outcome of the permitting effort is to use the method of “discourse communities and analysis”. This paper analyzes two efforts by Kennecott (Rio Tinto) and one by Exxon to develop base metal mine sites in the Upper Midwest of the USA. As the three case studies show, the local pro- and anti-mining discourse community members will not be changing their basic positions as the permitting of a new mine is debated. Accordingly, both communities are trying to convince undecided stakeholders rather than talking to each other. Both sides are using ever more sophisticated media methods to communicate their message to the undecided residents of the community. By winning the support of the majority of the undecided residents, political pressure can be used to sway the decision.     

Strategic environmental product planning within Philips sound & vision

Until now no structured methodology existed for attuning environmental considerations to the business strategy of companies. The Environmental Competence Centre of Philips Sound & Vision in The Netherlands has developed and tested a methodology for this purpose. This methodology, called Selection of STRrategic Environmen Tal CHallenges (STRETCH), has proven to lead to promising results and should therefore be actively promoted. In this article, the authors show how the application of STRETCH provides the possibility of meeting three main objectives: First, focusing on the incorporation of environmental aspects into the company's business strategy can elicit innovations that may enhance the competitive position of the company by cost reduction and/or higher market shares. Second, the environmental opportunities and threats to be expected in the future can be anticipated in an earlier phase. Through this proactive approach a company can avoid external criticism and take the lead in environmental priority setting. Third, by applying the STRETCH methodology even higher eco-efficiencies are expected to be reached than through incremental, step-by-step environmental improvements.     

Investor attitudes toward the value of corporate environmentalism: New survey findings

During the past several years, an increasing body of evidence and opinion has formed concerning the relationships between advancements in environmental, health, and safety (EH&S) management and the financial performance of the organization. In recent work,¹ we have described a new theoretical model linking improvements in environmental management systems and environmental performance to corporate risk, stock volatility, and market value, as well as an empirical evaluation that validated our model. A number of other studies² have documented changes in the market value of corporate equity as a function of environmental accidents, incidents, and (conversely) accomplishments. These are in addition to the numerous examples presented in the literature and at EH&S conferences and symposia that suggest that concerted efforts to reduce the organization's environmental “footprint” can yield cost savings, increased market share, reduced time to market, and perhaps other financial benefits. Some have gone so far as to proclaim that a new era has begun, in which environment-friendly corporations will increasingly be recognized and rewarded by financial market participants, and organizations that lag behind will be severely penalized.³ This article documents a new survey undertaken to identify important environmental factors, if any, investors employ in evaluating the quality and worth of equity and debt financing instruments.     

Price Determination and Efficiency in the Market for South Platte Basin Ditch Company Shares

Water scarcity presents an obstacle to economic development in the western United States. Water rights markets help improve water allocation, allowing states to derive the highest economic benefit from available resources, and supporting new uses and economic development. However, the implicit (marginal) prices of water rights attributes are uncertain. To address this problem, we apply econometric analysis to a unique dataset to estimate the implicit values that market participants place on the attributes of shares of ditch company water rights in Colorado's South Platte River Basin. Our analysis demonstrates that ditch company share buyers value proximity of water diversion, reliability of water deliveries, and temporal flexibility of water use. To assess reliability we introduce the use of the coefficient of variation to capture, in one variable, the randomness of supply from ditch company shares that are not a single water right, but a portfolio of rights with different appropriation dates. Finally, we test and correct for spatial autocorrelation for the first time in a study of water market prices.     

From Iran: Does Improvement in Corporate Environmental Performance Affect Corporate Risk Taking?

Superior corporate environmental performance (CEP) has become essential to the competitive advantage and financial success of businesses. However, the main reasons managers pay attention to environmental performance are improved reputation in the capital market and profitability, as well as reductions in operating costs and risks. This article describes the findings of a study that examines the relationship between CEP, using a reduction of carbon dioxide (CO₂) emissions as a measure, and corporate risk taking. In addition to indicating a significant negative relationship between CEP and firm risk, the study results also show that a 1% improvement of CEP decreases corporate risk by 3%.     

Using triple bottom line metrics and multi-criteria methodology in corporate settings

With the growing importance of environmental sustainability in the corporate sector, businesses are compelled to progress from assessing and benchmarking their environmental impact to making decisions on how to prioritize impact reduction alternatives. Most often, business decisions are driven by financial metrics, but with sustainability improvements becoming a business goal, it is also important to assess metrics from environmental and social spheres; nevertheless, practically and systematically performing such an assessment is challenging. We present an application of a multi-criteria decision analysis (MCDA) method that addresses the aforementioned challenges in a corporate setting. Our case study company – one of the largest inland marine freight carriers in the United States – promotes a business culture focused on financially viable, yet socially and environmentally responsible solutions. Thus, we combine life cycle analysis (LCA), financial calculation methods, and corporate surveys to quantify environmental, economic, and social performance measures, respectively. Multiattribute utility theory is integrated with analytic hierarchy processes (AHPs) and fuzzy analysis to create a carefully designed framework for corporations with diverse groups of stakeholders. With company leadership, implementation is feasible and successful at prioritizing alternatives among diverse stakeholders. The process provides a platform for negotiation and promotes discussions on decision drivers. The use of MCDA methodologies promoted the inclusion of a suite of metrics that aligned with the company's sense of social and environmental responsibility, generating an in-depth analysis of the alternatives that factored in other things besides economics. Return-on-investments (ROI) calculations, the typical approach used in the corporate setting, would have required significantly less time and effort from the company, but the results of our MCDA application indicated that inclusion of triple bottom line metrics delve deeper into stakeholder preferences. Thus, our case study company gained a holistic view of the candidate alternatives, in addition to creating a platform for structured discussions about company goals and priorities.     

Farmers Under Pressure. Analysis of the Social Conditions of Cases of Animal Neglect

In this paper we analyse how risk factors in highly industrialised agriculture are connected to animal neglect. With Danish agriculture as a case study, we use two types of data. First, we use register data from Statistics Denmark to map how risk factors such as farmers’ financial and social troubles are connected to convictions of neglect. Second, we analyse narratives where interviewed farmers, involved in cases of neglect, describe how they themselves experienced the incidents. We find that while livestock farmers in general have a low risk of animal neglect problems, a small percentage of them face severe financial difficulties, divorce and psychiatric problems, which are connected to an increased risk of being convicted for the neglect of farm animals. The narratives bring forward themes of pressure related to financial trouble, technological break down, family problems, stress and a growing concern among the farmers towards the governmental control in farm animal production. We discuss how these factors can be used to identify and help farmers with a high risk of being convicted of livestock neglect.     

CHEAP POWER - AN EXPENSIVE FAILURE: HYDRO-ELECTRIC POWER AND INDUSTRIAL DEVELOPMENT IN NEWFOUNDLAND1

ABSTRACT By creating the 459,000 kW Bay d'Espoir h.e.p. scheme, the Newfoundland government hoped that the consequent doubling of the island's electricity supply would not only eliminate a deficite situation but provide power for industrial development. These hopes have not been fulfilled, and only one company, producing elemental phosphorus, was attracted to the island by the government's ‘cheap power’ policy. In addition to the continuing power subidy, this company received considerable federal and provincial incentives by locating its plant in Newfoundland. To these direct financial costs have to be added the environmental destruction and deterioration stemming from the h.e.p. development and the haste with which its construction was undertaken, and the catastrophic pollution problem created by effluent from the phosphorus plant. The costs of the ‘cheap power’ policy have been, and continue to be, massive for Newfoundland, Canada's poorest province. Further, the policy has made little or no impact on the small job market and the very large unemployment problem.     

Insurance sector management of climate change adaptation in three Nordic countries: the influence of policy and market factors

The insurance industry is important for facilitating climate change adaptation. Insurance companies’ involvement is, however, influenced by national adaptation policy. The literature suggests that especially policy factors – government interventions, political priorities and public–private cooperation – and market factors – cost offset, cost mitigation, planning flexibility and business opportunities – shape private actor approaches. To increase the understanding of insurance company involvement in adaptation, this study examines how insurance companies’ approaches are influenced by policy and market factors in three countries: Denmark, Norway and Sweden. The study found that the policy factors tested significantly shaped the approaches of the companies assessed, while market factors currently appear less influential. This is likely due to the absence of climate risk and adaptation in political debates and among insurance policyholders. The study discusses the potential role of the insurance industry in adaptation governance and suggests how barriers facing insurance companies could be overcome.     

Environmental Management: Testing the Win‐Win Model

The debate over the possibility of seeking competitive advantages through greener strategies versus the scarcity of such opportunities is not yet resolved. This study is an attempt to test the win-win model. The role of the variables at the core of the win-win model, such as the regulatory factors, environmental strategy and environmental innovativeness, was examined. The results validated the positive competitive and financial impact of progressive environmental strategies contingent upon the presence of favourable external and internal conditions. From purely a profitability standpoint, it is important to seek a balance between the environmental measures and market expectations. Comprehensive superiority in relative environmental performance will not necessarily lead to environmental competitive advantage.     

Development of a decision support system for Prioritization of multimedia dischargers

In 1990 the Environmental Protection Agency (EPA) began sponsoring several pilot projects in its regional offices to examine the potential benefits of adopting a multimedia approach to facility management. This approach differs from traditional practices at EPA in that facilities (dischargers regulated under permits issued by the agency) are managed based upon their cumulative impacts to all media: air, water, and land. Currently, facilities are managed by separate programs at EPA that evaluate environmental impacts from a single-media perspective. One aspect of discharger management is the necessity to allocate limited financial resources in a way that will minimize risk to human health and the environment. A careful, risk-based prioritization of facilities is one means of providing insight to the most effective strategy of allocating monitoring, inspection, and enforcement resources. Prioritization from a multimedia perspective is particularly difficult, however, since it requires translation and integration of medium-specific facility performances, management objectives, and perceptions of risk into a cumulative rating. A computerized decision support system (DSS) designed to guide management through the prioritization process from a multimedia perspective was identified as a potentially valuable tool for use in the pilot projects. This article describes the development of such a prototype, outlines the features of the completed system, and discusses its potential for use at EPA.