Companies with environmental problems pay a premium to finance debt and their bonds are assigned lower credit ratings, says a study that was awarded the prestigious Moskowitz Prize last week at the 2010 SRI in the Rockies conference.

The winning study, "Corporate Environmental Management and Credit Risk," by Rob Bauer and Daniel Hann of Maastricht University in The Netherlands, found that poor environmental practices influence the credit standing of borrowing firms through the legal, reputational and regulatory risks associated with environmental problems. The study looked at environmental performance measures of 582 U.S. public corporations between 1995 and 2006 and concludes that firms with environmental concerns pay a premium on their cost of debt financing and are assigned lower credit ratings. In contrast, firms with proactive environmental engagement benefit from a lower cost of debt financing.

"This winning study makes a strong case that fixed-income markets are aware of environmental factors and incorporate them in their decisions," said Lloyd Kurtz, Moskowitz Prize administrator and senior portfolio manager at Nelson Capital Management, an investment advisory affiliate of Wells Fargo. "Bauer and Hann offer evidence that company's environmental policies affect both bond ratings and valuations."

The Moskowitz Prize is awarded annually by the Center for Responsible Business at UC Berkeley's Haas School of Business in cooperation with the Social Investment Forum. The prize is the only global award recognizing outstanding quantitative research in the field of socially responsible investing. The prize award was presented this year by author and journalist Milton Moskowitz, for whom the prize is named.

The winning paper was selected from among dozens of entries by a panel of judges from academia and the investment industry. The winners received $5,000 in prize money and their paper will be published in the Journal of Investing.

The Moskowitz award was launched in 1996 by the non-profit Social Investment Forum to encourage and recognize outstanding research on socially responsible investing. Named for Moskowitz, one of the first investigators to publish comparisons of the financial performance of screened and unscreened portfolios, the prize came under the umbrella of the Center for Responsible Business in 2005.

SRI in the Rockies is a major annual gathering for the sustainable and responsible investment industry. The 2010 conference was held last week in San Antonio, Texas. SRI in the Rockies is owned and produced by First Affirmative Financial Network, an independent fee-only registered investment advisor.