Traditional financial management curicula establish that a corporation’s primary objective is to maximize the value of the firm and, in turn, maximize shareholders’ return. Advocacy groups and the socially responsible investing (SRI) community have nothing against companies that strive to increase earnings — so long as profits aren’t maximized at the expense of local communities, employees, and the environment.

What’s been difficult, though, is making the link between environmental, social and governance (ESG) issues and financial performance. Over the years, dozens of studies have reported on how well corporate citizens perform from a financial standpoint.

My financial textbook, as well as some SRI skeptics, argues that companies that spend resources pursuing “extra-financial” objectives are at an inherent financial disadvantage to their competitors that instead devote those resources to seeking lower cost production, developing new products, and maximizing sales.

Back at KLD, I have been trying to reconcile these streams of thinking. I research companies for KLD’s Global Climate 100 (GC100) Index and am charged with evaluating companies’ leadership in mitigating the causes and consequence of global climate change.

Here, the links between financial materiality and environmental leadership seem crystal clear to me. GC100 companies are adding new capacity to produce solar panels, increasing their market share in the wind turbine market, patenting cutting edge clean energy technologies, and developing energy efficient products to help consumers and governments worldwide use less energy and reduce greenhouse gas emissions.

Demand for these technologies, services, and products is increasing at a remarkable rate.

A prime example of this phenomenon is First Solar (FSLR) - a U.S.-based solar cell producer with a particularly hot technology using cadmium telluride instead of silicon. FSLR completed it’s IPO in December 2006 — and the stock price has almost quadrupled from ~$30 to ~$114.

Without specifically referencing implications of global warming, analysts have cited higher capacity and technology efficiencies that result in lower cost/watt among the reasons for their optimism about the company’s financial performance.