(FORTUNE Magazine) – Mutual fund managers that focus on "socially responsible investments" have long talked up the value of owning shares in environmentally conscious companies. But could investing green really be the best way to make money in stocks? That's what a group of analysts at the New York firm Innovest argue. They contend that a company's strategic response to environmental risk--from air-clogging emissions to toxic waste --is a window into the company's management ability. The more "eco-efficient" a company is, the better its stock performance is likely to be compared with others in its industry --and that's true, apparently, whether the industry is oil, mining, or solar energy. Innovest claims that the companies with the most earth-friendly approach, when combined in an index, substantially outperform their worst-in-class counterparts. When researchers at Erasmus University in Rotterdam tested the claim, they found that over the eight years leading up to 2003, Innovest's model stocks did, in fact, command a 6% premium compounded annually over the eco-losers--and more important, that the edge could be traced specifically to the companies' environmental efficiency as opposed to other market factors.

What's really amazing, though, is which firms get the green ribbon. Take Chevron (CVX, $93), for example. The world's fourth-largest energy company shoulders the risk of cleaning up 218 federal Superfund sites, yet it still earns an A rating (on a CCC-AAA scale) from Innovest. Chevron's proactive investment in solar, wind, and hydrogen power, as well as its effective efforts to reduce greenhouse gas emissions, outweighed its failings when ranked among other oil and gas companies, the analysts contend. Alcoa (AA, $32), the world's largest producer and miner of aluminum, earns an even higher AA for its aggressive efforts to recycle waste, co-generate plant power, and produce new, environmentally friendly aluminum. And IBM (IBM $86) gets a top-of-the-heap AAA for reducing nonhazardous waste by up to 79%, recycling, and cutting carbon emissions by 30%.

If this all seems sort of far-fetched, State Street Global Advisors undertook its own study and found that Innovest's eco-efficient companies outperformed the S&P 500 as a whole since 1997 by roughly 7%, compounded annually. No surprise, State Street is launching a fund based on the Innovest strategy later this year. Unfortunately, its U.S. Core Environmental fund is limited to institutional investors. For now.

--Abrahm Lustgarten