How Well Do Social Ratings Actually Measure Corporate Social Responsibility?
Duke University - Fuqua School of Business
David I. Levine
University of California, Berkeley - Economic Analysis & Policy Group
Michael W. Toffel
Harvard Business School (HBS) - Technology & Operations Management Unit
February 20, 2008
HBS Technology & Operations Mgt. Unit Research Paper No. 07-051
Ratings of corporations' environmental activities and capabilities influence billions of dollars of socially responsible investments as well as some consumers, activists, and potential employees. In one of the first studies to assess these ratings, we examine how well the most widely used ratings - those of Kinder, Lydenberg, Domini Research & Analytics (KLD) - provide transparency about past and likely future environmental performance. We find KLD concern ratings to be fairly good summaries of past environmental performance. In addition, firms with more KLD concerns have slightly, but statistically significantly, more pollution and regulatory compliance violations in later years. KLD environmental strengths, in contrast, do not accurately predict pollution levels or compliance violations. Moreover, we find evidence that KLD's ratings are not optimally using publicly available data. We discuss the implications of our findings for advocates and opponents of corporate social responsibility as well as for studies that relate social responsibility ratings to financial performance.
Number of Pages in PDF File: 51
Keywords: environmental management, corporate social responsibility, evaluation, ratings, regulation, compliance, emissions
JEL Classification: C23, K20, K32, K42, M14, O13, Q20, Q29working papers series
Date posted: June 17, 2007 ; Last revised: February 19, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo5 in 0.375 seconds