How Well Do Social Ratings Actually Measure Corporate Social Responsibility?

45 Pages Posted: 27 Apr 2009

See all articles by Aaron Chatterji

Aaron Chatterji

Duke University - Fuqua School of Business

David I. Levine

University of California, Berkeley - Economic Analysis & Policy Group

Michael W. Toffel

Harvard Business School

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Abstract

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 skeptics of corporate social responsibility as well as for studies that relate social responsibility ratings to financial performance.

Suggested Citation

Chatterji, Aaron and Levine, David Ian and Toffel, Michael W., How Well Do Social Ratings Actually Measure Corporate Social Responsibility?. Journal of Economics & Management Strategy, Vol. 18, Issue 1, pp. 125-169, Spring 2009. Available at SSRN: https://ssrn.com/abstract=1394704 or http://dx.doi.org/10.1111/j.1530-9134.2009.00210.x

Aaron Chatterji (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States

David Ian Levine

University of California, Berkeley - Economic Analysis & Policy Group ( email )

Berkeley, CA 94720
United States
510-642-1697 (Phone)
510-643-1420 (Fax)

Michael W. Toffel

Harvard Business School ( email )

Boston, MA 02163
United States
617.384.8043 (Phone)

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