The Weighting of CSR Dimensions: One Size Does Not Fit All
25 Pages Posted: 7 Mar 2014 Last revised: 25 Jun 2014
Date Written: June 2014
The concept of Corporate Social Responsibility (CSR) is fundamentally multidimensional. However, this multidimensionality is often overlooked, especially when it comes to the measure of Corporate Social Performance (CSP). Most of the work here uses equally-weighted composite scores, provided by extra-financial rating agencies (mainly KLD), which simply sum up the scores of different CSR facets to yield an overall assessment. How relevant are such composite CSP scores? Does it make sense to give the same weight to all of the criteria? Should the weighting scheme be the same for the assessment of Banks and Oil companies? This paper proposes an original weighting scheme of CSR strengths and concerns, at the sector level, which is proportional to media and NGO scrutiny, and based on a comprehensive database of environmental, social and corporate governance news. We show that previous CSP assessments under-weight environmental and corporate governance concerns. We moreover find that firms which are exposed to the closest scrutiny are usually criticized on one single dimension: e.g. banks for bad corporate governance, and basic-resource firms for environmental damage. Composite scores based on equal-weights hence misrepresent CSP and the difference in CSR between sectors.
Keywords: ESG News, Corporate Social Performance, Corporate Social Strategy, Multiple- Criteria Decision Analysis, Fungibility, Commensurability, Weighting scheme, Composite index, KLD ratings.
JEL Classification: Q27, Q51
Suggested Citation: Suggested Citation