What Do We Learn From Ratings About Corporate Social Responsibility (CSR)?

76 Pages Posted: 30 Apr 2018 Last revised: 1 Jul 2021

See all articles by Ruoke Yang

Ruoke Yang

Columbia University - Columbia Business School

Date Written: June 30, 2021


The rise of investments professionally managed with a socially responsible mandate has generated growing interest in environmental and social ratings. However, it is not clear how informative these ratings are or whether they are distorted by greenwashing. Based on the ratings of the leading provider, I offer the first evidence linking greenwashing to ratings inflation. Better ratings do not predict less future corporate bad behavior. This is of concern because it undermines the signaling value of these ratings. To understand these results, I develop a model where the rating agency may underinvest in greenwashing detection while firms have incentives to window dress and engage in greenwashing. Finally, controlling for greenwashing improves ratings predictive quality.

Keywords: stakeholders, socially responsible investing, corporate social responsibility, rating agency

JEL Classification: G11, G24

Suggested Citation

Yang, Ruoke, What Do We Learn From Ratings About Corporate Social Responsibility (CSR)? (June 30, 2021). Columbia Business School Research Paper No. 18-37, Available at SSRN: https://ssrn.com/abstract=3165783 or http://dx.doi.org/10.2139/ssrn.3165783

Ruoke Yang (Contact Author)

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

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