Ratings of corporations’ environmental activities and capabilities influence billions of dollars of “socially responsible” investments as well as some consumers, activists, and potential employees. Unfortunately, there is little evidence about the validity of these ratings. We examine how well two of the most widely used ratings-those of Kinder, Lydenberg, Domini Research & Analytics (KLD) and Innovest Strategic Value Advisors-predict environmental performance. We find that firms that have more KLD Environmental Concerns have slightly, but statistically significantly, more pollution and regulatory violations in later years than firms that raise fewer “concerns.” Innovest scores and KLD Environmental Strengths, in contrast, do not accurately predict the outcomes. We discuss the implications of our findings for advocates and opponents of corporate social responsibility, as well as for studies relating social responsibility ratings with financial performance.
Authors: Aaron K. Chatterji, David I. Levine, Michael W. Toffel
Source: Harvard Business School (HBS)
Subject: Social Responsibility
