Do corporate social responsibility ratings predict corporate social performance?

About this book

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 the most widely used ratings-those of Kinder, Lydenberg, Domini Research & Analytics (KLD)-predict environmental performance. We find that firms that have more KLD environmental concerns have slightly, but statistically significantly, more pollution and regulatory compliance violations in later years than firms that elicit fewer KLD concerns. KLD environmental strengths, in contrast, do not accurately predict pollution levels or compliance violations. 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.