How Well Do Social Ratings Actually Measure Corporate Social Responsibility?

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…