We investigate the environmental and economic benefits derived from the adoption of corporate sustainability practices.
Socially Responsible represents an investment process that uses screens to select or avoid investing in companies to reflect environmental and social preferences. The financial industry is in a unique position to guide change towards corporate sustainability. However, there is often little transparency in how firms are evaluated based on their environmental performance. This paper opens the black box of evaluating firms and explains the various elements of a ranking. It shows that results vary greatly if they are based on input measures (environmental management practices) or on output measures (toxic releases). We base our analysis on the evaluation of the performance of 15 firms in the chemical sector. We provide methodological recommendations to help firms and stakeholders evaluate companies.
July 20 2010
Aggregation of corporate social performance (CSP) metrics poses a major challenge to researchers and practitioners. This study provides a critical evaluation of current aggregation approaches and proposes a new methodology based on Data Envelopment Analysis (DEA) to compute a CSP index. DEA is independent of subjective weight specifications and provides an efficiency index to benchmark the CSP of firms. Using CSP data from 2,190 firms in three major industries from the Kinder, Lydenberg, and Domini Inc. database in 2007, our study presents the first application of the DEA model for CSP and ordinal data and opens up a new path for future empirical CSP research.
July 21 2010
Suppliers face increasing pressure from their customers to improve their environmental performance. When firms downstream in the supply chain seek to achieve such improvements themselves, they frequently request that their suppliers adopt greener practices. This paper investigates the rationale for suppliers to comply with or resist the mandate of their customers to adopt the international environmental management standard ISO 14001 in the North American automotive industry. We argue that the effectiveness of such a mandate will vary according to the characteristics of the relationship between suppliers and customers. We contrast and test hypotheses based on both transaction cost and information theories to suggest that suppliers, whether in a dependent or distant relationship with their customers, have incentives to comply with the requests of their customers but through different mechanisms. Our study analyzed the characteristics of 3,152 automotive suppliers located in the US, Canada, and Mexico over the 2000-2003 period. Findings indicate that suppliers with highly specialized assets, as well as younger suppliers, certain more distant suppliers, and those reporting to the Toxic Release Inventory, are more likely to respond to their customers’ pressures to adopt the certified management standard ISO 14001.
July 20 2010