Triangulating Environmental Performance: What do Environmental Ratings Really Capture?
Magali Delmas, Dror Etzion and Nicholas Nairn-Birch
The emergence of Socially Responsible Investing (SRI), has led to the development of a large number of methodologies for rating corporate environmental performance. Increased availability of information potentially generates an abundance of riches upon which to base investment decisions, but also raises issues of commensurability, information overload and confusion. Using data from three leading purveyors of environmental ratings, we identify the principle components of environmental performance captured by prominent methodologies. We find that in large part, two distinct factors explain 80% of the variance of the data: the environmental processes and practices implemented by firms, and the environmental outcomes they generate. We also find that corporate financial performance is correlated to process measures but not to outcome measures.
Published: Wednesday, February 29, 2012