Socially Responsible Investing: The Need for Transparency
Magali Delmas and Vered Doctori Blass
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.
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Published: Tuesday, July 20, 2010