No 2010/9: Corporate Environmental Performance: Consistency of Metrics and Identification of Drivers

Abstract: This study is among the first to provide insight into the assessment of the convergent validity of widely used environmental performance ratings. Using a set of environmental dimensions in KLD, GES, and ASSET4 ratings, this study demonstrates that the different environmental performance aggregated metrics sufficiently correlate and provide consistent information when comparing companies. The KLD environmental concerns measure provides a summary of the environmental impact of industrial activities in contrast to the KLD measure of strengths that is a proxy for environmental performance. The observed different patterns in KLD environmental dimensions suggest that they are distinct constructs and should not be combined in future research. This study demonstrates that GES environmental industry risk and KLD concerns are impact factors that drive corporate environmental performance. Companies in high impact sectors are on average rated with high environmental performance. The contribution of this paper is, therefore, a validation of environmental ratings and a sharper focus upon impact factors that are associated with high levels of environmental performance. In addition, this study discusses the implications of findings for advocates and sceptics of environmental ratings, as well as for academics and practitioners in the realm of SRI and CSR.

Keywords: Environmental performance; Ratings; Convergent validity; Industry risk

39 pages, June 15, 2010

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