Measuring corporate environmental performance: the trade‐offs of sustainability ratings
Socially responsible investing (SRI) represents an investment process that refl ects environmental and social preferences. The fi nancial industry is in a unique position to move corporations towards corporate sustainability. However, there is often little transparency
regarding the metrics used to evaluate corporate social and environmental performance
and the trade-offs involved in the evaluation. In this paper we discuss the various trade-offs
of sustainability screening methodologies. We show that the rating of companies varies
signifi cantly according to whether the screening is based on toxic releases and regulatory
compliance or on the quality of environmental policy and disclosure. We base our analysis
on the evaluation of the performance of 15 fi rms in the chemical sector. The analysis indicates that fi rms that have the most advanced reporting and environmental management
practices tend also to have higher levels of toxic releases and lower environmental compliance. We provide methodological recommendations to help stakeholders evaluate corporate environmental performance.
Published Work | Business Strategy and the Environment