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On the Validity of Environmental Performance Metrics

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Abstract

Different proprietary databases have been used extensively in research to assess the environmental performance and environmental risk of companies. This study explores the convergent validity of the environmental ratings of MSCI ESG STATS (formerly known as Kinder, Lydenberg, and Domini Research & Analytics; KLD), Thomson Reuters ASSET4 (ASSET4) and Global Engagement Services (GES). The study shows that the ratings have common dimensions, but on aggregate, they do not converge. On the environmental opportunity side, KLD environmental strengths, and ASSET4 and GES environmental performance metrics correlate highly and provide convergent scores for US companies from 2003–2011. On the environmental risk side, KLD environmental concerns converge with the GES environmental industry risk and company emissions from the ASSET4 database. Further analysis confirms that industry-related risks are drivers of company-specific environmental performance.

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Notes

  1. http://www.kld.com/research/index.html.

  2. http://www.asset4.com.

  3. http://www.ges-invest.com.

  4. The KLD single net environmental score in Table 1 is insignificantly correlated with GES EP and has the lowest correlation with ASSET4 EP. The conclusion is that the KLD single net environmental score does not converge on the EP construct. This finding requires further inquiry of the combined KLD score, but it is beyond the scope of this study.

  5. Without assuming equal variances, untabulated results for the t test are similar to those based on an equal-variances assumption.

  6. ROA is estimated as operating income divided by total assets. ROE is calculated as operating income divided by common shareholders’ equity.

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Acknowledgments

We greatly acknowledge Mistra, the Foundation for Strategic Environmental Research, for their financial support. MSCI Inc., Thomson Reuters and Global Engagement Services made this study possible by providing the environmental metrics. We are grateful to the two anonymous reviewers for their insightful comments.

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Authors and Affiliations

  1. Umeå School of Business and Economics, Umeå University, 90187, Umeå, Sweden

    Natalia Semenova & Lars G. Hassel

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  1. Natalia Semenova
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  2. Lars G. Hassel
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Correspondence to Natalia Semenova.

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Semenova, N., Hassel, L.G. On the Validity of Environmental Performance Metrics. J Bus Ethics 132, 249–258 (2015). https://doi.org/10.1007/s10551-014-2323-4

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