Consistency among common measures of corporate social and sustainability performance

Abstract

The objective of this study is to thoroughly evaluate and compare three popular databases used in research on the environment, society and governance. Our analysis aims to establish construct validity, and thus addresses the difficulty in choosing which data providers to use for this type of research, and whether findings are comparable across the three databases and applicable to firms in different countries. The most widely used database, referred to as KLD (Kinder, Lydenberg, and Domini), is used to help establish the construct validity of measures coming from the other databases, known as Sustainalytics and Asset4. Frequently used measures from the three databases are highly correlated, and tests of the relationships between composite measures from the databases and financial performance are consistently positive. Even a more focused stakeholder management measure doesn't materially alter the results, suggesting that stakeholder-oriented firms also tend to be socially responsible in ways beyond stakeholder relationships, such as in preserving the environment. We also find that Sustainalytics and Asset4 track substantially more variables and contain many more international firms than KLD, making them more flexible for empirical work on this topic.