Social Rating Agencies Research Articles

The Determinants of Micro Finance Institutions’ Decision to Receive a Social Rating: An Institutional and Resource-Dependence Perspective

We examine the determinants of MFIs’ social rating decisions according to institutional and resource dependency pressure factors. We exploit a unique data set containing 221 MFIs resulting in 767-year observations, obtained from both mixed market and social rating agencies (Planet, MicroFinanza, and Microrate rating agencies). Our data was collected for both rated and non-rated MFIs between the years 2006 and 2018, in six major less-developed regions of the world. Our study contributes to the CSR literature in microfinance as the decision to be rated acts like a CSR signal. Our research shows that the tighter the rule of law the less inclined MFIs are to seek a rating. In addition, we borrow from the resource-dependence perspective to demonstrate that proxies for resource (in)dependence such as for-profit status, mature stage, and subsidization are negatively associated with the obtention of a social rating. Overall, in the less-developed regions of the world, when MFIs operate in a strongly regulated environment and have a strong position (financial and mission-wise), with respect to investors, they are less willing to obtain a social rating.

Measuring Social Performance in Social Enterprises: A Global Study of Microfinance Institutions

Social enterprises in the microfinance industry need to adhere to both financial and social demands. Critics argue that there is a mission drift away from the social mission, and this has motivated the introduction of social rating agencies to strengthen the business ethics of microfinance institutions (MFIs). Using a global dataset of 204 socially rated MFIs from 58 countries, we assess the factors that drive the social performance ratings of MFIs. Overall our results show that social ratings of MFIs are significantly related to financial performance, greater outreach especially in rural areas, well-defined social objectives, staff commitment, service quality and an enhanced customer service. We observe that various rating agencies attach different importance to each of the social indicators. The public policy implication is that social rating agencies need to become more transparent, to reduce the information asymmetries between heterogenous socially motivated investors and the focal MFI.

The Inclusion of Socially Irresponsible Companies in Sustainable Stock Indices

Social rating agencies implement complex filters to identify the companies with the best sustainable and social performance and help investors select the companies for their sustainable portfolios. This study analysed whether companies that are defined as ethical, sustainable and socially responsible by those agencies actually deserve this label. More specifically, the inclusion in the prestigious Dow Jones Sustainability Index (DJSI) World of companies that have been involved in controversies according to the Thomson Reuters Eikon database was studied. The results show that the inclusion of irresponsible companies in the DJSI Index is a fact. This outcome is in line with previous studies that criticise the methodologies applied by social rating agencies and those which outline the similarity of sustainable and conventional portfolios. The results may explain the contradictory conclusions regarding the performance of sustainable and conventional mutual funds in numerous studies.

Constructing the ideal SRI (sustainability reporting index) framework for Indonesian market: combined perspectives from rating agencies, academics, and practitioners

PurposeThis study aims to focus on developing the sustainability reporting index (SRI) with combined perspectives from varied social rating agencies, along with integrated combined perspectives from academics experts and Indonesian companies.Design/methodology/approachThe first section discusses the theoretical framework along with the sustainability challenges faced by companies in Indonesia. The second section develops the methodology of the study to measure the SRI by considering practical and theoretical perspectives, starting from the identification of initial disclosure, selecting the final disclosure and developing the hierarchical framework. Lastly, the third section confirms the validity of the study’s framework by the exploratory factor analysis method and its comparability by comparing the content analysis result of the study with the Kinder–Lydenberg–Domini (KLD) method. The content analysis was used to analyze annual reports, sustainability reports and companies’ websites based on indicators found in the resulted model.FindingsThe main finding is the SRI framework (SRIF) of the study, which is built on the basis of the stakeholder relationship theory and is focused on three main dimensions (social, economic and environmental). Specifically, the framework consists of 17 indicators and 93 sub-indicators. On the basis of factor analysis method, it can be safely said that the study’s SRIF is quite valid. The high score of correlations between the SRIF and KLD results at the composite and dimension levels, along with the statistically significant results show that the study’s SRIF results and KLD results are fairly similar.Research limitations/implicationsThe present study has its limitation as it only gathers data from publicly available reports issued by the firms (secondary data). Owing to time limitation, primary data are not collected. However, this is also the strength of this research as it will allow investors to replicate the study’s methodology to measure companies’ sustainability.Practical implicationsThe study is useful to organizations and statutory bodies toward finding a replicable method to measure the Indonesian companies’ social performance. In addition, the study also introduced the usefulness of the qualitative program Atlas TI to perform content analysis, the exploratory factor analysis method to ensure validity and comparability by comparing it to the KLD methodology, which is known globally as the most widely accepted methodology to measures social performance. Lastly, this study will provide implications to the Government to ascertain the level of SRI reporting among the Indonesian public-listed companies.Originality/valueThe resulted framework in this study simultaneously considers social, environmental and economic factors in the context of companies in Indonesia, while previous researchers have constructed reporting index separately (i.e. Sumiani et al., 2007; Zhao et al., 2012). Especially in the context of Indonesia, there is no such index simultaneously focused on the three main dimensions, namely, social, environmental and economics. The current study tries to fill the gap by using the constructed SRI index based on three perspectives combined, namely, social rating agencies, academic theorist and Indonesian companies.

Bridging the Gap between Society and Business: The Transformative Role of Social Rating Agencies

Bridging the Gap between Society and Business: The Transformative Role of Social Rating Agencies

Socially responsible investment: A view from the social rating agencies of Vigeo-Eiris and MSCI ESG STATS

The concern of investors for environmental, social and corporate governance issues is giving rise to certain changes in the investment decision-making process. Given this situation, socially responsible investment has received the attention of practitioners and academics, and has reached a significant level of development in financial community in recent years. The main goal of this paper is to examine social rating methodologies developed by the two most renowned agencies worldwide: MSCI ESG STATS and Vigeo-Eiris.

Determinants of Social Disclosure Quality in Taiwan: An Application of Stakeholder Theory

This study adopts a stakeholder theory framework to examine determinants of social reporting quality and empirically test the ability of the theory to explain disclosure quality in an emerging economy. Using a sample of 246 listed companies and a hand-collected dataset that included 2 years of data based on survey questions reflecting international disclosure trends, we apply an aggregate measure of quality with five facets to a variety of corporate social responsibility areas. The results support the application and demonstrate that measures of stakeholder power, strategic posture, economic resources, firm size, and media visibility are related to social disclosure quality. This paper adds to the scarce evidence on social reporting in Taiwan and provides a useful method for evaluating disclosure quality. It also illustrates the impact of two dominant foreign stakeholder groups on social disclosures in Taiwan: (1) organizational buyers in the global supply chain and (2) listing and social rating agencies in international capital markets.

Which Dimensions of Social Responsibility Concern Financial Investors?

Social and environmental ratings provided by social rating agencies are multidimensional. The first goal of our paper is to identify a small number of independent and relevant socially responsible (SR) dimensions reflecting a firms’ coherent posture toward social issues. We put forward that these dimensions are not exactly the same as the ESG ones (Environment, Social, and Governance). Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main independent SR dimensions related to (1) business stakeholders (employees, customers, and suppliers), (2) societal stakeholders (environment and society), and (3) financial stakeholders (stockholders and debt holders). The second objective of our paper is to explore the link between stock returns and these three SR dimensions. Our most notable finding is that for each SR dimension, investors ask for an additional risk premium when they accept to hold non-socially responsible stocks. The cost of equity is thus lower for SR firms. The average premium over the period 2003–2010 is larger for the components “business stakeholders” and “financial stakeholders” than for the component “societal stakeholders.” The premium for this last component has only existed since the end of 2008. Since that time, environment and community involvement have become important risk factors strongly considered by investors. For the three dimensions, investors notably penalize large non-social firms and reward small social firms.

Which Dimensions of Social Responsibility Concern Financial Investors?

Social and environmental ratings provided by social rating agencies are multidimensional. Using the six sub-ratings provided by the Vigeo rating agency, we perform a principal component analysis and we highlight three main socially responsible (SR) dimensions related to (1) the direct non-financial stakeholders (employee, customers and suppliers), (2) the indirect stakeholders (environment and society) and (3) the financial stakeholders (stockholders and debt holders).We explore the link between stock returns and these three SR dimensions. Our main result is that being non-socially responsible in one or several of the three dimensions is compensated by significant risk premia in the market. The average premia over the period 2003-2010 are larger for the components “direct non-financial stakeholders” and “financial stakeholders” than for the component “indirect stakeholders”. For this last component, the premium obviously exists only since the end of 2008. Environment and community involvement have only recently become a more important risk factor in investors’ minds. About the former risk premia (“direct non-financial stakeholders” and “financial stakeholders”), investors appear to penalize firms with the worst behavior in respect to their direct non-financial stakeholders and reward firms with good corporate governance practices.