In Brief

As more and more companies begin to devote serious attention to sustainability reporting, many different systems of rating the depth and effectiveness of sustainability efforts have arisen. The authors compare three leading sustainability rankings, examining their methodologies and results. Unfortunately, a lack of consistency and transparency from these rating agencies currently exists, impeding greater efficiency in the capital markets.

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Corporate social responsibility (CSR) has garnered attention from businesses as the public has become more aware of the environmental, social and governance (ESG) roles corporations should play. More companies have increased their capital investment in sustainability initiatives and programs and published CSR reports in addition to their annual financial reports. Various rating agencies provide analysis and ratings of CSR activities proprietarily or publicly. Several studies (see Sidebar) have examined the impact of CSR activities on a company’s value using either the CSR/sustainability ratings or companies’ CSR reports; however, the findings of these studies have been mixed.

Some factors that contribute to the lack of consistency in findings are the different definitions and measurements of sustainability used by the rating agencies, the actual companies examined, and the methodologies used to rate these companies. To provide some clarity, the authors systematically examined three of the leading publicly available sustainability rating providers, their rating methodologies, and their coverage. The findings analysis will help standards setters identify which sustainability metrics should be incorporated in the standard requirements. Managers and users of sustainability reports will also be better able to measure the variables utilized by corporations. Furthermore, auditors will find useful information for their assessment of the reliability of corporate financial statements.


Sustainability initiatives have been around for decades, beginning with movements that focused on environmental concerns and civil rights issues. (For further reading on this subject, see the online version of this article at As scandals involving child labor and financial fraud were revealed, the definition of sustainability broadened to include corporate governance and social issues. The new target objective is to achieve sustainable development, that is, “development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (Brundtland Commission, Our Common Future, United Nations World Commisssion on Environment and Development, 1987,

With the heightened awareness of corporate behavior, there has been an emergence of independent rating agencies. A 2014 overview of rating agencies by Novethic Research lists seven international rating agencies, two nonfinancial data providers, eight specialized agencies, and more than 20 local or regional agencies ( Identifying truly progressive sustainable organizations can therefore be challenging. Reviews of ratings/rankings have varied and can have a significant impact on how a company is perceived by stakeholders. Various authors (see Sidebar) have questioned the effectiveness of several ratings while also indicating that they have a strong impact on the company’s public reputation. One recent study found that “investors see a strong link between corporate sustainability performance and financial performance—so they’re using sustainability-related data as a rationale for investment decisions like never before” (Gregory Unruh, David Kiron, Nina Kruschwitz, Martin Reeves, Holger Rubel, and Alexander Meyer Zum Felde, “Investing for a Sustainable Future,” MIT Sloan Review, May 11, 2016,

Due to the current lack of generally accepted sustainability reporting standards, there is a risk that investors and consumers might lose confidence in the ability of socially responsible investing to promote meaningful progress. Henry Schaefer notes that the most important challenges for CSR ratings might be their ability to cope with quality standards and transparency (“Corporate Social Responsibility Rating,” A Handbook of Corporate Governance and Corporate Social Responsibility, 2009, Adding to these complexities is the public availability of the information: some products are proprietary and require the payment of a subscription or a fee to access the data, while others are open to anyone. Because of the different needs of targeted audiences, the rating metrics may be designed to cater to those audiences’ interests, further exacerbating the lack of consistency.

The State of CSR Monitoring

Typically, four components are required for effective monitoring: 1) a conceptual framework, 2) standardized reporting, 3) independent review and assurance, and 4) regulatory governance and oversight. The framework must be rooted in sound conceptual theory; common examples include the Committee of Sponsoring Organization’s (COSO) Internal Control–Integrated Framework, IFRS, U.S. GAAP, Integrated Reporting (IR) Framework, and the World Intellectual Capital Initiative (WICI). Currently, organizations may choose a framework, develop their own, or use none at all.

Compulsory CSR reporting is not required in the United States except for some specific industries, such as mining and insurance. Consequently, the voluntary nature of reporting allows organizations to determine the topical coverage, frequency, and overall quality of CSR reporting. This allows for companies to “cherry-pick” positive information that they wish to disclose and refrain from disclosing negative news. In addition, CSR reports are typically only issued annually as a stand-alone report, rather than as an integral part of the financial reports. The establishment of a standardized reporting framework is, however, currently being examined.

As with reporting, companies may have an independent assurance or review performed on a voluntary basis. Auditing standards for CSR reports are not yet fully developed; however, work in this area is expanding. The AICPA’s Assurance Services Executive Committee (ASEC) has established a Sustainability Assurance and Advisory Task Force and has published a few white papers on the topic (e.g., Brian Ballou, Dan L. Heitger, and Charles L. Landis, “Accounting for the Sustainability Cycle: How the Accounting Profession Can Add Value to Sustainability-Oriented Activities,” October 2013, In addition, Sustainability Framework 2.0: Professional Accountants as Integrators, published by the International Federation of Accountants (IFAC) in 2011, addresses issues facing external review and assurance of sustainability reports ( Regulation and oversight of sustainability assurance and CSR monitoring, however, is currently thin. Because of the overall state of these four components, the current state of CSR monitoring in the United States must be described as weak.


The survey examined three of the most well-known and publically available CSR rankings published in 2015: Newsweek, Forbes, and CSR Magazine Global. Newsweek’s Green Ranking combines eight metrics: combined energy productivity, combined greenhouse gas (GHG) productivity, combined water productivity, combined waste productivity, green revenue score, green pay link, sustainability board committee, and audited environmental metrics. Forbes lists the “Global 100 Most Sustainable Corporations in the World,” based on such metrics as energy productivity, carbon productivity, water productivity, waste productivity, innovation capacity, percentage tax paid, CEO-to-average-worker pay, pension fund status, safety performance, employee turnover, leadership diversity, and clean capitalism pay link. CSR Magazine also ranks the top 100 “Global RepTrak” companies, based on public perception gleaned from interviews of the companies’ leadership, performance, products and services, innovation, workplace, governance, and citizenship.

Surprisingly, little consistency exists across the ratings from the three agencies examined. For example, few companies (12%) appear on all three lists. The commonalities are so few that a statistically valid analysis comparing rankings and ratings cannot be performed (see Exhibit 1). Scatter diagrams comparing the commonality among the lists further indicate this difference; Exhibit 2 compares the Newsweek and Forbes rankings, Exhibit 3 compares the Newsweek and CSR rankings, and Exhibit 4compares the Forbes and CSR rankings. These scatter plot diagrams demonstrate a minimal number of commonalities in the rankings of the respective lists, so much so that it is even difficult to claim there is such a thing as the “Top 100” companies.


Number of Companies Common with Newsweek’s Top 100


Scatter Graph Comparing Forbes and Newsweek Rankings


Scatter Graph Comparing CSR and Newsweek Rankings


Scatter Graph Comparing Forbes and CSR Rankings


Newsweek 2015 Scoring of Top 100 Companies


CSR 2015 Scoring of 100 Companies


Forbes 2015 Scoring of Top 100 Companies

Another interesting perspective gleaned from these lists is the distribution of company scores. Each rank is determined by a score. Histograms were developed for the lists with bins defined by company score (available with the online version of this article at Given that these companies are considered the Top 100 CSR companies out of thousands of publicly traded global companies, one might expect the list to skew toward high scores, but this does not appear to be the case. In addition, the distribution of the scores is also wide-ranging across the three lists.


Despite the longevity of these lists, the variances among them are significant. The underlying methodology used to identify, score, and rank each company varies, as do the KPIs used and the weighting percentages of categories. For global markets to work effectively, the information provided by rating/ranking agencies must be transparent and consistent. Hence, the inconsistency and lack of transparency in how the rankings are determined shown here are impediments to efficient global capital markets.

A 2014 report, “A Roadmap for Sustainable Capital Markets: How Can the UN Sustainable Development Goals Harness the Global Capital Markets?” indicates that the key problem with the capital markets is that the cost of capital is not influenced by the levels of sustainability commitment of the companies (Steve Waygood, Aviva white paper, It goes on to say:

A cause of market inefficiencies is a lack of information from companies to the providers of capital. The ability to assess a company’s overall governance and performance in the context of these non-financial factors is of central importance to institutional investors and the ultimate beneficiaries for whom they act, as well as employees, governments and society as a whole. Information is the lifeblood of capital markets. If the information that the market participants have to rely upon is short term and thin, then these are the characteristics that will define our market. Unfortunately, the current reporting model, framed by International Financial Reporting Standards, national standards and stock exchange rules, does not provide the necessary framework to enable non-financial factors to be taken into account systematically in reporting and decision making.

As discussed above, several components must be present for markets to be efficient: breadth and depth of participants, standard reporting and disclosure, independent assurance, and independent governance and regulation. When these components are present and operate effectively, a continuum can be achieved in the global capital markets that constantly adjusts for change. It is therefore imperative that a standardized CSR framework, reporting standards, and governance be put in place and followed by corporations, the rating/ranking agencies, and other interested parties.

The Sustainable Accounting Standards Board (SASB), an independent 501(c)(3) non-profit established in 2011, has issued reporting standards in the sectors of healthcare, financials, technology and communications, nonrenewable resources, transportation, services, resource transformation, consumption, renewable resources and alternative energy, and infrastructure. Use of these standards is voluntary, and only time will tell whether they, or other standards gain traction. In the authors’ opinion, however, market efficiency and the use of the capital markets to address global sustainable issues will not be achieved until such standards, as well as strong independent oversight, are in place.

For further reading, see this list of sources.

Beixin (Betsy) Lin, PhD are professors in the department of accounting and finance, at the Feliciano School of Business, Montclair State University, Montclair, N.J.
Silvia Romero, PhD are professors in the department of accounting and finance, at the Feliciano School of Business, Montclair State University, Montclair, N.J.
Agatha E. Jeffers, PhD, CPA are professors in the department of accounting and finance, at the Feliciano School of Business, Montclair State University, Montclair, N.J.
Laurence DeGaetano, CPA are professors in the department of accounting and finance, at the Feliciano School of Business, Montclair State University, Montclair, N.J.
Frank Aquilino, CPA is acting associate dean, at the Feliciano School of Business, Montclair State University, Montclair, N.J.