Certification programs have become a common way to assess corporate social and environmental responsibility, but do these third-party rating programs actually change business practices?

Amanda Sharkey and Patricia Bromley investigated how involvement in an environmental evaluation program, the quality of a firms’ rating, and the ratings of peer firms are associated with actual pollution levels. They found that ratings programs affect the individual companies involved as well as their wider network of peer companies. Just as there are social pressures and norms to be environmentally friendly in communities and friend groups, firms also seem to bow to peer pressure.

Sharkey and Bromley collected data on thousands of public companies using KLD Research and Analytics, Inc. (an influential leader in socially responsible investing) evaluations and EPA data on toxic pollution emissions. They found that corporations with more “rated” peer companies are more likely to reduce their own emissions and that the impact depends on the degree of competition and regulatory oversight in the industry. The ratings numbers also mattered, as firms with higher positive peer ratings had greater emissions reductions.

In short, private third-party rating programs can tangibly improve environmental and social outcomes, so long as organizations anticipate the ratings will impact their competitive edge, profit margins, and corporate culture. While Sharkey and Bromley caution that monitoring and rating can’t replace laws and regulation, the ratings may still play an important role in bringing about social and environmental change.