Firms that are environmentally rated reduce their toxic emissions even more when their peers are also rated, finds a new study. The ratings can even motivate unrated companies to reduce their emissions.
Consistent with prior research, the study by the University of Chicago Booth School of Business Assistant Professor Amanda Sharkey and University of Utah Assistant Professor Patricia Bromley found that being rated, regardless of the rating received, prompted companies to reduce their emissions.
But the study went one step further to discover that the more peers that were rated in an industry, the greater a rated firm’s drop in emissions. The study is the first to examine the role of peers in influencing how firms respond to environmental rating systems.
The researchers were surprised to discover that even companies that were not rated changed their behaviour simply by knowing that their peers were being evaluated.
“If managers believe their firms will be rated eventually – an expectation that may be especially strong if many of their peers are already rated – they may take immediate steps to reduce their emissions,” the report said.