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SRI: Rating dilemmas
Emma Sjostrom, Stockholm School of Economics, Sweden
Because companies depend on financial funds for survival, investors can leverage this power in order to pursue their own agendas and impose definitions of sound corporate governance and good company performance. If their goal of maximising return on investment is combined with aspirations to contribute to sustainable development, chances are that we will see companies making an effort to reach such goals - if not out of their own conviction, so at least to please investors. For this reason, the capital market may be one of the major potential drivers for sustainable development.

The criteria for inclusion in SRI portfolios will likely impact corporations' internal work with social and environmental matters, as they must comply with the investors' criteria in order to be selected. Since investors have the power to include or exclude companies from their portfolios, it is vital that they collect relevant information upon which they base decisions.

Today, the dominating way of collecting such information is through questionnaires. Answers are converted to numbers, so that companies can receive a grade, or rating. This poses a methodological dilemma for information collectors: it is easier to convert a yes/no answer into a number than a longer written answer, but on the other hand the latter may contain more relevant information.

This paper analyzes a number of questionnaires that are used to assess companies on social and environmental issues. The purpose of the paper is to find out if it is likely that investors can make informed decisions on companies' actual environmental and social efforts and impacts based on such questionnaires.