Rating and Evaluating the Combined Financial and Environmental Performance of Companies in the Metals and Mining Sector

Abstract

The basic intent in financial performance evaluation is to appraise current business operations internally and to benchmark them against similar business operations externally in order to identify best-in-class practices. In this paper, a new positive environmental/financial screening approach that can simultaneously include a wide combination of regulatory, technological, operational and event dimensions is created for the analyzing, rating, ranking, benchmarking, and selecting of companies from an industry sector. A method is provided that advances the use of Data Envelopment Analysis (DEA) for rating and ranking diverse groups of companies using a combination of both financial and environmental performance measures. This novel approach proceeds by first stratifying the sector into comparably efficient groups of companies through the construction of a series of efficient DEA frontiers, and then by ranking each company within these groups relative to DEA-based contextual attractiveness measures calculated from the different partitions. The method is illustrated through an application to a group of companies from the Metals and Mining Industry sector.

Keywords: Benchmarking, financial/environmental screening, rating and ranking