Stories about corporate social responsibility have become very frequent over the past decade, and managers can no longer ignore their impact on firm value. In this paper, we investigate the extent and the determinants of the stock market’s reaction following ordinary news related to environmental, social and governance issues—the so-called ESG factors. To that purpose, we use an original database provided by Covalence EthicalQuote. Our empirical analysis is based on about 33,000 ESG news, targeting one hundred listed companies over the (...) period 2002–2010. On average, firms facing negative events experience a drop in their market value of 0.1%, whereas companies gain nothing on average from positive announcements. We find also that market participants are responsive to the media, but they do not react to firms’ press releases or to NGOs’ disclosures. Moreover, our results indicate that sector’s reputation mitigates the loss and that cultural proximity and lexical contents of ESG disclosures play a significant role in the magnitude of the impact. (shrink)

The concept of sustainable and responsible (SR) investments expresses that every investment should be based on the SR investor’s code of ethics. To a large extent the allocation of SR investments to more sustainable companies and ethical practices is based on the environmental, social, and corporate governance (ESG) scores provided by rating agencies. However, a thorough investigation of ESG scores is a neglected topic in the literature. This paper uses Thomson Reuters ASSET4 ESG ratings to analyze the influence of firm (...) size, a company’s available resources for providing ESG data, and the availability of a company’s ESG data on the company’s sustainability performance. We find a significant positive correlation between the stated variables, which can be explained by organizational legitimacy. The results raise the question of whether the way the ESG score measures corporate sustainability gives an advantage to larger firms with more resources while not providing SR investors with the information needed to make decisions based on their beliefs. Due to our results, SR investors and scholars should reopen the discussion about: what sustainability rating agencies measure with ESG scores, what exactly needs to be measured, and if the sustainable finance community can reach their self-imposed objectives with this measurement. (shrink)

To mitigate risk, should companies signal a broad range of environmental, social, and governance initiatives or instead focus on only a few ESG issues? Drawing on signaling theory, we propose that a broad array of ESG initiatives generates not only signal consistency but also accelerating signal costs. Our empirical results support the resultant hypothesis of a curvilinear relationship between ESG scope and equity risk. In addition, this U-shaped curve seems to become steeper when firms face multiple media-reported ESG controversies. Overall, (...) our study qualifies the conventional wisdom that firms can reduce equity risk by attending to a wide variety of stakeholders and highlights the moderating impact of the firm’s media environment. (shrink)

In this conceptual article, we argue that defining corporate social responsibility and corporate social irresponsibility as opposite constructs produces a lack of clarity between responsible and irresponsible acts. Furthermore, we contend that the treatment of the CSR and CSI concepts as opposites de-emphasizes the value of CSI as a stand-alone construct. Thus, we reorient the CSI discussion to include multiple aspects that current conceptualizations have not adequately accommodated. We provide an in-depth exploration of how researchers define CSI and both identify (...) and analyze three important gray zones between CSR and CSI: the role of harm and benefit, the role of the actor and intentionality, and the role of rectification. We offer these gray zones as factors contributing to the present lack of conceptual clarity of the term CSI, as a concept in its own right, leading to difficulties that researchers and managers experience in categorizing CSI acts as distinct from CSR. (shrink)

Business Ethics: A European Review, EarlyView.

This paper aims to investigate the current state of play on Environmental Social and Governance (ESG) integration and check the validity of the current metrics system by assessing if it will survive the COVID-19 crisis. By adopting a qualitative research approach through semi-structured anonymous interviews with 14 senior managers of six European listed companies we use a framework by assessing the mechanisms of reactivity on the effectiveness of ESG measures in times of COVID-19. By interpreting the practitioners’ points of view (...) through the lens of the sociological framework by Espeland and Sauder (Am J Sociol 113:1–40, 2007) our findings show different mechanisms of reactivity by companies on the effectiveness of ESG measures in times of COVID-19, i.e., active and passive conformity and active resistance. We also identified the main Corporate Social Responsibility (CSR) institutional factors that affect managers’ reactivity. An extensive re-formulation of the ESG metrics is required in the light of times of crisis, given that accountability and transparency are strongly linked to quantitative measures which can play a critical role in the financial system and investors’ engagement. Particularly, the strict distinction between “E”, “S” and “G” issues should be abandoned claiming a different holistic re-design of sustainability measures by considering the increasing relevance of the Social dimension in time of COVID-19. This study provides a valuable contribution to the existing literature on the measurement of sustainability within the link of accountability and crisis by highlighting new corporate needs to re-design the ESG metrics system. (shrink)

This editorial of the special issue addresses the question of whether/how responses to the Covid-19 pandemic corresponded with authentic CSR. The literature on CSR has tended to endorse a business-centric perspective and its inherent focus on the search for alignments between CSR activities and the economic/financial interests of the firm. The Covid-19 pandemic has put this perspective to the test, pushing many companies to engage in distinctively more genuine and authentic CSR and/or demonstrating the importance of prior CSR engagement in (...) facilitating crisis management. The papers included in the special issue appear to converge on the idea that firms combining evidence of both pre-crisis engagement in CSR and strong CSR performance during the crisis (demonstrated through the deployment of various CSR assets and resources, including certified reporting, social marketing, individual engagement, resilience, legitimacy, trust) have coped better. This provides interested researchers with an opportunity to appreciate the value of CSR during a crisis. (shrink)

In this study, we examine the influence of senior leadership on firms’ corporate social responsibility. We integrate upper echelons research that has investigated either the influence of the CEO or the top management team on CSR. We contend that functional experience complementarity between CEOs and TMTs in formulating and implementing CSR strategy may underlie differentiated strategies in CSR. We find that when CEOs who have predominant experience in output functions are complemented by TMTs with a lower proportion of members who (...) have experience in output functions, there is a pronounced effect on the community, product, and diversity dimensions of CSR. In turn, when output-oriented CEOs are complemented by output-oriented TMTs, we observe an effect on the employee relations dimension of CSR. Interestingly, we find no influence of CEO-TMT complementarity on the environment dimension of CSR. In general, our empirical results support the relevance of the interaction between CEOs and their TMTs in defining their firms’ CSR profile. (shrink)

In this article, we examine how firms design executive compensation in light of their risk environment. Prior literature shows that corporate environmental responsibility (CER) of a firm inversely affects firm risk. We argue that firms with better CER performance benefit from the reduced firm risk, and therefore are more likely to provide greater managerial risk‐taking incentives to encourage the risk‐averse managers to undertake risk‐increasing but positive net present value (NPV) investments. Consistent with our hypotheses, we find that a firm’s CER (...) rating is positively associated with its CEO risk‐taking incentives (vega) in the following year. We also document cross‐sectional variations in the CER‐vega relationship, that is, a weaker association in the controversial industries. This study contributes to the literature by investigating the role of CER on executive compensation design from the perspective of risk management. (shrink)

This paper investigates the corporate social responsibility (CSR) structures of U.S. listed firms. We find evidence of a general tendency towards CSR specialization with almost three-quarters (73.91%) of these firms focusing on a single CSR dimension. The degree of specialization varies across industries and the single CSR dimension focused on also varies for industries with similar degrees of specialization. We find that firms with higher exposures to CSR concerns, international activities, larger size, and higher financial slack tend to diversify across (...) multiple CSR dimensions. More importantly, we find evidence that diversified CSR structures positively affect a firm’s value relative to a control group before and during the 2008 financial crisis. Our findings have important implications for corporate and portfolio managers, investors, and policy makers. (shrink)

In this study, we examine the influence of senior leadership on firms’ corporate social responsibility. We integrate upper echelons research that has investigated either the influence of the CEO or the top management team on CSR. We contend that functional experience complementarity between CEOs and TMTs in formulating and implementing CSR strategy may underlie differentiated strategies in CSR. We find that when CEOs who have predominant experience in output functions are complemented by TMTs with a lower proportion of members who (...) have experience in output functions, there is a pronounced effect on the community, product, and diversity dimensions of CSR. In turn, when output-oriented CEOs are complemented by output-oriented TMTs, we observe an effect on the employee relations dimension of CSR. Interestingly, we find no influence of CEO-TMT complementarity on the environment dimension of CSR. In general, our empirical results support the relevance of the interaction between CEOs and their TMTs in defining their firms’ CSR profile. (shrink)

Whereas extant literature has examined the overall effect of corporate social responsibility (CSR) on innovation, it is argued that CSR is a multidimensional concept encompassing both progressive activities concerning a firm’s engagement in the social domain, as well as rational aspects pertaining to corporate governance practices and the protection of shareholder rights. This study integrates organizational hypocrisy with the knowledge-based view literatures to examine how different forms of CSR engagement affect the rate of new product introductions (NPI). Results suggest that (...) the mechanisms by which progressive and rational CSR are associated to increases in the rate of NPI differ. Specifically, while progressive CSR positively affects the rate of NPI and such effect is deemed stronger for firms that are more vertically integrated, the effect of rational CSR on the rate of NPI is conditional on a firm’s level of absorptive capacity. (shrink)