How Firms Respond to Growing Environmental Concerns? The Choice of CSR and Long-Term Performance

Abstract

Corporate managers have used CSR to offset corporate social irresponsibility. However, few studies have investigated whether firms solve their irresponsibility issues directly. Moreover, CSR research has lumped together all kinds of social behaviors under “CSR.” This paper examines whether firms confront their negative environmental issues and try to solve them through CSR. To this end, we classify the CSR that firms can choose after environmental irresponsibility into three types: (i) direct CSR, which is environment-related CSR; (ii) indirect CSR, which is irrelevant to environmental concerns; and (iii) no CSR. In addition, we investigate whether firms trying to alleviate environmental concerns through environmental CSR enjoy higher long-term profitability. The study results show that the more firms suffered from environmental concerns, the more they preferred environment-related CSR over all other types. This preference became stronger when the degree of related diversification increased and weaker when the degree of unrelated diversification increased. Finally, we find that firms that implement direct CSR or directly address negative environmental concerns through environmental CSR will enjoy higher future profitability than will firms that implement indirect CSR and disregard environmental concerns.