Climate Risk, Corporate Social Responsibility, and Firm Performance
| Published date | 01 October 2023 |
| Author | Aydin Ozkan,Huseyin Temiz,Yilmaz Yildiz |
| Date | 01 October 2023 |
| DOI | http://doi.org/10.1111/1467-8551.12665 |
British Journal of Management, Vol. 34, 1791–1810 (2023)
DOI: 10.1111/1467-8551.12665
Climate Risk, Corporate Social
Responsibility, and Firm Performance
Aydin Ozkan,1Huseyin Temiz2and Yilmaz Yildiz3
1Kent Business School, University of Kent, Parkwood Road, Canterbury, Kent, CT2 7FS, UK, 2Department of
Health Management, Samsun University, Gurgenyatak District, Merkez Street, Canik, Samsun, No: 40-2/1,
55080, Turkey,and 3Hudderseld Business School, University of Hudderseld, Queensgate, Hudderseld, HD1
3DH, UK
Corresponding author email: a.ozkan@kent.ac.uk
We examinethe impact of climate risk on rm performance with a focus on the moderat-
ing role of corporate social responsibility (CSR). Further, we explorehow the interaction
between climate risk and CSR changes with national culture and religion. Our ndings
show that rms in countries with greater climate risks are associated with higher levels
of CSR activities, possibly suggesting that rms respond to climate risks by engaging
in more CSR activities. We then provide robust evidence that higher CSR signicantly
mitigates the performance-reducing impact of climate risk. Importantly, the moderat-
ing effect of CSR is more pronounced in countries characterized by low individualism
and high religiosity. Overall, our ndings provide an alternative perspective on the risk-
management benets of CSR, suggesting that CSR can be considered as a response to
climate-change related risks for corporations.
Introduction
This paper examines how climate risk affects rm
performance, with a focus on the moderating role
of corporate social responsibility (CSR). Further-
more, we investigate how national culture and re-
ligiosity impact the extent to which CSR alleviates
the adverse effects of climate risk. It is widely ac-
knowledged that the exposure of corporations to
climate risks and the associated costs are signif-
icant. For instance, according to a recent report
published by the World Economic Forum (2019),
extreme environmental events are the most signif-
icant global threats for corporations. The cost of
climate risk to corporations is expectedto be about
$1 trillion, half of which is anticipated to be in-
curred over the next 5 years (Roston, 2019). Cli-
mate change is also expected to hit supply chains
across the globe owing to adverse weather condi-
tions, with signicant disruption of the delivery
of goods and services. Several studies also sug-
gest that climate change is signicantly linked to
political instability, which is likely to impact rms’
operations as well as their strategic decisions
(Henderson et al., 2015; Jia and Li, 2020). Addi-
tional costs may arise for rms in their response
to climate change, such as through the costs of
adapting new technologies and measures to ad-
dress society’sconcerns and expectations. Another
climate-related risk concerns the legal risk that
may arise when rms act against environmental
regulations.Firms that are held accountable for the
negative impact of climate risk may be faced with
litigation cases as well as with signicant business
costs. In support of this view, it is reported that
climate litigation cases have nearly doubled since
2017 (Setzer and Byrnes, 2020). With increasing
awareness of the signicant consequences of cli-
mate change, efforts to slow down climate change
havedominated the agenda of policymakers across
the world. The United States recently announced
investments worth $1.7 trillion over the next 10
years to ght climate change, with a pledge to re-
duce US greenhouse gas (GHG) emissions to half
© 2022 The Authors.British Journal of Management published by John Wiley & Sons Ltd on behalf of BritishAcademy
of Management.
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs Li-
cense, which permits use and distribution in any medium, provided the original work is properly cited, the use is non-
commercial and no modications or adaptations are made.
1792 Ozkan et al.
of the 2005 levels by 2030.1In 2019, the Euro-
pean Commission initiated the European Green
Deal to transform the EU into a modern, resource-
efcient, and competitive economy, with an am-
bitious target of net-zero GHG emissions in the
member states of the EU by 2050.2
We set the conceptual framework of the pa-
per as follows. We begin with the assertion that
climate-related negative events are costly for rms
and adversely impact their performance and value.
It is hence expected that rms will seek to man-
age the costs and risks of climate-related events.
Next, we argue that the risk-management benets
of CSR engagement are also relevant in mitigat-
ing the costs associated with climate-related risks,
and hence rms are expected to increase their CSR
activities when they are faced with signicant cli-
mate risks. It is predicted that this in turn mod-
erates the negative effects of climate risks on rm
performance. We test these predictions empirically
and examine how the moderating impact of CSR
changes with national culture and religion.
There is a great deal of research investigating
the effects of climate risks on corporations (e.g.
Berkhout, Hertin and Gann, 2006; Gasbarro and
Pinkse, 2016; Linnenluecke, Grifths and Winn,
2013). However, the research examining the direct
impact of climate risks on rm performance is lim-
ited. In one study examining the impact of climate
risks on business performance, Huang, Kerstein
and Wang (2018) showthat rms in countries with
higher climate risks have lower performance and
more volatile earnings. Related to this,there is also
an ongoing debate on how corporationsshould re-
spond to the challenges of climate change. Several
studies have explored whether rms can turn cli-
mate risk into a competitiveadvantage by investing
in sustainability or CSR; by adapting their busi-
ness practices to the changing technological en-
vironment; and by shifting customer demand to-
wards green practices (see e.g. Chemmanur et al.,
2022; Clarkson et al., 2011; He et al., 2022; Pinkse
and Kolk, 2012). For example, Chemmanur et al.
(2022) reveal the positive relationship between
CSR engagement and long-term survival proba-
bility. Similarly, He et al. (2022) nd that rms
are more likely to increase their CSR activities fol-
1https://www.theguardian.com/us-news/2021/apr/22/
us-emissions-climate-crisis-2030-biden
2https://ec.europa.eu/info/strategy/priorities-2019-2024/
european-green-deal_en
lowing a natural disaster and to experience better
rm performance compared with non-disaster pe-
riods. Our analysis complements these studies but
is also distinct in several important ways. First,
we directly examine whether climate-related risks,
measured based on negative actual climate events
and their impact on society, lead to greater CSR
engagement by rms using an international sam-
ple. Second, unlikein previous studies, we incorpo-
rate in the analysis the role of national culture and
religion in impacting the interplay among climate
risk, CSR, and rm performance.Accordingly, our
research strategy is to examine whether corpora-
tions respond to climate-relatedrisks by enhancing
their CSR performance; whether CSR moderates
the negative effects of climate risk on rm perfor-
mance; and if national culture and religion play a
signicant role in moderating the impact of CSR.
We empirically investigate these research ques-
tions in an international setting with a largedataset
comprising 2063 listed rms in 49 countries over
the period 2010−2017. Our analysis consists of
two distinct stages.In the rst stage, we investigate
the relation between climaterisk and CSR. We nd
that rms in countries with greater climate-related
risks adopt higher levels of CSR activities. In the
second stage, we examine whether superior CSR
performance helps rms to alleviate the negative
impact of climate risk on performance. The nd-
ings strongly suggest that they do. Importantly,we
also examine the role of country-level characteris-
tics in determining the nature of the relation be-
tween climate risk and performance,and the inter-
play between climate risk and CSR in inuencing
rm performance.
Prior research showsthat climate-related actions
differ signicantly across rms, industries, and
countries (Graaand and Noorderhaven, 2020).
Importantly, there is extensive evidence in the lit-
erature documenting the importance of cultural
values in explaining the climate change adaptation
strategies of countries and corporations (see e.g.
Adger et al., 2013; Baiocchi, Minx and Hubacek,
2010; Jenkins, Berry and Kreider, 2018). Consis-
tent with this line of research, we consider how
the degree of individualism/collectivism and of re-
ligiosity inuence the relations we estimate in our
analysis. We nd that CSR exerts a stronger in-
uence in countries with higher degrees of collec-
tivism and religiosity. Our results are robust after
controlling for endogeneity of CSR and using al-
ternative measures for climate risk.
© 2022 The Authors.British Journal of Management published byJohn Wiley & Sons Ltd on behalf of British
Academy of Management.
To continue reading
Request your trial