Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2012-10-01
Number: 12-102/IV/DSF40
Author-Name: Timo Busch
Author-Email: tobusch@ethz.ch
Author-Workplace-Name: ETH Zuerich, and Duisenberg school of finance
Author-Name: Nils Lehmann
Author-Email: nilslehmann@ethz.ch
Author-Workplace-Name: ETH Zuerich
Author-Name: Volker H. Hoffmann
Author-Email: vhoffmann@ethz.ch
Author-Workplace-Name: ETH Zuerich
Title: Corporate Social Responsibility, Negative Externalities, and Financial Risk: The Case of Climate Change
Abstract: Certain types of corporate social responsibility (CSR) activities can generate an ‘insurance-like’ benefit for firms (Godfrey, 2005). Thus far, this risk management hypothesis has been verified for the effects of firm-specific negative events. We argue that this insurance-like benefit of CSR-activities can be equally expected in the context of long-term developments which threaten current business models. We develop our arguments for the incremental, long-term process of internalizing negative externalities. For this, we consider the negative externalities resulting from the emission of greenhouse gases (GHG) and perform a panel analysis of a sample of 1699 firms over a period of 7 years. Our results show that firms can reduce their market-based risk by curbing their GHG-emissions. We furthermore propose an opposing effect on accounting-based risk, but do not find empirical support for this. We conclude that CSR-activities aimed at reducing a firm’s exposure to specific long-term developments can be sound corporate risk management, even if such activities may not yet be profitable.
Classification-JEL: G30, M14, L20, Q20
Keywords: GHG-emissions, negative externalities, financial risk, corporate social responsibility, long-term developments
File-Url: https://papers.tinbergen.nl/12102.pdf
File-Format: application/pdf
File-Size: 166535 bytes
Handle: RePEc:tin:wpaper:20120102