Corporate Social Responsibility Rémi Bazillier Professor of Economics Sorbonne School of Economics – Panthéon-Sorbonne University [email protected] http://remi.bazillier.free.fr

Outline • Section 1: Business and its environment • Business and Non-Market Environment • Integrated Strategy • Private Non-Market Actions

• Section 2: Corporate Social Responsibility • What is CSR • CSR in Practice • CSR at the international level

• Textbook: David P. Baron, « Business and its Environment », Pearson

1.1. Market and Nonmarket Environments • Some companies are successful both in their markets and in the social, political and legal environment • Intel, Airbus, Facebook (before recent polemics) • Respect of the public and governments

• Other companies have great success in their markets but problems with the public or the environment • Nike (working conditions), Apple (Tax evasion), Microsoft (Antitrust)

• Theses problems enamated for their non-market environments • Problems resulted not from the actions of competitors but from the public, interest groups, legal system, governments

• Long-run sustainability of competitive advantage requires managing effectively in the non-market environment

• Market and nonmarket components • Market environment: • • • •

Interactions between firms, suppliers, customers Governed by markets or private agreements such as contracts It involves voluntary economic transactions and the exchange of property Firms must be efficient in production and responsive to consumer demand: • They must anticipate and adapt to change, innovate, and develop new goods and services

The environment of Business • Nonmarket environment: • It includes the social, political and legal arrangements that structure interactions outside of, but in conjunction with markets and private agreements • Interactions between the firm and individual, interest groups, government entities • Public institutions differ from markets • Characteristics such as majority rule, collective action, publicness

• Activities in the nonmarket environment can be voluntary • Firms cooperating with government officials

• … or involuntary • When activists organize a boycott of a firm’s product

The environment of Business • Nonmarket environment has grown in importance and complexity over time • Issues: • Environmental protection, health and safety, technology policy, regulation and deregulation, human rights, international trade policy, regulation and antitrust, activist pressures, media coverage of business, stakeholders relations, CSR, ethics

• Managerial objective: • Improve the overall performance of firms by effectively addressing nonmarket issues and the forces associated with them

The role of management

- A firm’s activity in its market environment can generate nonmarket issues and change in non-market environment - The action of interest groups and protests may force a firm to change its market practices Ex: lower gasoline prices and changing consumer demand →higher demand for SUVs → climate change and higher pressure to increase fuel standards

Analysis of the Nonmarket Environment: the Four I’s • Issues • Basic unit of analysis and the focus of nonmarket actions

• Interests • Individuals and groups with preferences about, or a stake in, the issue

• Institutions • Government entities (legislatures and regulatory agencies) and non governmental institutions (news media, public)

• Information • What interested parties know or believe about the issues and the forces affecting their development

Case study: the automobile industry • Issues • Interests • Institutions

• Information

The nonmarket issue life cycle

1.2. Integrated Strategy • Market and non market strategies focus on the pursuit of opportunity and advantage in the face of market and nonmarket competition with the objective of achieving superior performance • Economic performance: value created for the firm’s owners • Social and environmental performance: CSR

• Conceptual framework for effective management in the nonmarket environment • (1) Analyzing nonmarket issues and the broader environment • (2) Formulating effective strategies for addressing those issues • (3) Positioning the firm in its non market environment

Strategy and the nonmarket issue life cycle

Nonmarket positioning • Firms strategically position themselves in the markets in which they operate, focusing on the benefits to buyers and costs to the firms • They must also position themselves strategically in their nonmarket environment • It affects the set of nonmarket issues and challenges a firm faces, including challenges from activist and interest groups, governments and competitors in both market and nonmarket environment

• It should be a conscious choice rather than dictated by a firm’s market positioning or those in its environment

Non-market positioning and market strategies • Starbucks Coffee: • social awareness « contributing postively to our communities and environment • This positioning was appealing to a clientele of socially aware, high-income consumers

• BP • Green positioning (before Deepwater in Mexico Gulf..) • Positive to get the US government approval for its acquisitions of Amoco and Arco

• Nike • Agressive marketing and competitive attitude towards its competitors → Largest footwear and apparel company • Natural target for union activists who sought to improve working conditions in overseas factories

Positioning Spaces • Three interrelated spaces: public sentiment, political (law-making and rulemaking) and legal (existing laws and regulations) • Positioning in the Space of Public Sentiment: • Public sentiment: collection of diverse interests, viewpoints and preferences of individuals in a society (organized or not) • Example: 25 US firms urging D. Trump to keep the US in the Paris Agreement (Adobe, Apple, Facebook, HP, Microsoft, Unilever, etc.)

• Positioning in political space • It affects the opportunity to participate effectively in law-making and rule-making processes • Pharmaceutical industry / financial industry • Lobbying, financing of electoral campaigns

Positioning Spaces • Positioning in legal space: • Microsoft has taken an agressive approach to its markets and had largely ignored its legal environment (antitrust environment), contrary to Intel or Cisco which have sought to avoid antitrust problems • CFCs regulations • In France, sustainable development reporting turns compulsory for large firms

The perils of positioning • Starbucks: • Convenient area for a variety of activists seeking to appeal to its clientele as well as the company • Other activists (anti-globalization movement) target starbucks

• BP: • Greater expectations concerning environmental protection • Accusation of greenwashing • Violent backlash with Deepwater explosion

Analysis of nonmarket issues • The level of analysis: • Systemic level: demographic changes, climate change, globalization, human rights • Analysis of issues at the systemic level often takes the perspective of public policy rather that of a manager responsible for the perforamnce of a firm • Appropriate focus: specific issues in the potential to affect performance • Citizenship concept for firms? Social Responsibility as a moral issue? • Automobile industry: safety issues even though there is no legal standard

• Organizational level: • It centers on the impact of nonmarket issues on the performance of firms • Specific issues in the firms’ non market environement and strategies for addressing them in a manner that is both responsible and improves performance • Automobile industry: emissions controls, fuel economy standards, alternative fuel vehicles, safety, labour organization, tax incentives • Systematic level interacts with organizational level (climate change has implications on the organizational level)

Analysis of nonmarket issues • Individual level • How individuals address nonmarket issues, which includes how managers interact with industry allies, activists, stakeholders, government officials, other institutional actors • It requires personal skill development (lobbying techniques)

• Focus on nonmarket analysis: at organizational level • But with interaction with systemic level (systemic issues having an organizational impact) and individual level (the role of managers and employees to address these issues)

A framework for the analysis of nonmarket issues • General idea: generating strategy alternatives

Organization of the nonmarket strategy function • During the 70s, several companies formed strategic planning departments • Attached to, but separate from, top management: cause of failure

• Issues management group: • Produced failures particularly when the group focused on societal issues rather than specific issues impacting the firms’ performance

• The responsability for addressing nonmarket issues should reside with operating managers and not with a separate staff unit

The case of CSR / Sustainable Development • Different models: • • • •

Specific unit in charge of sustainable development Integrated with the communication department Consultory group to the top management (or to the CEO directly) …

• Same problems for identifying issues • Efficiency / operability • Coherence with global firms’ strategy

1.3. Private nonmarket actions • Private nonmarket actions are taken by: • Individuals with specific interests • Interest groups, unions (serve the interest of their members) • Activits and advocacy groups that serve the interests of others in addition to the interest of their members • Firms’ Stakeholders

• Understand their concerns, organization and strategies is essential to addressing effectively the issues they advance and the pressure they exert

These groups affects the four i (issues, interests, institutions, information) • They can identify issues about which the management is unaware or has not understood as important to others

• Ozone depletion and possible health risks from cellular phone radiation • They have an important role in setting the nonmarket agendas of firms and in advancing issues through their life cycles

• They can affect the organization of interests by forming watchdogs and advocacy groups • Clean Clothes Campaign on working conditions in the global garment industry

• The pressure these groups exert can affect the institutional configuration of the nonmarket environment • New laws, regulatory authorities.. • Environmental Protection Agency in the US

• They provide information to the public and public officeholders

• Cases of child labour and Human Rights abuses • The news media plays a major role in disseminating the information and an important component of these groups’ strategies

• Their actions can damage a firm, its reputation and its constituents

Boycotts • Some boycotts are more symbolic than real but many attracts considerable media and public attention • Boycott of Danone’s products in Marocco against high prices • Boycott of firms not recognizing their responsibility in Rana Plaza (Bangladesh) • Boycott products using palm oil (…)

• Boycotts are directed no only at the general public but also at specific customer groups • Boycott targets may also be chosen because of ooprtunity (Using the olympic games, World Cup)

Boycotts • Do boycotts have an effect on firms’ performances or their policies? • Most firms state that a boycott had not had any significant effet on their performance • Empirical evidence on the effect on stoc price performance is largely inconclusive • But still, most firms are concerned about the possibility of a boycott • Because of lost sales but mostly because the public attention given can harm their reputation and public image

Boycotts • Which companies are most susceptible to boycotts? • Products:

• Consumer products • Products with low switching costs (high level of competition) • A brand name that can be damaged

• Operating environment: • • • •

Activities that produce harmful activities Operating in an interest-group rich environment Multinational/global operations: issues can spill over to other units Operating in developing / risky countries

• Organization:

• A decentralized organization, so that external

Activist Strategies • Activists choose nonmarket strategies just as firms do • Most activists are concerned by specific issues, but others see advocacy as a means of advancing a broader social agenda • Two basic strategies: • Putting direct pressure on firms • Working though public institutions • During the 70s / 80s: focus on governments → Expansion of social regulations of health, safety and the environment • During the 90s: focus on firms –> CSR

Interacting with activist group • Addressing the Activist environment: • Identify the relevant interest groups and activist organization in a specific market and non market environment • Understand their agenda, preferences and capabilities • Understand the broader public support for their agenda • Consult with them on important isses • Cooperate when beneficial • Fight when you are right and can win – but be careful !

• Different positioning of NGOs towards firms • WWF – Greenpeace – Friends of the Earth

Strategy and Negotiations • When confronted with private nonmarket actions, a natural reaction is to be defensive • Better response: evaluate claims and demands and see what to do • McDonalds : solid-waste disposal problem, invited by NGOs to solve it • Voluntary working arrangement with Environmental Defense to develop a plan of action

• Negotiations

Outline • Section 1: Business and its environment • Business and Non-Market Environment • Integrated Strategy • Private Non-Market Actions

• Section 2: Corporate Social Responsibility • What is CSR • CSR in Practice • CSR at the international level Reference: Crifo, P. and V.D. Forget (2015) « The Economics of Corporate Social Responsibility: A Firm-Level Perspective Survey », The Journal of Economic Surveys, 29(1), 112-130.

2.1. What is CSR • Market activities:

• firms may contribute to social well-being by meeting consumer demand, providing jobs, developing new products, paying taxes, etc. (invisible hand)

• Nonmarket activities:

• Firms shape their environment (institutional, relations with stakeholders)

• Many firms go beyond what is required by their market and nonmarket environment and attempt to serve directly the need of their stakeholders, and more broadly, of society • For these firms, successful performance requires, not only compliance with the law, but also requires fulfilling broader responsibility • Charitable contributions, provide direct assistace to community organizations, support school, etc.

• Scope depends on the conception of the role of business in society and CSR

CSR and nonmarket environment • In section 1, focus on addressing issues in the market and nonmarket environment of firms • Objective: maximization of market value • Focus: nonmarket challenges that various interests directed at firms

• CSR focuses less on pressures from interests and more on normative principles, that identify duties based on conceptions of well-being, rights and justice • It may require an objective broader that market value maximization

The CSR issue • Concept of CSR is poorly defined • For some firms: moral commitment to certain principles or to the altruistic redistribution of corporate wealth from shareholders to other stakeholders • For other firms: fashionable rhetoric for communication with external stakeholders • For others: profit maximization

European vs American CSR • First definition of CSR by Bowen (1953) • Protestant pastor: social doctrines of churches • Business first then philantrophy / charity

• US conception of CSR: • To correct the main defaults or negative impacts of economic system • No anticipation / prevention potential damages

• Concept of individual freedom should go along with responsibility • Individual responsibility • No role for the State / public institutions

CSR in Europe • Development of CSR only in the 90s • Crisis of European Social Models • Reputation / Image problems for multinational firms

• Before that « implicit CSR », based on strong / collective social models • Nordic model: trade unions are powerful / collective barganing -> high wages / social protection

• European CSR: collective responsibility (potential role of public regulation) • American CSR: individual responsibility (moral issue)

Definition • European Commission (2011) • Firms go beyond the law and integrate social, environmental, ethical, human rights and consumer concerns into their business operation and their core strategies • Double aim: • Maximizing the creation of shared value for their shareholds and stakeholders • Identifying, preventing and mitigating their possible adverse impacts

2.2. Explaining CSR CSR and market imperfections • CSR are made as an answer to market imperfections • When markets are perfect (perfect competition, perfect information, perfect rationality), production and exchange lead to efficient outcome • Friedman (1970), « there is one and only one social responsibility of business; to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game that is open and free competition without deception or fraud »

• Market imperfections: externalities, public goods, market power, or asymetric information) • Standard justification of public interventions (but government failures)

• When markets and governments fail to provide the optimal outcome • Private initiatives to undertake responsible activities as a response to such imperfections

Three main motives related to market imperfections • (1) Existence of externalities, public goods and altruism • CSR is driven by incentives or external pressure emanating from stakeholders (regulators, activists, non governmental organizations, altruists)

• (2) Imperfect competition: product differentiation, asymetries and market contestability • CSR is driven by incentives in the firms’ market structure • Competitive pressure emanating from consumers, competitors or reputation concern

• (3) Contract incompleteness • Bounded rationality and imperfect information imply that markets are incomplete → requiring to allocate discriminatory power (and authority) to firms’ executive • CSR is driven by incentives in the firm’s agency relationship with stakeholders, based on internal pressure from shareholders, employees or directors

Source: Crifo and Forget (2015)

2.2.1. Externalities, public good provision and altruism • Most CSR activities, based in particular on environmental and social factors aims at reducing negative externalities (pollution abatment) or generating positive externalities (financing hospital) • CSR strategies are driven by incentives in the firms’ environment to produce public goods ore curtail public bads • External pressure from three main stakeholders: • Regulators, activists (NGOs) or altruists

A. CSR, public politics and regulation preemption • CSR and public regulations: susbstitutes or complements ? • Substitute: • When CSR preemts regulation (when it helps avoiding future regulatory constraints) • Lutz et al. (2000): when firms can commit to a quality level before regulations are promulgated, the regulator is induced to weaken standards and welfare falls • Maxwell et al. (2000): An increased threat of government (endogenous) regulation induces firms to voluntary reduce pollution emissions and produces weakher government regulation • CSR acts as as self-regulation mechanism likely to preemt government regulation

CSR, public politics and regulation preemption • Complement: • Maxwell and Decker (2006): many environmental investments aim at reducing the cost of complying with existing regulations (rather than preempting future regulations) → Mutual reinforcement (complement) rather than competition (substitution) • Samm and Innes (2008): Participation in toxic waste reduction programme was motivated by the expectation of relaxed regulatory scrutinity • Johnstnon and Labonne (2009): Environmental certification serves as a signal to regulatory authorities

CSR, public politics and regulation preemption • Complement in cases of government failures: • Government failures have multiple origins: capture by lobbies and other interest groups; territoriality of juridisction (child labour); or a combination of inefficienct, high transaction costs, poor information, and high delivery costs • Lyon and Maxwell (2008): The regulator may share the desire to reduce costs of regulation and thus be willing to negotiate voluntary agreements

• In sum: no clear-cut answer and lackness of empirical studies (especially for social dimension)

B. CSR as a response to social pressure and private politics • External pressure coming from private actors (social activists and NGOs) • Pressure for firms to produce public goods or curtain public bads via targeted campaigns • Less responsible firms may be deprived of their ‘licence to operate’ via boycotts

• 2010 Greenpeace ‘Kit-Kat’ campaign (‘Nestle Killer – give the orang utan a break) against Nestlé to stop the company from using unsustainable palm oil

• Theory of contestable management:

• Anticiapated threats of (endogenous) social protest can effectively discipline a firms’ behaviour and induce CSR decisions • Boycott of Genetically modified organism in France (Hommel and Godard 2001° • Firms’ constestability: two types of threats

• Contestation of its social licence to produce and innovate (based on environmental or healthrelated risks to the community) • Economic contestation from competitors

• More visible (and powerful) and firms are more likely to be targeted • Target of social criticism when firms are significant ctors, are innovators, or or belong to notoriously dirty industries

• Margolis and Walsh (2011): link between a firm’s visibility on its market and its CSR level • CSR can be a strategic policy to prevent social contestability and protect firms’ long-term interests

The role of social activists, NGOs, and other private politics actors • NGOs make direct demands on corporations either by threats (boycott, negative propaganda) or rewards (endorsements) • Baron and Dirmeier (2007): threats are more efficient at decreasing the level of the targeted activity • Sinclair-Desgagné and Gozlan (2003): more impact on accurate environmental reporting when big threats (rather than a threat by an already confident stakeholder) • Sam and Innes (2008): Participation in voluntary programmes and pollutant reductions were prompted by a firm’s likelihood of becoming a target for boycott

• Visibility is increased by the extent of public contact, as in consumeroriented industries (Margolis and Walsh 2001) • Dirty industries are also more visible as they attract more public interest (Heal 2005, Brown et al. 2006) • Siegel and Vitaliano (2007): experience goods, credence goods and search goods • Experience goods (whose quality cannot be observerd before use, but is ascertained upon consumtion) or credence goods (whose quality cannot be evaluated in normal use such as organic coffee) are more likely to be socially responsible • Search goods (whose quality is ealy ascertained, even before consumption) are less likely to be socially responsible

• NGOs do not necessarily target firms with the highest levels of externalities (Baron 2009) • Strategic behaviour of NGOs • Two types of firms: morally motivated CSR firms and firms with CSR induced by social pressure • Activists are more likely to target the « softer, morally motivated firms » because those firms have more to lose from the campaign than do selfinterested firms

C. CSR, altruism and Prosocial behaviour • Additional dimension inducing CSR activities in order to provide public good and internalizing firms’ negative externalities • Sinc 1985, the outdoor company Patagonia has given of revenue (sales) ($41.5 million) to grassroot environmental organzations • CSR as a behaviour of ‘sacrificing profits in the social interests’ (Bénabou and Tirole 2010) • Psychology and behavioural economics

• CSR is a prosocial behaviour which reflects managers’ willingness to engage in philanthropic activities for altruistic reasons • Consistent with Friedman (1970) view that CSR amounts to spending others’ money for individual prosocial motivations

• Preferences are heterogeneous: it is inevitable that some managers’ values will not be fully reflected in policy and projected onto their corporate decisions • Benabou and Tirole (2010). Prosocial behavours result from: • Intrinsic (genuine) altruism • Extrinsic (material) motivation, social and self-esteem concerns • Image concerns may act as an incentive to induce responsible behaviours

• Prosocial motivation may also be subject to offsetting effects • Searching out excessive social prestige may crowd out the incentive provided by publicity on prosocial behaviours • The more advertised CSR activites are, the more they might be discounted as imageseeking rather than altruism

2.2.2 CSR as a business strategy in imperfect competition

Source: Crifo and Forget (2015)

2.2.2 CSR as a business strategy in imperfect competition • CSR may be efficient to signal on credence goods attributes, compete with rivals and differenciate on markets • Strategic CSR (Baron 2001) : profit-maximizing CSR • CSR aimed at gaining a comparative advantage over competitors (Delmas et al. 2011) • CSR strategies are then driven by incentives in firms’ market structure, based on competitive pressure emanating from consumers, competitors or reputation concerns

A. CSR, consumer heterogeneity and product differentiation • CSR is like any other forms of product differentiation • If a firm can identify customers willingness to pay for CSR • And if it can defend the resultant niche against imitators

• CSR as a product differentiation strategy in which firms privately produce public goods to attract consumers willingness to pay for ethical attributes • An increasing concern for ethical consumotuin • 46 of European consumers claim to be willing to pay substantially more for products (MORI 2000) • But in practice?

• Labels and certification have been shown to play a core role in product differentiation strategies to reduce information asymetry • CSR attributes of a good rely on credence qualities (that cannot be evaluated, even after consumption) • Additional costly information to gain consumers’ trust

• Baron (2010) distinguishes the role of CSR assurance (certification) from information (social labels)

• Social labels allow individuals with stronger moral preferences to separate from those with weaker social preferences • But social labels are not able to expand the scope of self-regulation beyond that with unconditional altruism • Certification can attract consumers with weaker social preferences

• Price premium for certified products

• 13-18% for certified toilet paper in Denmark (Bjorner et al. 2004) • +7 (rent) and +16% (selling price) for green (energy efficiency) certification for US office building (Eich

B. CSR and competitive pressure • Competition destroys or enhances ethical behaviours and CSR strategies? • Shleifer (2004): when unethical behaviour cuts costs, competition drives down prices and entrepreneurs’ incomes and therefore their willingness to pay for ethical products • But when firms compete for socially responsible consumers, social activitis can become a by-product of product-market competition • Bagnoli and Watts (2003) show that the level of private-provision of public goods varies inversely with the competitiveness of the private good market • Fernandez-Kranz and Santalo (2010): market concentration appears negatively related to environmental and social ratings and increased competition due to higher import penetration leads to higher CSR

• CSR as a way to raise entry barriers and raise potential entrants’ costs • Enforced social or environmental policies can directly raison regulatory barriers for the firms’ competitors • Product certificaton as a non-tariff barrier (Chambolle and Giraud-Heraud 2005) • By reducing competiton intensity on the protected marker, CSR entrance barriers can increase firms’ profitability • Florverde Programme: European cut flower market suppliers chosen based on pesticides use, inducing Colombian producers to promote environmentally friendly practices

• Competitive pressure and innovation race as a lever for CSR strategies • Porter’s hypothesis (Porter and Van der Linde 1995) • Environmental reglation triggers innovation and production costs reduction leading to a competitive advantage

• Bottom-of-the pyramid strategies • Social business • Targeting the poorest socioeconomic groups in developing countries • Murphy et al. (2012): how firms can invest in social issues to prepare new market opportunities in emerging countries

C. Information asymetry, reputation and greenwashing • CSR as a credence good: massive problem of information asymetry • Firms may use communication strategically to minimize CSR investments

• Problem of Greenwashing • Misleading consumers via selective disclosure and withholding of negative information about a company’s environmental or social performance • Few legal tools • Legal conviction for deceptive advertising (Mosanto case in 2009 in France for its clam of environmental virtues and biodegradability of its herbicide ‘round-up’ • Self-regulation of advertising sector (ARPP in France)

• Labels and certifications are not sufficient in lots of cases • Competition among labels and information asymetry on the label itself

2.2.3. CSR as delegated responsibility in imperfect contracts • Complete contigent contracts (for which all future events affecting the contractual relationship are embedded into the initial contract) are the exception, not the rule (Hart, 1995) • Bounded rationality and imperfect information require to allocate discretianory power to firms’ executives • An agency problem arises when managers expect private benefit from CSR activities (from stakeholders other than shareholders) • CSR strateges are driven by incentives in the firm’s agency relationship with its stakeholders, based on internal (delegated or organizational pressure from shareholders, employees and directors

A. CSR as delegated responsibility of shareholders • Development of Socially responsible investments (SRI) • Ownership types matter for CSR decisions

• Some institutional investors may have an explicit SRI policy, either imposed (the French pension fund trust) of because of fiduciary duty or independent social and environmental obligatuons

• Four motivations of social investors (Chatterji et al. 2009) • • • •

Financial (believing that CSR increases firm performance) Deontological (not willing to profit from unethical actions) Consequentialist (rewarding good behaviour and providing incentives) Expressive (expressing personal identity to yourself or others)

• Investors are also highly aware of regulatory context

• Stock market reactons in Japan after 2001 when the Japanese governmet showed a strong commitment to environmental policies

B. CSR as delegated responsibility of employees • CSR can appear as a signal for corporate culture and thus contribute to workers’ identity and incentives (Akerlo and Kranton 2005) • ‘Green firms’ can hire motivated employees, securing long-term firms performance • High level can also reduce employees turnover and attract more skilled workers • Proactive human ressources policy appears to increase firm performance through productivity

C. CSR as the delegated responsibility of directors • Agency theory • The goal of corporate governance is to organize the relationship and responbilities to guarantee shareholders that the firm they invest in are managed in compliance with their own interests • Three-layer structure: • Shareholders, who meet in general assemblies and delegate their control to a board of director (or supervisory board), which monitors CERs’ operational decisions • Directors may hence delegate CSR to CEOs

• Specific case of CEOs owner • Full power to choose their firms’ CSR level in with their business model and personal objectives • Many examples of CEOs who develop strong CSR strategies are in this case • Main motivation in SMEs

• Other case: responsibility of CEOs is to ensure profitability • Managers – Employees coalition

2.3. CSR and performance • CSR and financial performance • Numerous surveys on the issue (Griffin and Mahon 1997, Margolis and Walsh 2003, etc) • Emerging consensus: extensive meta-analysis by Margolis et al. (2009) on 251 studies • « The effect of corporate social performance on corporate financial performance is small, positive and significant. Corporate social performance does not destroy shareholder value, even if its effect on the value is not large »

• How firms can be successful on both financial and social levels? • Still, much empirical challenges: CSR is endogeneous • Profit drives CSR

• Measurement issues: which index of CSP ? (VigeoEiris)

• Potential heterogeneous effects • Context-specific: which market imperfections?

CSR studies are lacking in developing countries • Most studies focus on EU and US • Which effects in developing countries? • Social preferences and market imperfections are likely to be very different

• Impact on non-financial performances • Public politics

• CSR can be a less costly substitute for government mandates and hence increase welfare • It can also distort regulatory decisions in a way that lowers social welfare (Besley and Ghatak 2007)

• Private politics

• It remains unclear whether social pressure from NGOs is benefitial for society as negative externalities are reduced • Heyes and Maxwell (2004): two types of self-regulation mechanisms • • • • •

Mandatory through an international organization setting a constraining standard Voluntary through an NGO operating labelling schemes They show that the level of industry resistance to a standard is greater when an NGO exists It might leads the international organization to decrease the stringency of the standard But NGOs may serve as a « back-stop » function and may encourage more stringent international standard

• CSR and market imperfections affecting competition • CSR certification might increase the sales of environmentally or socially friendy products • Thereby increasing the utility of consumers who switch from conventional to green products • But strategic communication policies • Greenwashing might reduce welfare by decreasing the efforts made by the firm and by misleading consumers (information asymetries)

• CSR and multinational firms’ location choices • Dam and Scholtens (2008): firms with high level of CSR are less likely to relocalize their production in countries with weak environmental regulations (pollution heaven) • The quality of institutions drives multinational environmental behaviour (Dam and Scholtens 2012)

• But Bazillier et al. (2017) find opposite results: • Environmentally responsible firms are more likely to invest in pollution heaven • The effect is driven by firms with stronger credibility (higher past environmental performances) • The reputation effect: • Firms improving their CSR (or starting from a low level) will invest less in risky countries • CSR is a pre-requisite to invest in risky countries without damaging public reputation

Conclusion • Nonmarket environment is very important for firms • Multiple interactions with the market environment

• Private politics are affecting both firm performances and behaviour • Strategic games between NGOs and firms

• Private and public politics might be substitute or complements • CSR is driven by market imperfections • Externalities, public good provision, pro-social behaviours • Imperfect competition • Market incompleteness

• Limited effect on financial performances • Effect on non-financial performances are mixed • Information asymetries, (international) greenwashing, and firms strategies

• Role of public regulation to limit such information problems (sustainable development reporting)

• Lack of empirical evidence in different contexts

Thanks ! • [email protected] • http://remi.bazillier.free.fr