Doing Safe by Doing Good: Non-Financial Reporting and the Risk Effects of Corporate Social Responsibility

Abstract

We compare the effects of corporate social responsibility (CSR) on perceived firm risk under two different (non-)financial reporting regimes: the risk-based U.S. and the content-based European system. We find that the risk-reducing effect of CSR is driven by volatile market phases in the U.S. system, while regulatory developments dominate the effect in the EU. Risk reductions in the former are moreover most strongly associated with environmental activity, while social activity is most effective in the latter. Surprisingly, we observe that return-to-risk ratios decrease with CSR activity in both the U.S. and Europe over the period 2003 - 2017.

Keywords: Non-Financial Reporting; Corporate Social Responsibility; ESG; Sustainability; Equity Risk; Stock Return; Dynamic Panel Estimation

JEL Classification: G11; G32; G34; O16; Q56