Conclusions
In this paper, we analyse the relationship between firms' CSR activities and their economic performance. More precisely, we test the existence of a dynamic, non-linear, endogenous relationship between CSR and economic performance, taking into account sector speci ficities, di fferences in economic performance measures and macro-categories of CSR. We consider seven di fferent measures of CSR engagement, as provided by MSCI ESG KLD STATS. We standardise and normalise the indicators provided by KLD, generating a measure of the relative goodness or badness of the performance of each company in each aspect of CSR that is independent of the way the performance in that category and year is measured. We consider di fferent economic performance measures, since there can be di fferent biases arising from market-based or accounting-based measures of economic performance. The endogeneity and the lagged possible impact of each CSR macro-dimension on the economic performance variables are accounted for using the Arellano Bond technique in the dynamic panel that we construct. We find strong positive correlations with the TSR indicator and a significantly positive reduction in Financial Risk due to investments in almost all dimensions of CSR. These results are common to all sectors. The accounting-based measures, instead, show less clear results. The interaction between the various aspects of CSR and economic variables is not the same across sectors. The Oil & Gas sector, for instance, has more correlations than any of the others. A possible explanation might be that companies in this sector are far more subject to external controls (both by the government and non-governmental organisations) compared with others. The Consumer Goods and Consumer Services sectors are relatively more correlated to the macro-category of Community. This might imply that companies operating in these sectors support non-pro fit organisations, make donations to charities, have volunteer programmes etc., and this impacts their economic performance. The macro-category of Governance is relatively more correlated to all economic performance indicators in the Financial and Industrial sectors. The Health Care sector, instead, shows a strong relationship between the CSR macro-category of Product and market-based indicators. This could signal that companies in this sector pay attention to chemical safety and quality products, provide opportunities for access to health and nutrition, invest in R&D etc., all of which improves their book values.
