Corporate social responsibility and firm value: environmental uncertainty as a moderating presence

Increased competition across the globe and strong emphasis on sustainable development have inspired a growing number of businesses to seek an edge through their corporate social responsibility (CSR) activities.Evidence reveals that meeting CSR obligations can help boost reputation and brand image among consumers. It also emits positive signals to help investors and lenders make important financial decisions. Enterprises that recognize the value of CSR make it an integral aspect of corporate development over the longer term. Furthermore, they are proactive toward their social responsibilities and ensure that reports are publicly available.The significance now attached to CSR doesn’t alter the fact that companies essentially seek to generate profit. However, these financial goals must now be balanced against the need to engage in activities that advance social and environmental welfare. Appropriate focus on each dimension can help a company maximize value. The connection between CSR and value generation for enterprises has been subject to academic attention. Content, reach and economic competitiveness are among the aspects under scrutiny.In China, the real estate industry is one that is waking up to the potential for CSR to transform its fortunes. This mainstay of the nation’s economy is experiencing tough times. Economic changes combined with regulations imposed during the COVID-19 pandemic have brought challenges that include reduced finances, depreciation of market value and the need to drawdown debt capital. Falling demand and the lowest score on the national real estate development boom index for several years compound the difficulties.Certain researchers believe that CSR fulfillment presents a genuine opportunity for real estate firms. In order to exploit its potential, they must:Perhaps even more crucial is the need to consider obligations to the wide variety of stakeholders in their assessment of the potential impact when real estate is developed and managed. It is also imperative that firms ascertain all stakeholders, among which are employees, investors, government bodies, the environment and people who buy, lease or rent properties. This can enable CSR responsibilities to be separated into stakeholder, social welfare and environmental categories reflected through such as:Research into the influence of CSR on enterprise value has generated contradictory findings. However, Kong and Wang (2024) focus on the positive impact in the present study. It has been shown previously that strong CSR can facilitate:There is also reason to expect that greater transparency will lead to a reduction in the cost of corporate financing. Others point to coordination between CSR practices and innovation activities as justification for their claim that corporate creativity is boosted.Expectation that CSR adds value to a company is also grounded on the long-term orientation of both CSR activities and sustainable development of the enterprise.Environmental uncertainty is a proverbial fly in the ointment for real estate firms. It is usually characterized by an information void that makes decision-making outcomes hard to predict with any degree of confidence. Some researchers purport that macro and micro dimensions of environmental uncertainty can prevail. In the former case, uncertainty is objective since it relates to economic policy. The subjective nature of the latter is down to such as strategy changes. It is claimed that the resulting “information equality” in the operating environment negatively affects enterprise development.Depending on the perspective taken, environmental uncertainty can help or hinder corporate activities. One group advocates that it inspires strategic flexibility, innovative approaches, research and development and increased awareness of consumer trends. In the opposite camp are those pointing to greater risk with widespread impact that includes activities being truncated, temporary curtailment of investment and greater stock volatility. Reduced transfer of credit information by companies and enterprise-specific risks are also noted in some studies.Real estate firms in China have been hampered by austerity policies imposed between 2016 and 2021. While regulation remains prevalent, they are unable to anticipate future policies or what they entail. The ongoing uncertainty continues to affect financing, sales and profits. Some researchers factor in the effects of the pandemic and macroeconomic issues to paint a bleak picture for activities in real estate companies.On the plus side, evidence does point to CSR exerting a strong influence when environmental uncertainty is high. This is partly attributed to the social capital generated by investing in CSR. In an uncertain environment rife with regulations, CSR functions as a reassuring presence that helps:However, the contrary view posits that this safeguard actually becomes weaker in these circumstances. This has negative implications for resource acquisition, marketing activities and communication with other stakeholders, among other things.Kong and Wang (2024) further explore the issues raised in a study of real estate firms listed on China’s Shanghai and Shenzhen stock exchanges. The research focused on 2010 to 2020, as some of the data obtained for the CSR score, enterprise value and environmental uncertainty only covered this period.Analysis confirmed a strong, positive connection between completion of CSR obligations and the value of real estate firms. The relationship was significant for both stakeholder and social welfare responsibilities. However, an inconsequential relationship was found for environmental responsibility. According to the authors, CSR activities in this area might have gone under the radar due to firms focusing on such as building quality houses, maximizing shareholder returns and making donations.In addition, the study revealed that the CSR–company value link is markedly affected by environmental uncertainty. The strength of uncertainty positively correlates with the beneficial impact of CSR fulfillment.Some significant observations from this study prompt the authors to recommend that firms should:In the latter case, adopting this perspective also helps protect against industry ebbs and flows that are often exacerbated during periods when the operating environment is less predictable. The stability provided by CSR in these circumstances serves to instill confidence in key stakeholders and enhance the reputation, financial performance and operational robustness of the enterprise.This review is based on “The influence of CSR on enterprise value: the case of China’s real estate industry” by Xinran Kong and Wei Wang, published in the Business Process Management Journal.