Addressing <scp>CSR</scp> Red Flags as a Strategic Response to Economic Policy Uncertainty

ABSTRACT This study investigates whether companies strategically address corporate social responsibility (CSR) red flags to minimise their risks during periods of high economic policy uncertainty (EPU). We observe increased investment in social and environmental concerns amid EPU, particularly amongst firms with numerous institutional investors, those in consumer‐oriented sectors, and those with irreversible investments. Addressing CSR issues can enhance firms' trade credit and employee loyalty. Additionally, such investments can reduce firms' performance volatility in the face of elevated EPU. During periods of high EPU, firms actively reallocate resources to CSR while scaling back other investment activities, thereby demonstrating varying industry‐specific CSR priorities and emphasising a proactive risk management approach.