THE CSR TUG OF WAR The role of corporate governance in shaping priorities between social and environmental goals
Abstract
In a context where companies face increasing stakeholder pressure to address both environmental and social challenges, this book seeks to examine the need to balance these two pillars of sustainability. Indeed, the limited corporate resources and capabilities often compel executives to make strategic decisions about which initiatives to prioritize, thus, inevitably, leading to trade-offs in corporate social responsibility (CSR) investments.
The concept of double materiality, a key aspect of the new Corporate Sustainability Reporting Directive (CSRD), provides a framework for understanding why companies are required to assess the impact of both environmental and social issues and highlights the direct and indirect effects of corporate behavior.
By focusing on the role of corporate governance as a key determinant in managing these trade-offs, the book explores how effective governance characteristics can influence corporate priorities in the pursuit of doing well by being good, aiming to maximize short or long-term financial performance through direct financial materiality and by internalizing positive externalities of impact materiality.
Key concepts from major theoretical frameworks, including stakeholder theory, legitimacy theory, agency theory, dynamic capability theory and the resource-based view, and insights from previous empirical studies are reviewed to provide a comprehensive understanding of the link between corporate governance and CSR.
The final chapter completes the book with a quantitative analysis, conducted on 1,458 European companies over the period 2013-2022, of how governance characteristics influence how companies prioritize corporate social and environmental objectives according to different stakeholder pressures related to different industrial exposures. This integrated approach offers both conceptual insights and practical implications for aligning governance structures with CSR objectives, highlighting the conditions under which environmental investments may undermine social ones, and vice versa.
