The relationship between CSR and firm performance in Europe: do industries and CSR categories matter?

Abstract

Purpose Corporate Social Responsibility is an issue of growing interest worldwide. Meanwhile, existing literature is still inconclusive about the association between CSR and financial performance. This is the first study that explores this relationship across sectors using a sample of European environmentally sensitive firms belonging to eight industries. Design/methodology/approach We compare the association between CSR and firm financial performance across eight industry sectors defined by Standard Industrial Classification (SIC) code and across three CSR categories based on a sample of 2,582 firm-year observations from the STOXX Europe 600 index over the period 2002–2022. Findings Results show that the impact of CSR on financial performance is heterogeneous across sectors and CSR dimensions. Indeed, we find a positive relation for companies belonging to transport, chemical and paper sectors regarding overall measures. Besides, for firms in the petroleum and mining sectors, investments in environmental and social initiatives can have negative effects on their financial performance, leading to value destruction. Our findings are robust to several model specifications and different performance measures and CSR dimensions. Practical implications This study provides new angles for managers in maximizing firm performance through CSR activities and suggests that they need to choose carefully CSR goals in order to fill up the expectations of stakeholders from different industries. By highlighting the heterogeneity of CSR impacts across sectors, we offer evidence-based guidance for firms to tailor their CSR strategies to align with industry-specific challenges and opportunities. Originality/value This is the first study that explores this relationship across sectors using a sample of European environmentally sensitive firms belonging to eight industries.