Extrinsic factors of CSP

This section looks at the factors outside the company that affect the CSP strategy selected by a company, such as investors, owners, customers and other stakeholders.

How do investors and owners drive CSP?

Investors play an important role—through investment allocations—in defining what type of businesses will receive financing. The logic seems to work in the following manner. First, financial analysts show interest in high CSP companies by analysing them and reporting about them (Liao et al., 2018; Zhang et al., 2015; Slager &

Chapple, 2016; Chun & Shin, 2018; Luffarelli & Awaysheh, 2018). Here, brand equity improves the level of analysts’ recommendations (Wang & Jiang, 2019). Then, investors allocate funds to high CSP companies. Long-term institutional investment is found to be positively related to CSP and investors can reject companies with worse CSP (Cox et al., 2004; Neubaum & Zahra, 2006). A sustainable approach is useful for creating value for both the investor and the issuer company (Teti et al., 2015). Firms with superior CSP attract more institutional investments (Wang &

Chen, 2017). The investors primarily seek a better profit–risk relationship, where CSP reduces risk and volatility (Vartiainen, 2020; Busch & Friede, 2018).

Moreover, the value base of the investor affects the allocation of the investments.

Cox and Schneider (2010) compare US and UK labour union investment plans to state foundation plans and private plans. They conclude that both US and UK labour union plans have a positive relationship with workplace practices, while US private plans have a positive relationship with the CSP community dimension. In addition, UK state and private plans have a positive relationship with the CSP environment dimension. Employer-related aspects of CSP are preferred by pension funds (Cox et al., 2008). Furthermore, pension fund equity is positively related to CSP, whereas the relation is non-existent in the case of mutual and investment banks (Johnson &

Greening, 1999). There is also a significant positive relationship between social performance and the number of institutional investors (Graves & Waddock, 1994).

All the researchers do not, however, agree—CSP is also found to have a positive but insignificant relationship with institutional investment (Ahmed et al., 2014).

As far as other ownership types are concerned, top management equity and managerial ownership predict positive CSP (Johnson & Greening, 1999; Jia &

Zhang, 2013). This is related to the fact that stock ownership might increase the incentives to improve product quality and innovation, which would in turn improve the reputation of the company in environmental matters. The impact of family ownership produces controversial results. Bingham et al. (2011) conclude that the higher the family involvement in a company is, the higher is its level of CSP towards specific stakeholders (social initiatives to employees, consumers and community).

Family firms have CEOs that are part of the family or hire an outside CEO whose values are close to their own. Family firm CEOs have a more positive influence on CSP than non-family firm CEOs (Aoi et al., 2015). However, family-owned companies exhibit lower CSP than family-owned companies in non-stakeholder-oriented countries, whereas family-owned companies are more attentive to social concerns in stakeholder-oriented countries (Labelle et al., 2018). In a Korean research study, Kim and Lee (2018) conclude that family-owned companies with family CEOs have lower CSP than chaebols (large government-controlled conglomerates).

The research on the impact of state ownership is also controversial. State-owned companies in China have higher social performance in urban areas, whereas the

social performance of the non-state-owned companies is better in rural areas (Tang et al., 2018). This is explained by the fact that state-owned enterprises adopt responsible practices for different reasons than non-state-owned companies—state-owned companies have access to the resources administered by the Chinese state and its agencies, whereas non-state-owned companies depend mainly on market-driven mechanisms. State-owned companies are more under the scrutiny of media in urban areas because of the tax-payers’ ownership but not to the same extent in rural areas. Non-state-owned companies, however, want to compensate for the drawbacks caused by the distance and show higher CSR.

Consequently, institutional investors value high CSP companies because they think that high CSP reduces the company risk. Furthermore, the values of institutional investors, especially those of pension funds, tend to favour responsible investments.

Additionally, top management equity predicts positive CSR. The researchers do not agree about the impact of family ownership on CSP—the culture seems to determine how CSP is demonstrated in family-owned companies vs. non-family-owned companies.

Customer perspective on CSP

Consumer awareness regarding sustainability has increased rapidly during the discussion on climate change (Akbari et al., 2020; Ding et al., 2020). Thus, the impact of sustainability on consumer behaviour seems to depend on both consumers’

personal concern and general level of awareness regarding the sustainability of products in the market (Galbreth & Ghosh, 2013). These lead to purchase decisions.

Another important reason to integrate CSP as part of the competitive strategy of a company is the fact that consumers are willing to pay more for high-CSP products (Isfianadewi & Mahdi, 2018; Galbreth & Ghosh, 2013; Oksanen & Hautamäki, 2015). The mechanism for this seems to be that socially performing companies get special attention among consumers—CSP influences the consumers’ brand attitude, which has the main effect on their purchase intentions (Schuler & Cording, 2006;

Vlachos, 2012). In particular, married, aged and high-income consumers who are active media consumers tend to be sensitive towards CSP (Perera & Hewege, 2016).

Company CSP communication can sometimes lead in the wrong direction as a result of the pressure from customers or other stakeholders to improve the company

image, sell more and get involved in CSR as an actor (Chan-Edwards, 2019; Dahl, 2010). Greenwashing is the difference between “green talk” (symbolic actions) and

“green walk” (substantive actions) (Walker & Wan, 2012). Green washing is related to the environmental dimension of CSP and often contains buzzwords such as sustainability, biodegradability, recycling and upcycling (van Niekerk & Conradie, 2020). One way to prevent false information from misleading consumers would be to use different certification schemes, which grant achievement labels (Kopnina, 2019). Another remedy to protect customers would be to update the guidance on how environmental impact can be advertised (Dahl, 2010).

Other stakeholders

In addition to owners, investors and customers, other (secondary) stakeholders play and important role in affecting the CSP of a company. The various stakeholders who create pressure are the general audience, policymakers, industry organisations and other non-governmental organisations (NGOs), media as well as competitors (Gallear et al., 2012). From the perspective of this study, the perceived market pressures generated by customers or competitors are forces that may play a key role in integrating CSR into the corporate strategy so that the idea of business and society being “interwoven rather than two separate entities” would materialise (Wood, 1991b). Technological competition, monitoring by NGOs and mandatory CSP reporting foster CSP (Graafland & Smid, 2017). Here, the industry peer pressure and regulatory forces play a key role in CSP development.

A larger company has more resources to produce CSP but also a larger variety of stakeholder demands, which then drive CSP (Brower & Mahajan, 2013). Company size does not, however, matter in this context because small- and medium-sized companies, in many cases, either compete or act as suppliers to larger companies and must comply with regulations and norms (Jenkins, 2004). To conclude, there is a positive relationship between stakeholder pressure and CSP (Agudo-Valiente, et al., 2015). This easily leads to a conclusion that corporations try to get the attention of other stakeholders in their CSP communication rather than trying to get the impact on the society as a whole (Clarkson, 1995). This may mean that they are reactive in their CSR actions and only obey the regulations.

On the other hand, other stakeholders not only scrutinise but can also take a proactive role when the sustainability issue is seen as a business opportunity (Halme

& Korpela, 2014). Depending on the strategy of the innovating company, the cooperation may be open, wide and deep or selective, concentrating on only a few stakeholders. The result may be a new commercial product or a new business model, which would not have been possible without stakeholder involvement (Juntunen et al., 2019). Thus, doing good is good both for the company and the society (Baumgartner & Ebner, 2010; Gras & Krause, 2018). Consequently, self-interested companies produce higher CSP than the companies that are in compliance mode under social pressure (Baron, 2009).