Building a sustainable future: The role of corporate social responsibility in climate policy uncertainty management

Abstract

This study examines the impact of climate policy uncertainty (CPU) on firms’ investment in corporate social responsibility (CSR). We find that CPU is positively related to firms’ CSR, and the relationship is stronger for firms operating in carbon-intensive industries. Further analysis indicates that firms with strong corporate governance and financial flexibility are more proactive in their CSR activities amid CPU and CSR alleviates the adverse impact of CPU on the cost of debt. Overall, our evidence suggests that firms engage in CSR as a part of their strategies to mitigate the risks associated with uncertainty in climate policy.