Sustainable investments in the face of social unrest and risk: A new perspective on corporate social responsibility

Abstract

In recent years, corporate social responsibility (CSR) activities have become increasingly prevalent as corporate initiatives, owing to their influence on companies and their societal dimensions. To address the gap in the literature on the effect of CSR activities on firms and their value, this study develops a theoretical model of real options considering market uncertainty and analyzes the relationship between a firm’s investment in CSR activities and the risk to its assets. The analysis demonstrates the existence of an optimal level of investment in CSR activities and shows that at this level, the beta of the firm’s assets undergoes the most significant decrease. Furthermore, by examining the relationship between the monetization potential of investment and the beta of assets, this study demonstrates that CSR activities can effectively reduce asset risk. It evaluates a firm’s value and beta from the perspective of investment in CSR activities and the potential for investment success, demonstrating the utility of this investment. It also highlights that the effectiveness of external CSR activities in increasing a firm’s value is contingent on their recognition and visibility in situations of significant social unrest and provides a practical implication that companies should consider engaging in outward-facing CSR activities.