The Effect of Mandated CSR Disclosure on the Pollution Levels of Publicly-Traded Chinese Firms

Abstract

This paper examines whether mandatory corporate social responsibility (CSR) reporting affects corporate pollution levels in China. Starting with calendar year 2008, Chinese stock exchange listing requirements mandated that certain affected firms produce and issue CSR reports. Though not randomly determined, the affected and control groups are fairly well diversified across industries and, other than pollution, appear to have changed in similar ways across the sample period. The results of a difference-in-differences regression analysis indicate that, with or without controls for firm size, leverage, industry and year, firms required to issue CSR reports reduced their environmental impact, on average, relative to firms not required to issue CSR reports. We find firms’ direct and indirect, or supply chain, environmental impacts decreased; however, 78 percent of the pollution reduction resulted from firm’s direct responses. Manufacturing firms subject to the CSR mandate appear to have reduced relative emissions more than firms in the utilities and natural resources, and services, industries. When firms are sorted based on total assets, the middle group — neither large nor small — decreased relative pollution impacts more than the other two groups. Finally, firms affected by the reporting mandate significantly decreased two of Trucost’s four categories of pollution.