Corporate Social Performance and Risk : A quantitative study on the South African market

Abstract: Corporate social performance (CSP) has gained popularity in the last decade as companies tries to tackle the challenges of climate change, social inequalities and corruption. How a firm’s individual corporate social performance is correlated to risk has mainly been investigated for firms in the United States and Europe. Previous research suggest a relationship proposed by the Stakeholder theory and Risk management theory, that higher CSP score will be rewarded with lower levels of risk. The studies are performed on developed countries and the discussion regarding the results generalizability to emerging markets is limited. With a dataset of 123 firms and over 480 firm year observations from South Africa, covering the period between 2008- 2016, this paper will contribute to the field’s limited knowledge of emerging markets. To gain further insights in the CSP-risk relation, environmental, social and corporate governance (ESG) factors obtained from ASSET4 are used to measure each firm’s CSP and stock volatility is analyzed to measure the market-based risk of a company. The analysis will be made with an aggregated ESG score as well as with the three ESG pillars separated. Using a panel data regression to test if there is a relationship between CSP and risk on the South African market, the findings are not statistically significant. The results are again insignificant when the ESG pillars are tested individually. Hence there is not evidence to confirm the relationship for the South African market, as our findings do not suggest any correlation between CSP and risk. These results are contradicting to the existing studies on developed markets and points out a need for further research in this topic on emerging markets.