Demand-driven Corporate Social Responsibility: Symbolic versus Substantive Change after Environmental Disasters

We examine a set of disasters with large negative effects on the environment. The disasters are each caused by a single firm, and trigger stakeholders’ attention for corporate social responsibility (CSR) at the industry level (demand-driven CSR). We study whether affected firms respond with substantive or symbolic actions. We find that (a) firms in affected industries increase overall CSR performance; however, this increase (b) comes mostly from changes to diversity and human rights; and (c) the improvement in environmental performance is modest and driven by environmental strengths, while environmental concerns do not decrease. We also document diverging costs and welfare effects associated with CSR actions. Firms that react by implementing symbolic CSR actions are penalized by ESG investment funds, experience greater stock return volatility and lower credit ratings. On average, substantive CSR actions are costlier and lead to lower margins but do not result in these capital market penalties. Overall, our results are consistent with affected firms not implementing substantive CSR actions aimed at reducing negative environmental effects of their operations. Rather, they appear to implement symbolic CSR actions aimed at legitimizing their operations without changing their substance.