The Effect of Financial Crisis in Corporate Social Responsibility Performance

When a financial crisis hits and companies are fighting to survive, what happens to their social responsibility commitments? The intuitive answer is that corporate social responsibility, or CSR, gets cut because it is a cost, and when money is scarce, costs get trimmed. However, the data says something different. A study tracking one hundred twelve companies through the worst years of the 2008 financial crash shows that CSR performance rose significantly almost every year of the crisis. This wasn’t because companies became more virtuous under pressure; rather, trust had collapsed, and they needed a way to earn it back. Corporate social responsibility is the set of obligations a firm voluntarily accepts to parties beyond its shareholders, including employees, customers, communities, and the environment. The European Commission defined it in two thousand one as integrating social and environmental concerns into business operations on a voluntary basis. Researchers like Kytle and Ruggie have framed it as a hedge against what they call “social risk” — the exposure a company faces when its relationship with society deteriorates. This framing turns out to be especially relevant during a financial crisis when societal trust in corporations collapses all at once. The two thousand seven to two thousand nine financial crisis began as a liquidity shortfall in the United States in two thousand seven and hit European and American markets hard through two thousand eight. Stock indices fell, financial institutions collapsed, unemployment rose, and governments assembled emergency rescue packages. Companies found it harder to borrow, which constrained their spending. So the question Giannarakis and Theotokas set out to answer was precise and practical: when money gets tight and public trust in business is at its lowest, do firms cut their CSR commitments or double down on them? To answer that, they needed a way to measure CSR performance over time. They used the Global Reporting Initiative, or GRI, as their measurement framework. The GRI is a voluntary set of guidelines that companies can use to report their economic, environmental, and social performance. It produces application levels that run from C up through A-plus. The authors converted those levels into a six-point numerical scale, assigning integer scores from one to six so that year-over-year comparisons became possible. They then applied content analysis to GRI-certified reports from one hundred twelve companies that appeared on the GRI list in each of the four years: two thousand seven, two thousand eight, two thousand nine, and two thousand ten. This gave them four consecutive snapshots — one just before the crisis deepened, and three during it. The sample skews large and geographically concentrated. Only six of the one hundred twelve companies are small or medium-sized. Sixty-five percent are headquartered in Europe, twenty-seven percent in the Americas, meaning those two regions account for more than ninety percent of the dataset. The sectors covered are broad — twenty-seven in total — with financial services at seventeen percent and energy utilities at fifteen percent leading the pack. Because the annual CSR scores are ordinal and Kolmogorov-Smirnov tests confirmed the data weren't normally distributed, the authors used the Wilcoxon signed-rank sum test to compare paired scores across years. This is a nonparametric test — meaning it doesn't assume a bell curve — designed for exactly this kind of before-and-after comparison. The null hypothesis in each case was simple: no systematic change in the median CSR score from one year to the next. The first result lands hard. Between two thousand seven and two thousand eight — the year the crisis broke open — CSR performance rose significantly. The mean score climbed from 4.13 to 4.71 on the six-point scale. The Wilcoxon test returned a z-score of negative 4.617 and a p-value essentially equal to zero. Of the one hundred twelve companies, thirty-one showed higher scores in two thousand eight than in two thousand seven, only five showed lower scores, and seventy-six were tied. That asymmetry — thirty-one going up against five going down — drives the result. And it kept going. From two thousand eight to two thousand nine, CSR performance rose again significantly. The mean climbed from 4.71 to 5.03. The Wilcoxon z-score was negative 3.284, with a p-value of 0.001. Twenty-five companies improved, five declined, and eighty-two were tied. In two consecutive years of financial upheaval, the companies on the GRI list were, on average, doing more on CSR — not less. The authors' explanation centers on trust. The Edelman Trust Barometer showed a dramatic decline in public confidence in corporations from two thousand seven through two thousand ten. Companies, facing that collapse, appear to have used visible CSR commitments as a reputational repair strategy — a signal to stakeholders that they were still accountable, still stable, still worth trusting. This is what Giannarakis and Theotokas call the "investment view" of CSR: spending not just for the usual operational benefits like employee satisfaction or customer loyalty, but specifically to differentiate the firm and to rebuild the relationship with the public that the crisis had damaged. The rise in CSR during the worst years of the crash wasn't an accident; it was a response. Then comes the exception. From two thousand nine to two thousand ten, the upward trend stopped. The mean score edged from 5.03 to 5.07 — barely any movement — and the Wilcoxon test returned a z of negative 1.192 with a p-value of 0.233. That's not statistically significant. In that final comparison, only ten companies improved, four declined, and ninety-eight were tied. The CSR level in two thousand ten was still higher than it had been in two thousand eight, so nothing was lost. But the rise that had characterized every prior year simply stalled. The paper offers two explanations for this plateau, and they're not mutually exclusive. By two thousand ten, the downturn had extended beyond what anyone expected — fiscal crises were spreading through Greece, Ireland, Portugal, and Spain — and the cumulative financial pressure may have finally constrained corporate resources. You can sustain a trust-rebuilding strategy during a sharp crisis; maintaining it through years of grinding economic difficulty is harder. The second explanation is that companies had reached a new steady state. They'd increased their CSR investment, stabilized their reputational position, and had no strategic reason to keep scaling up. The trust-building effort had plateaued because it had, in some sense, worked. This anomaly matters because it prevents a tidy story. The relationship between financial crisis and CSR isn't simply "stress increases responsibility." It's more conditional: firms increased CSR performance when the crisis was acute and trust was actively collapsing, then held steady when the crisis became chronic and resources were fully stretched. That's a more interesting and probably more realistic picture of corporate behavior. There's an important limitation to consider before drawing broad conclusions. Every company in this study voluntarily chose to report using GRI guidelines, which means they were already committed to CSR disclosure before the crisis hit. This is a self-selected sample of the most CSR-engaged large corporations on the planet. The findings almost certainly don't extend to the broader universe of companies that never adopted GRI reporting, or to small and medium enterprises, which are entirely absent from this dataset. The study is measuring the behavior of firms that were already treating CSR as a strategic priority. What happened to everyone else is a different question. What the study does establish, for this sample, is that CSR behaved like a strategic asset during the crisis rather than a discretionary cost. Giannarakis and Theotokas frame it plainly: companies increased CSR performance to protect brand equity and to re-establish trust between themselves and their stakeholders at precisely the moment that trust was most damaged. The GRI scoring system makes this measurable. The Wilcoxon tests make it statistically credible. And the pattern — significant increases from two thousand seven to two thousand eight and from two thousand eight to two thousand nine, then a plateau from two thousand nine to two thousand ten — gives the story enough texture to be useful. If the next financial shock follows a similar pattern, this study suggests that the companies most committed to social responsibility reporting won't pull back from those commitments under pressure. They'll use them. CSR spending, for these firms, is the mechanism by which they signal accountability when accountability is most in doubt. That's not altruism; it's strategy. Understanding the difference matters for how we interpret the numbers the next time the economy breaks. This lecture was created by ennepō. Go to https://ennepo.ai to Discover, Create and Follow the latest research in your field. Read when you can. Listen when you want to.