Firms have continued to adapt corporate social responsibility (CSR) alongside evidence-based, data-driven environmental, social and governance (ESG) frameworks, both of which influence the extent of sustainability's integration into strategic firm decision-making. In the article by Pirgaip et al. (2026), the authors investigate how these frameworks can reduce firm-specific risk, additionally considering environment-based executive pay (EBEP). The authors investigate how these three frameworks reduce idiosyncratic volatility and buffer shocks to processes and operations, thereby reducing a firm's long-term risk and increasing its appeal to investors.CSR refers to corporate strategy and voluntary initiatives that focus on ethical conduct, reducing ecological impact and engaging with diverse stakeholders. Originally a foundation of obligation to society and morality, CSR is now an expected part of firm strategy as consumers continue to choose sustainability. CSR enhances social welfare and firm legitimacy through responsible actions beyond regulatory requirements, affirming a firm's commitment to creating positive social and environmental impact as a core part of its strategy. Firms such as Patagonia have achieved long-term sustainability and customer loyalty through their social and environmental policies that deliver positive societal benefits.ESG aligns with the principles of CSR by providing hard metrics that firms can use to align their CSR strategies. It provides quantifiable metrics and actions a firm can take to increase transparency, improve governance quality and build stakeholder trust. With three key facets of ESG, the ESG framework measures sustainability, ethical impact and risk management rather than financial metrics.EBEP is a governance framework that aligns executive pay with a firm's environmental performance goals. A firm integrates sustainability principles into managerial performance and incentives, aligning upper-echelon behavior with long-term ecological targets. By doing this, EBEP aims to increase firm value, highlight accountability and encourage upper echelons to make sustainability-oriented strategic decisions and take action.In their empirical research, the authors examine how CSR, ESG and EDEP can reduce firm-specific risk in the short-, medium- and long-term. They measure this by comparing the effect of the three to idiosyncratic volatility. Idiosyncratic volatility refers to variations in a company's stock price driven by factors specific to the company, rather than the overall market or economy (such as management, products, reputation, or firm decisions). When a company's idiosyncratic volatility is low, a company's future appears more certain and less risky to investors, regardless of current market trends.Pirgaip et al. (2026) found that companies that actively engage with CSR strategies have lower idiosyncratic volatility in the medium term and that ESG practices also help reduce it as they become more established and trusted over the long term. EBEP initially increases idiosyncratic volatility due to uncertainty about whether the new incentives will be effective, but over time it has been found to lower risk and support firm stability.These three sustainability approaches work together, but each affects idiosyncratic volatility in different ways. CSR primarily lowers risk by building stakeholder trust and improving governance in the medium term, but long-term CSR may increase idiosyncratic volatility due to stakeholder pressures and rigid finances. ESG provides an empirical, structured approach that gradually builds investor confidence and reduces short-term risk but in the long term may mildly increase idiosyncratic volatility due to the ever-evolving nature of the framework as it seeks to encompass changing ethical practices. EBEP helps lower long-term risk on its own but significantly strengthens the idiosyncratic volatility-reducing effect of CSR.While all are effective as single strategies, these three approaches can combine into a highly effective strategy that manages risk holistically. CSR builds trust and governance; ESG establishes disclosure infrastructure; and EBEP provides a strong incentive for a firm to meet sustainability goals. Particularly, combining CSR and EBEP was found to significantly and long-term reduce idiosyncratic volatility as a structural governance mechanism to align employees firm-wide.The research put forward in the article offers several practical implications:CSR, ESG and EBEP are all strong sustainability frameworks that enable firms to reach sustainability targets in the short-, medium-, and long-term. In the article by Pirgaip et al. (2026), the authors investigate how each of these frameworks can reduce firm idiosyncratic volatility and the power of combining multiple of these strategies for a comprehensive sustainability strategy.This review is based on “Corporate social responsibility and idiosyncratic volatility: a dynamic approach with environmental, social and governance considerations” by Burak Pirgaip, Ömer Tuğsal Doruk, Hasan Murat Ertuğrul and Ahmet Yasir Barak, published in the Social Responsibility Journal.
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