CSR strategy and sustainability reporting: the moderating role of equity risk premium in the European context

Purpose Over the past few years, the European Union has progressively shifted towards mandatory reporting of non-financial information to enhance transparency and accountability. In this vein, this study aims to explore the extent to which corporate social responsibility (CSR) strategy influences the CSR sustainability reporting, along with the moderating role of the equity risk premium (ERP). Design/methodology/approach Using a sample of 3,910 firm-year observations from European listed companies on the STOXX 600 index, the authors carried out a longitudinal analysis spanning from 2014 to 2023. Findings Drawing on an integrated threefold theoretical framework – comprising legitimacy theory (LT), stakeholder theory (ST) and institutional theory (IT) – the empirical evidence reveals that companies with well-grounded CSR strategies score tend to exhibit higher levels of CSR sustainability reporting. This relationship is particularly heightened in high-risk market environments, where fulfilling the requirements for greater non-financial information reinforces stakeholder trust and organisational legitimacy. Practical implications The findings underscore the need for managers, investors and policymakers to acknowledge the relevance of CSR reporting. Companies should implement comprehensive CSR strategies to address market pressures, thereby attracting investors and building long-term legitimacy. Investors can capitalise on more extensive CSR sustainability reporting to improve their decision-making processes and better appraise sustainability performance. At last, policymakers can design innovative interventions that not only promote regulatory compliance, but also inspire companies to embrace sustainability as a core pillar of their business strategy. This proactive approach can pave the way for long-term corporate legitimacy and accountability, ultimately benefiting society at large. Originality/value The present research offers new insights into how market conditions prompt companies to improve transparency. Rather than perceiving CSR sustainability reporting solely as a compliance obligation, its strategic function is emphasised as a means to tackle the pressures exerted by financial markets.