The Dark Cloud of Uncertainty: Strategic CSR Responses to Economic Policy Uncertainty

This paper examines how firms adjust Corporate Social Responsibility (CSR) engagement as part of broader processes of strategic change under Economic Policy Uncertainty (EPU), using a large cross‐country panel from 2010 to 2018. We frame this adjustment as a managerial trade‐off between preserving strategic flexibility and maintaining stakeholder relationships in uncertain environments. Drawing on real options theory and strategic growth options theory, we develop competing predictions regarding firms' CSR responses to uncertainty. Our findings show that higher EPU leads to a strategic retrenchment in CSR engagement, supporting the real options perspective. However, this effect is not uniform across firms. It is significantly stronger among financially constrained firms, firms operating in highly competitive environments, and firms exposed to elevated climate risk, highlighting important boundary conditions of strategic change. Robustness tests, including alternative CSR measures and endogeneity checks, confirm the stability of the results. By conceptualizing CSR as a dynamic domain of strategic adjustment rather than a static attribute, this study contributes to the strategic change literature by explaining how firms recalibrate non‐market strategies and long‐term commitments in response to macroeconomic uncertainty.