Robbing Peter to pay Paul: Examining the link between mandatory CSR and ESG performance

Download This Article

This work is licensed under a Creative Commons Attribution 4.0 International License.

Abstract

This study examines how India’s mandatory corporate social responsibility (CSR) expenditure affects firms’ environmental, social, and governance (ESG) performance within a unique dual regulatory setting. Drawing on stakeholder theory, we argue that CSR obligations prioritize indirect community stakeholders, while ESG performance reflects outcomes valued by direct stakeholders such as investors, employees, and customers. Using a panel of 500 non-financial National Stock Exchange of India (NSE)-listed firms from 2015 to 2022, we employ fixed effects regression and two-step system generalized method of moments (GMM) estimation. ESG scores are sourced from Bloomberg, which updates them annually based on firm disclosures and third-party assessments, capturing external perceptions of ESG in the Indian context. CSR expenditure values are obtained from the Centre for Monitoring Indian Economy (CMIE) Prowess Database and cross-verified with the National CSR Portal. Results remain consistent both with and without the inclusion of additional firm-level controls, and are further supported by two-step system GMM diagnostics, including the Hansen test and the second-order serial correlation test. Across all models, we find that higher mandatory CSR expenditure significantly reduces environmental, social, governance, and overall ESG scores. These results highlight the regulatory misalignment between mandatory CSR and voluntary ESG and reveal how resource diversion can weaken firm-level sustainability performance. The findings extend stakeholder theory to emerging economies, challenge assumptions of CSR-ESG complementarity, and offer actionable implications: managers should design CSR initiatives that align more closely with ESG metrics, while policymakers should refine CSR laws to better integrate ESG objectives.

Keywords: ESG Performance, Mandatory CSR, Emerging Economy, Stakeholder Theory, Regulatory Impact, Sustainability Reporting

Authors’ individual contribution: Conceptualization — R.K. and R.P.J.; Methodology — R.K., R.P.J., and R.R.; Software — R.K.; Validation — R.K.; Formal Analysis — R.K., R.P.J., and R.R.; Investigation — R.K.; Data Curation — R.K.; Writing — Original Draft — R.K.; Writing — Review & Editing — R.P.J. and R.R.; Visualization — R.K. and R.P.J.; Supervision — R.P.J. and R.R.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: G38, M14, Q01

Received: 12.09.2025
Revised: 04.11.2025; 19.11.2025
Accepted: 26.11.2025
Published online: 28.11.2025

How to cite this paper: Kumar, R., Joseph, R. P., & Ramachandran, R. (2025). Robbing Peter to pay Paul: Examining the link between mandatory CSR and ESG performance. Corporate Ownership & Control, 22(4), 32–45. https://doi.org/10.22495/cocv22i4art3