Investigating the Interconnection between Environmental, Social, and Governance (ESG), and Corporate Social Responsibility (CSR) Strategies: An Examination of the Influence on Consumer Behavior
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1. Introduction
In the contemporary period, there is a growing consensus on the critical significance of considering several consequential elements while making well-informed business choices. It is becoming apparent that organizations must possess a comprehensive understanding and recognition of the immense importance associated with the integration and management of diverse environmental risks. The observed transition may be attributed to a range of variables, including social and organizational influences, cultural norms and expectations, as well as the aspiration for constructive transformation [1]. The effect on social responsibility may also be attributed to the proactive steps implemented by firms that have acknowledged their significance. Numerous nations have implemented legal frameworks and regulatory measures to institutionalize these endeavors, therefore ensuring that enterprises conduct their operations in a way that aligns with social responsibility principles [2]. The shift in strategy signifies a notable deviation from conventional business methodologies and underscores the increasing acknowledgment of the need for organizations to contemplate their societal influence [3]. For instance, individuals may demonstrate their commitment to philanthropy by actively endorsing and participating in charitable endeavors. They may also advocate for the implementation of equitable social work practices, aiming to ensure fairness and justice.
Additionally, they may prioritize the welfare and well-being of animals. Furthermore, they may cater to the varied dietary preferences and lifestyles of individuals, fostering a sense of unity and inclusivity within communities. Lastly, they may embrace and celebrate the diverse range of cultures and identities that exist among us. The increasing adoption and prioritization of multidimensional issues by firms and investors in their strategies reflect a heightened moral obligation and an expanded sense of ethical awareness [4]. Indeed, there are enterprises that deliberately establish themselves upon and adhere to these fundamental ideas, positioning them as the central tenets of their organizational activities and strategic approaches. The comprehensive and mindful strategy not only caters to and meets the demands of discriminating customers who are becoming more cognizant of these concerns, but it also fosters a deep feeling of satisfaction and accomplishment inside the firm itself, positioning them advantageously in the market [5]. Ultimately, this results in the spontaneous emergence and execution of inventive and progressive approaches that possess qualities of sustainability and social responsibility. Strategies such as Environmental, Social, and Governance (ESG) and Corporate Social Responsibility (CSR) are widely seen in contemporary corporate and commercial environments, playing crucial roles in directing and enhancing the social and environmental initiatives undertaken by firms. These strategies may be used either alone or in combination, depending upon the distinct requirements and goals of the enterprise. Nevertheless, it is crucial to acknowledge that ESG and CSR are not synonymous acronyms. They include separate ideas and theories that play a role in promoting the overall sustainability and ethical behavior of corporations [6]. CSR may be seen as the antecedent of Environmental, Social, and Governance practices, since it has laid the foundation for the adoption of ESG principles in the corporate sphere. CSR is a strategic approach that emphasizes the need of holding corporations responsible for their activities and ensuring that they provide beneficial outcomes for a wide range of stakeholders, such as the environment, customers, workers, communities, and the public domain. The significance of ethical conduct, sustainability, and social responsibility is emphasized. When comparing ESG with CSR, it can be seen that ESG extends the ideas of CSR by offering quantifiable criteria that can be used by investors and customers to assess a company’s charitable, social, and internal governance policies. This endeavor transcends the domain of pure altruism and translates these ideas into tangible figures and metrics. This enables stakeholders to have a more comprehensive comprehension of a company’s performance with regard to its social and environmental impact.
Indonesia has long recognized the importance of sustainability and has been implementing policies for responsible investment, specifically in the finance industry since 2006. However, it was only in 2014 that Indonesia’s Financial Services Authority (OJK) implemented policies to support ESG by creating the Sustainable Finance Roadmap, which consist of two phases of implementation [7]. The first phase, known as Strategic Activities to Implement Sustainable Finance, took place from 2015 to 2019. More recently, in January 2021, Indonesia launched the second phase, which brings together seven components (policy, products, market infrastructure, coordination among related Ministries/Institutions, non-governmental support, human resources, and awareness) into one ecosystem from 2019 until 2024. These policies require listed companies and financial institutions to include ESG disclosure points in their sustainability reports, which are then made available to the public [8]. Additionally, the development of Green Bonds has been introduced to finance or refinance environmentally friendly business activities to protect, restore, and improve environmental quality and function [9].
Similarly, Taiwan’s Securities and Futures Bureau (SFB) and the Financial Supervisory Commission (FSC) have recently introduced the Corporate Governance 3.0: Sustainable Development Roadmap and the same roadmap for the certain listed companies in 2020 [10]. These initiatives have been implemented to enhance ESG reporting and Greenhouse Gas (GHG) emission disclosure. As part of these efforts, the Taiwan Stock Exchange (TWSE) and Taipei Exchange (TPEx) have recently reformed their rules to require ESG reports and the disclosure of ESG performance indicators. Additionally, listed companies are now obligated to issue annual ESG reports based on global reporting guidelines [11].
The phenomenon of heightened awareness first gained traction during the epidemic, but has since transformed into a prevailing norm that is being adopted by a growing number of individuals and organizations [5,12]. There is a growing global focus among citizens and people on the engagement of firms and governments in exhibiting CSR. In light of the rapid occurrence of environmental effects, it is imperative to promptly identify sustainable solutions for a multitude of social, economic, and environmental challenges [2]. According to a survey by Vantage Newsweek, there has been a significant shift in the investment landscape since 2016 with regard to ESG factors. The practice of ESG investing has seen a notable surge in popularity, as shown by the allocation of around 25% of professionally managed assets to ESG strategies by the end of 2016. The anticipated upward trend of this figure may be attributed to the ongoing divestment activities of investors in industries that are deemed contentious, such as tobacco, coal, and armament. As a result, stakeholders now possess elevated expectations about corporations’ ability to exhibit enhanced levels of environmental and social responsibility [13]. In contemporary business contexts, it is imperative for organizations to go beyond just reactionary measures and proactively adapt to the ever-changing attitudes, behaviors, and ambitions of customers. In order to optimize their interactions with stakeholders’ purchase intention and brand attitude, organizations must actively engage in the identification, isolation, and mitigation of various frictions that may impede these relationships.
This study collected extensive data from two Asian countries, specifically Taiwan and Indonesia, to ensure a comprehensive analysis of the research topic. By gathering data from these diverse locations, the study aimed to capture a wide range of perspectives and insights that could contribute to a more nuanced understanding of the subject matter.
Taking into consideration the aforementioned point, scholarly studies constantly indicate that individuals who engage in consumer behavior (CB) are progressively becoming more aware of the ethical ramifications associated with their buying and financial choices, particularly in regard to sustainability. Corporations are increasingly acknowledging the significance of integrating ESG principles and CSR practices into their organizational activities. Not only does this have implications from an ethical perspective, but it also has the potential to bolster their organizational image, attract clientele, and increase financial outcomes [14]. In the present period of transition towards sustainability and environmental accountability, it is crucial to comprehend the influence of customer behavior on brand attitude and purchase intention. This study endeavors to examine and evaluate the correlation between ESG factors, CSR practices, and customer behavior. The study also aims to acquire a more comprehensive understanding of the intersection of ESG and CSR initiatives, as well as their potential to augment marketing effectiveness via an examination of customer behavior. The objective of this research is to provide a valuable contribution to the current body of information pertaining to ESG and CSR initiatives. The aforementioned analysis offers valuable insights that may be used to enhance corporate decision-making and facilitate the formulation of policies in this particular domain. The objective of this study is to establish a connection between ESG factors and CSR, and to ascertain their influence on customer behavior. Additionally, its objective is to address the deficiency in underexplored methods related to ESG practices and CSR, as well as their influence on customer brand perception and intention to make purchases.
The current study is structured into many chapters, each fulfilling a distinct objective in order to facilitate a thorough and coherent exposition of the findings. Section 1 functions as an introductory section, establishing the framework for the study via the provision of pertinent background information and contextual details essential for comprehending the research subject. In the next chapter (Section 2), an examination will be conducted on the variables included in this study, drawing upon relevant findings from prior research. Section 3 is dedicated to the examination and exploration of the technique used in this study, as well as the subsequent analysis of the collected data. This chapter provides an overview of the study methodology and methodologies used to examine the association between the variables, along with a description of the data gathering procedure and the analytic techniques performed. In the next chapter (Section 4), the study’s results will be presented, shedding light on the influence of ESG factors and CSR initiatives on customer behavior. Section 5 provides a thorough and complete analysis and synthesis of the research findings, leading to a detailed discussion and conclusion. This section presents a concise overview of the main discoveries made in this study, restates the constraints and difficulties encountered throughout the research, and offers suggestions for future investigations in this field.
5. Discussion and Conclusions
5.1. Summary of the Research Result
The next section will be separated into two segments, analysing the aggregated data from Taiwan and Indonesia as a comprehensive depiction of a certain region in Asia, and examining the data independently for each nation. The project intends to address the current vacuum in knowledge on untapped ESG and CSR measures, and their specific influence on customer behaviour. Furthermore, this research aims to acquire a more comprehensive and nuanced comprehension of the intersection of ESG and CSR strategies, as well as their potential synergistic impact on marketing success, by a thorough examination of customer behaviour. The study results indicate that the influence of ESG initiatives on a company’s CSR is not uniform across all initiatives. This means that, according to the result obtained from the perceptions of the respondents, from the three pillars of ESG, only a part of the pillars has significant influence on the perception of a company’s CSR. The impact of environmental practices within the ESG framework on a company’s CSR is shown to be low [22]. One plausible explanation for this result is that firms may not publicly disclose their environmental activities. corporations may choose to do so as a result of worries associated with “greenwashing”, a phenomenon that has prompted several corporations to refrain from publicly disclosing their environmental endeavours [43].
Additionally, the influence of social and governance indicators on a company’s CSR is considerable. Moreover, it is worth noting that both ESG policies and CSR initiatives have a significant impact on customer behaviour in a favourable manner. This implies that customers have a greater propensity to react favourably and make purchases from firms that adopt ESG and CSR policies.
The study conducted in Taiwan indicates that there is no substantial impact of the governance factor on CSR. The observed outcome may be ascribed to the preponderance of family-owned enterprises in Taiwan, whereby decision-making authority is concentrated within the familial sphere, leading to restricted power for shareholders and delayed availability of corporate information. The aforementioned scenario underscores a significant deficiency in the corporate governance of Taiwanese companies, suggesting that the significance of governance procedures in the context of corporate social responsibility is not well recognized [44]. However, it is important to note that the research also emphasizes the substantial influence of a company’s engagement with stakeholders and its dedication to environmental attributes on its CSR. This, in turn, has a favourable effect on consumers’ brand attitude and desire to make a purchase.
The study results derived from Indonesia provide a fascinating insight into the interplay between ESG factors, CSR, and CB. The research findings indicate that the incorporation of ESG elements in a company’s operations has a favourable effect on its CSR efforts. However, it is observed that the influence of social and governance practices on CB is somewhat constrained. This suggests that Indonesian customers do not develop a distinct brand attitude or desire to make a purchase when firms communicate or promote their social and governance initiatives. Nevertheless, the research reveals a noteworthy revelation: the adoption of environmental practices has a substantial and favourable influence on the brand perception and purchase intention of Indonesian customers [45]. This finding is consistent with research published by Mandiri Bank, which emphasises that a significant proportion of individuals in Indonesia continue to possess an incomplete comprehension of the ESG framework. Another study also found that the demand for affordable products is prioritised over concerns about the environmental practices of corporations in developing countries such as Indonesia [46]. This helps explain their reluctance or indifference towards companies that adopt ESG and CSR strategies. The findings underscored the significance of environmental activities in influencing consumer behaviour, since it is the only dimension that Indonesian consumers are acquainted with and thus see as the most pivotal aspect [47].
5.2. Theoretical Impliction
The study’s theoretical implications contribute to the current body of knowledge on ESG and CSR policies. This study offers valuable insights that may be used to enhance corporate decision-making and policy development within this domain. This research aims to establish a connection between ESG factors and CSR, thus contributing to a deeper comprehension of their influence on customer behaviour. This theoretical contribution emphasizes the significance of integrating ESG practices and CSR into company strategy in order to address the changing expectations and needs of customers and improve marketing performance as a whole.
5.3. Managerial Implication
The study suggests a significant management conclusion, namely that organizations should prioritize good communication of their environmental policies in order to cultivate trust and bolster their reputation to the public. While listed companies are already required to comply with ESG requirements and reports, it would be beneficial to encourage non-listed companies to also recognise the importance of ESG and educate the public on how to interpret it. Leaving the responsibilities of ESG to only the listed companies creates boundaries that overtime can belittle the importance to achieve sustainable goals. Policymakers can also support this by engaging in sufficient dialogue and taking initiatives to spread these concepts, ensuring that the public becomes increasingly familiar with them. They should also consider expanding the list of mandatory companies required to adopt ESG requirements. Policymakers should also implement policies to ensure that corporations that adopts ESG and CSR strategies does not exploit opportunities to greenwash.
Additionally, placing emphasis on and effectively communicating social and governance practices may be in line with customer expectations and have a favourable impact on consumer behaviour. By implementing a holistic approach to ESG and CSR policies, organizations have the potential to enhance their business performance, attain a competitive edge, and cultivate enduring sustainability and profitability. The study suggests a significant management conclusion, namely that organizations should prioritize good communication of their environmental policies in order to cultivate trust and bolster their reputation. Additionally, placing emphasis on and effectively communicating social and governance practices may be in line with customer expectations and have a favourable impact on consumer behaviour. By implementing a holistic approach to ESG and CSR policies, organizations have the potential to enhance their business performance, attain a competitive edge, and cultivate enduring sustainability and profitability.
The importance of this discovery is in its ramifications for the broader framework of CSR and environmental, social, and governance measures in Taiwan. The implication arises that the conventional governance structures and practices seen in family-owned enterprises can impede the efficient execution and assimilation of CSR endeavours. There exists a need to undergo a paradigm change in both attitude and strategy concerning corporate governance, particularly in the context of ESG-CSR initiatives. It is essential for Taiwanese firms to acknowledge the significance of implementing strong governance practices that foster transparency, accountability, and stakeholder engagement. By doing so, they can effectively increase their ESG initiatives and CSR endeavours, while also aligning with the expectations of diverse stakeholders and the broader community.
The results of this study have important implications for businesses operating in Indonesia, as they indicate that prioritizing environmental policies may have a major impact on customer attitudes towards brands and their desire to make purchases. Companies may boost their image and appeal to Indonesian customers by prioritizing and successfully promoting their environmental activities. Furthermore, the aforementioned results underscore the need for enhanced education and knowledge about the whole Environmental, Social, and Governance framework among consumers in Indonesia. This is crucial as it has the capability to influence their long-term attitudes and preferences.
5.4. Limitations and Future Research Suggestion
One potential constraint of this study is the dependence on self-reported data provided by the participants. Although self-reporting might provide helpful insights, it is crucial to recognize the possible presence of response bias. This implies that individuals may inadvertently provide erroneous or socially desirable replies, thus compromising the validity of the results. Moreover, it is noteworthy to mention that the research primarily concentrated on two nations, namely Taiwan and Indonesia. Although these nations provide useful insights, it is essential to acknowledge the possible constraints in extrapolating the results to other cultural or geographical settings. Given the limited availability of studies that explicitly differentiate between ESG and CSR, the authors have taken a meticulous approach in selecting research to safeguard the integrity of their study. Consequently, it is plausible that certain aspects may have eluded the analysis. However, despite these challenges, the findings of this research remain significant as they contribute valuable insights to the existing body of knowledge in this field.
Throughout the course of this research, it has become evident that Indonesians exhibit a limited level of familiarity with the intricate concepts of social and governance within the ESG framework [47]. Consequently, it is important to acknowledge that the findings of this study may be influenced by their lack of awareness and understanding of the broader ESG concept.
Additionally, it is worth noting that the practice of ESG reporting in Taiwan is relatively new, as it only became mandatory for companies to disclose ESG reports in 2020. This means that there is less than 5 years of data available to study the ESG patterns in Taiwan. Although ESG is not a new concept to Indonesia, this research is subject to certain limitations due to the scarcity of relevant studies conducted in Indonesia, particularly surrounding on the variables of this research (ESG, CSR, and consumer behaviour). However, despite these limitations, the findings of this study provide valuable insights into the topic and contribute to the existing body of knowledge.
In order to overcome these constraints and bolster the reliability of the investigation, next research endeavours may consider investigating other methodologies, such as using objective metrics for data collection. This approach would provide a more impartial and dependable evaluation of the factors being examined. Overtime, researchers can gain deeper insights as they have access to a larger pool of materials to analyse. In addition, broadening the study’s scope to include a wider array of nations will enhance the external validity of the results, facilitating a more thorough comprehension of the subject matter.
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