The Strength Within: CSR Governance as an Environmental Performance Driver in Weak Institutional Contexts

Abstract

This study investigates how the relationship between firm-level corporate social responsibility (CSR) governance and corporate environmental performance (CEP) varies across diverse national contexts. Drawing on institutional theory, organizational adaptation theory, and the concept of institutional voids, we analyze an extensive dataset of 5326 firms from 26 OECD countries over a seven-year period (2013–2019). Employing panel data analysis, we examine the moderating effects of country-level factors on the CSR governance–CEP relationship. Our findings reveal a significant positive association between a firm’s CSR governance quality and environmental performance, which is notably stronger in countries characterized by weaker environmental governance, less prominent societal environmental values, and fewer climate mitigation laws and policies. These results suggest that firms with strong CSR governance effectively fill institutional voids in environmental governance, going beyond mere compliance to drive environmental performance improvements where external pressures are weak. Our study contributes to the literature by advancing the current understanding of the contextual nature of CSR, extending the application of institutional void theory to environmental governance landscapes in developed economies, and providing a more nuanced perspective on when and where CSR governance matters most for environmental outcomes. These insights offer valuable implications for managers in diverse institutional contexts and for policymakers seeking to enhance corporate environmental performance through complementary governance mechanisms.

1. Introduction

In recent decades, the business world has witnessed a dramatic shift in the expectations placed on corporations regarding their environmental responsibilities. As global environmental challenges intensify, firms face mounting pressure to minimize their ecological footprint and contribute positively to environmental sustainability [1,2,3]. This evolving landscape has propelled corporate environmental performance (CEP) to the forefront of both managerial priorities and academic inquiries [4,5].

A substantial body of literature examining the antecedents and consequences of corporate environmental performance has emerged [6,7,8,9,10]. Scholars have investigated the roles of various factors, including top management team composition [11], organizational practices [12,13,14], stakeholder pressures [12,13,14,15], and institutional environments [12,13,16,17,18] in shaping firms’ environmental strategies and outcomes. This research has significantly advanced our understanding of why and how firms engage in environmental management practices and the outcomes of these efforts.

Within this broader literature, increasing attention has been paid to the role of corporate governance in driving environmental performance [19,20,21,22,23]. Studies have explored how various aspects of corporate governance, such as board composition [24] and executive compensation [25], influence firms’ environmental strategies and outcomes. This line of inquiry has highlighted the importance of internal governance mechanisms in translating environmental commitments into tangible performance improvements.

More recently, scholars have begun to examine the specific role of corporate social responsibility (CSR) governance in shaping environmental performance. CSR governance encompasses the structures, processes, and mechanisms that firms put in place to manage their social and environmental responsibilities [19,20]. This includes board-level CSR committees, executive roles dedicated to sustainability, integrated reporting practices, and environmental management systems, among others [19,20]. Research has suggested that strong CSR governance can enhance a firm’s ability to identify environmental risks and opportunities, integrate environmental considerations into strategic decision making, and effectively implement environmental initiatives [19,20,22].

However, despite these advances, our understanding of how CSR governance influences corporate environmental performance remains incomplete in several important respects. While existing research has established a generally positive relationship between CSR governance and environmental performance [19], less attention has been paid to the boundary conditions of this relationship. Given the increasingly global nature of business operations, understanding how the effectiveness of CSR governance in driving environmental performance may vary across different national contexts is crucial.

The literature on institutional theory and CSR has highlighted the importance of considering the institutional environment in which firms operate [13,16,17,18]. Recent studies have further emphasized the need to examine CSR across varying institutional contexts [10,16,17,19,22]. For instance, Fabrizi et al. (2023) explore how national culture influences the relationship between CSR and firm performance [16], while Hawn and Ioannou (2023) demonstrate how institutional differences across countries affect the impact of sustainability practices on firm value [13]. Additionally, Li et al. (2022) highlight the role of national institutions in moderating the relationship between CSR and firm performance [17]. Yet, there is still limited empirical evidence on how specific aspects of the national institutional context moderate the relationship between internal governance mechanisms and environmental performance. This gap is particularly noteworthy given the significant variations in environmental governance, societal values, and regulatory landscapes across countries.

Meanwhile, the concept of institutional voids has gained traction in international business research [26,27,28], although its application to environmental governance and corporate environmental performance remains underexplored. There is a need to understand how firms adapt their internal governance mechanisms to address institutional voids in environmental governance and how this adaptation process influences environmental outcomes.

Our study addresses these gaps and extends beyond existing research in several ways. While recent studies, such as that of Kaufmann and Lafarre have examined the relationship between national governance and corporate social performance in OECD countries [19], and Hamad and Cek have explored the moderating effects of CSR on financial performance, our research uniquely focuses on how country-level factors moderate the relationship between firm-level CSR governance and environmental performance [10]. By examining the interplay between internal governance mechanisms and external institutional factors, we provide a more nuanced understanding of when and where CSR governance matters most for environmental outcomes in developed economies.

We draw on organizational adaptation theory [29,30,31] and the concept of institutional voids [26,27,28] to develop our theoretical framework. Organizational adaptation theory posits that firms must align their internal structures and processes with the demands of their external environment to survive and thrive [29,30,31]. In the context of our study, this theory suggests that firms may need to calibrate their CSR governance structures in response to varying levels of external environmental pressures and institutional support. The concept of institutional voids complements this perspective by highlighting the challenges and opportunities that arise when market-supporting institutions are absent or weak [26,27,28]. We extend this concept to the domain of environmental governance, arguing that voids in national environmental institutions may create space for firms to play a more prominent role in environmental stewardship through their internal governance mechanisms.

Our study analyzes data from 5326 firms across 26 OECD countries over the period 2013–2019, employing panel data analysis with fixed effects to examine how country-level factors moderate the relationship between CSR governance quality and corporate environmental performance.

The remainder of this paper is structured as follows: In the next section, we present our theoretical background, drawing on institutional theory, organizational adaptation theory, and institutional void theory to develop our hypotheses. We then describe our methodology, including the data sources, variable measurements, and analytical approach. Following this, we present our results, including descriptive statistics and hypothesis tests. Finally, we discuss the implications of our findings for theory and practice, acknowledge the limitations of our study, and suggest avenues for future research.

2. Theoretical Background and Hypotheses

2.1. Institutional Theory and Organizational Adaptation

This study draws on both institutional theory and organizational adaptation theory to examine how firms respond to diverse environmental pressures and institutional contexts. Institutional theory, particularly in its neo-institutional form, posits that organizations are influenced by their institutional environments, leading to the adoption of similar practices within organizational fields [32,33,34]. This theory helps explain why firms from different countries may adopt distinct management practices and organizational choices.

In the context of corporate environmental performance, institutional theory suggests that firms’ environmental strategies and governance structures are shaped by regulatory, normative, and cognitive institutions in their operating environments [32,33]. As environmental challenges become increasingly complex and globally interconnected, firms face varying levels of regulatory stringency, stakeholder expectations, and societal norms across different national contexts [35,36,37,38,39,40].

Organizational adaptation theory complements this perspective by emphasizing the dynamic nature of organizational–environmental relationships. It suggests that firms continuously adjust their strategies, structures, and practices in response to changing environmental conditions [29,30,31]. This adaptive process is particularly relevant in the context of environmental performance, where firms must navigate diverse and evolving institutional landscapes.

One key mechanism through which firms adapt to their environmental context is the development and implementation of CSR governance structures [19,20,21,22]. CSR governance encompasses the formal and informal mechanisms, processes, and structures that firms use to integrate social and environmental considerations into their decision making and operations [19,20,22]. These governance mechanisms can include board-level CSR committees, executive compensation tied to sustainability metrics, and integrated reporting practices, among others [21,25,37,38].

From an integrated institutional and organizational adaptation perspective, CSR governance can be viewed as both a response to institutional pressures and a strategic adaptation to external environmental expectations. By developing robust CSR governance structures, firms not only signal their conformity to institutional norms but also create internal mechanisms to translate environmental commitments into action [34,35,37,38]. However, the effectiveness of these governance mechanisms in driving environmental performance may vary depending on the specific institutional context in which the firm operates.

This integrated theoretical approach allows us to examine how firms calibrate their CSR governance structures in response to varying institutional environments, and how these adaptations influence environmental performance across different national contexts.

2.2. Institutional Voids and CSR Governance

The concept of institutional voids, introduced by Khanna and Palepu (1997) refers to the absence or underdevelopment of market-supporting institutions in emerging economies [26,27,28]. These voids create challenges for businesses by limiting the regulatory structures, intermediaries, and information infrastructures necessary for efficient market transactions. Institutional voids can manifest in various forms, such as weak regulatory enforcement, underdeveloped capital markets, or the insufficient protection of property rights, among other deficiencies [26,27,28].

While the original conceptualization focused primarily on market institutions, subsequent research has expanded the notion of institutional voids to encompass a broader range of formal and informal institutions, including those related to environmental governance [40,41,42]. Furthermore, while the concept of institutional voids has traditionally been applied to emerging economies, recent scholarship suggests its relevance to developed countries as well [35,40,41]. In the context of OECD countries, we extend this concept to encompass relative weaknesses in environmental governance, even within generally strong institutional environments. This novel application allows us to explore how firms respond to varying degrees of institutional support for environmental initiatives across developed economies.

To better understand the drivers of corporate environmental performance, we can conceptualize institutional voids as gaps in a country’s environmental governance landscape. These voids may manifest as weak environmental regulations, limited enforcement capacity, or a lack of societal support for environmental protection [40,41,42]. The presence of such voids creates both challenges and opportunities for firms seeking to manage their environmental impact.

On one hand, institutional voids in environmental governance may reduce external pressures on firms to improve their environmental performance, potentially leading to a “race to the bottom” in environmental standards [43]. On the other hand, these voids create opportunities for proactive firms to differentiate themselves and gain competitive advantages by voluntarily adopting higher environmental standards [39,40].

The interaction between CSR governance quality and institutional voids in environmental governance is particularly relevant for understanding variations in corporate environmental performance across different national contexts. In countries with strong environmental institutions, firms may face significant external pressures to improve their environmental performance, potentially reducing the marginal impact of internal CSR governance mechanisms. Conversely, in contexts characterized by institutional voids, the quality of a firm’s CSR governance may play a more crucial role in driving environmental performance, as it compensates for the lack of external institutional pressures.

This interlinkage between internal governance mechanisms and external institutional contexts aligns with the core tenets of organizational adaptation theory [26,27,28,39]. Firms must calibrate their CSR governance structures to effectively respond to the specific institutional landscape in which they operate, balancing the need for global consistency with local responsiveness.

In what follows, we build on the theoretical foundations of organizational adaptation theory and the concept of institutional voids to develop three hypotheses that explore how the relationship between CSR governance quality and corporate environmental performance is moderated by country-level factors.

2.3. CSR Governance Quality and Sustainable Environmental Governance

Our first hypothesis focuses on the moderating role of country-level sustainable environmental governance on the relationship between CSR governance quality and corporate environmental performance. Sustainable environmental governance refers to the effectiveness of a country’s environmental policies, regulations, and institutions in protecting and preserving natural resources and environmental quality [43].

In countries with high levels of sustainable environmental governance, firms face strong external pressures to improve their environmental performance. These pressures may come in the form of stringent regulations, robust enforcement mechanisms, and well-developed stakeholder expectations regarding corporate environmental responsibility [12,18,36]. In such contexts, firms are likely to adopt environmental practices and achieve a certain level of environmental performance regardless of the quality of their internal CSR governance structures, as compliance with external requirements becomes a necessity for legitimacy and continued operations [12,32,33,34,38].

Conversely, in countries with lower levels of sustainable environmental governance, firms face fewer external pressures to improve their environmental performance. This creates an institutional void in environmental governance, where the lack of strong regulatory frameworks and enforcement mechanisms may lead to a potential “race to the bottom” in environmental standards [43]. In such contexts, the quality of a firm’s internal CSR governance becomes increasingly important in driving environmental performance.

High-quality CSR governance structures can serve as internal substitutes for weak external institutions, providing the necessary mechanisms for setting ambitious environmental goals, monitoring performance, and ensuring accountability. Firms with strong CSR governance may voluntarily adopt higher environmental standards and implement more rigorous environmental management practices, even in the absence of strong external pressures. This proactive approach allows firms to differentiate themselves from competitors, mitigate potential reputational risks, and prepare for future regulatory changes.

Furthermore, in contexts of weak environmental governance, firms with high-quality CSR governance may be better equipped to manage the complexities of operating in institutional voids. These firms can leverage their internal governance structures to develop adaptive capabilities, identify opportunities for environmental leadership, and effectively manage stakeholder expectations in the absence of clear external guidelines. Based on these arguments, we propose the following hypothesis:

Hypothesis 1.

The relationship between CSR governance quality and corporate environmental performance (CEP) will be moderated by country-level sustainable environmental governance, such that CSR governance quality will have a stronger positive impact on the CEP in countries with lower levels of sustainable environmental governance.

2.4. CSR Governance Quality and Societal Environmental Values

Our second hypothesis examines the moderating role of country-level environmental values on the relationship between CSR governance quality and corporate environmental performance. Societal environmental values reflect the extent to which a country’s population prioritizes environmental protection over economic growth and development.

In countries where environmental values are strongly held, firms face significant normative pressures to demonstrate their commitment to environmental responsibility [17,22,33]. These pressures emerge from various stakeholder groups, including consumers, employees, investors, and civil society organizations, who expect companies to maintain high environmental standards regardless of regulatory requirements [6,12,13,15,16,17]. In such contexts, firms are likely to engage in environmental initiatives and achieve a certain level of environmental performance to maintain legitimacy and social license to operate, irrespective of the quality of their internal CSR governance structures.

Moreover, in societies with strong environmental values, external stakeholders are more likely to actively monitor and scrutinize corporate environmental behavior. This increased scrutiny creates additional pressures for firms to improve their environmental performance, potentially reducing the marginal impact of internal CSR governance mechanisms on environmental outcomes.

Conversely, in countries where environmental values are less prominent and economic progress is prioritized over environmental concerns, firms face weaker normative pressures to improve their environmental performance. This situation creates an institutional void in terms of societal support for corporate environmental responsibility [41,42]. In such contexts, the quality of a firm’s internal CSR governance becomes increasingly important in driving environmental performance.

High-quality CSR governance structures can serve as internal drivers of environmental responsibility in the absence of strong societal expectations. Firms with robust CSR governance may proactively set ambitious environmental goals, implement comprehensive environmental management systems, and foster a culture of environmental stewardship throughout the organization. These internal mechanisms can compensate for the lack of external normative pressures and ensure that environmental considerations are integrated into strategic decision-making processes.

Furthermore, in contexts where environmental values are less prominent, firms with high-quality CSR governance may be better positioned to identify and capitalize on opportunities related to environmental leadership. By voluntarily adopting higher environmental standards, these firms can differentiate themselves from competitors, attract environmentally conscious stakeholders from global markets, and prepare for potential shifts in societal values and expectations. Based on these arguments, we propose Hypothesis 2:

Hypothesis 2.

The relationship between CSR governance quality and corporate environmental performance (CEP) will be moderated by country-level environmental values, such that CSR governance quality will have a stronger positive impact on the CEP in countries where people value environmental sustainability less compared to economic progress.

2.5. CSR Governance Quality and Climate Mitigation Laws and Policies

Our third hypothesis focuses on the moderating role of country-level climate mitigation laws and policies on the relationship between CSR governance quality and corporate environmental performance. Climate mitigation laws and policies encompass the legislative and regulatory frameworks designed to reduce greenhouse gas emissions and address climate change at the national level [40,43,44,45].

In countries with a high number of climate mitigation laws and policies, firms operate within a complex regulatory landscape that imposes specific requirements and standards for environmental performance, particularly concerning greenhouse gas emissions and energy efficiency [43,44,45]. These regulatory frameworks create strong coercive pressures for firms to improve their environmental performance, often mandating specific actions, reporting requirements, and compliance standards [33,41,42,43,44].

In such contexts, firms are likely to achieve a certain level of environmental performance to comply with legal requirements, regardless of the quality of their internal CSR governance structures. The presence of comprehensive climate mitigation laws and policies reduces the discretionary nature of corporate environmental initiatives, as firms must meet minimum standards to maintain legal compliance and avoid penalties [32,33,34,35]. Consequently, the marginal impact of internal CSR governance mechanisms on environmental performance may be diminished in these highly regulated environments.

Conversely, in countries with fewer climate mitigation laws and policies, firms face a regulatory void in terms of specific requirements for addressing climate change and reducing greenhouse gas emissions. This regulatory void creates both challenges and opportunities for firms seeking to manage their environmental impact, particularly concerning climate-related issues.

In such contexts, the quality of a firm’s internal CSR governance becomes increasingly important in driving environmental performance, especially in areas related to climate change mitigation. High-quality CSR governance structures can serve as internal substitutes for weak or absent climate regulations, providing the necessary mechanisms for setting greenhouse gas reduction targets, implementing energy efficiency measures, and monitoring climate-related performance.

Firms with strong corporate social responsibility (CSR) governance structures may choose to adopt more ambitious climate mitigation strategies and implement comprehensive greenhouse gas management practices, even when specific regulatory requirements are absent. This proactive approach offers several benefits. First, by preparing for anticipated climate regulations, firms can reduce potential future regulatory risks. This forward-thinking strategy aligns with the findings of Engau and Hoffmann [46] and Busch and Hoffmann [45], who emphasize the importance of proactive environmental management in mitigating regulatory uncertainties.

Second, firms that take proactive steps on climate change can enhance their reputation and legitimacy among global stakeholders [5,34,39]. This is particularly important as stakeholders increasingly expect corporations to take action on climate change [12,13,14,15,47]. Third, by developing innovative low-carbon technologies and practices, firms can gain competitive advantages in a future where carbon emissions are constrained. This aligns with the strategic perspectives of Porter and van der Linde [4] and Kolk and Pinkse [48], who argue that proactive environmental strategies can lead to sustainable competitive advantages. Based on these arguments, we propose the following hypothesis:

Hypothesis 3.

The relationship between CSR governance quality and corporate environmental performance (CEP) will be moderated by country-level sustainable environmental governance, such that CSR governance quality will have a stronger positive impact on the CEP in countries with a lower number of climate mitigations laws and policies.

3. Methods

3.1. Data and Sample

We constructed a comprehensive database to track corporate environmental performances among firms worldwide between 2013 and 2019. Our data source was the ESG database by Thomson Reuters Refinitiv (formerly ASSET4), which provides detailed coverage of the ESG activities of companies globally [49,50,51,52,53,54]. Refinitiv’s extensive database includes firms listed in major indices around the world, making it an ideal source for researchers studying ESG activities in a global context [49,50,51,52,53,54].

Our sample includes all firms listed in major indices of the 26 OECD countries covered by Refinitiv’s ESG database during the study period. This approach ensures a comprehensive representation of large, publicly traded companies across these developed economies.

For our analysis, we constructed a comprehensive database tracking corporate environmental performance among firms worldwide between 2013 and 2019. This timeframe was selected to capture a period of significant evolution in global environmental governance following the 2015 Paris Agreement. While more recent data would be desirable, consistent and comprehensive ESG data across our variables of interest were not available beyond 2019 at the time of our analysis.

Our sample includes 5326 unique firms across 26 OECD countries (see

Table 1. Sample (country breakdown).

Headquarters Country	Number of Firms	Firm-Year Observations	Percent	Cum.
Australia	274	1591	6.37	6.37
Canada	358	1780	7.12	13.49
Chile	31	170	0.68	14.17
Czech Republic	1	7	0.03	14.2
Finland	35	177	0.71	14.91
France	128	615	2.46	17.37
Germany	148	635	2.54	19.91
Greece	20	88	0.35	20.26
Hungary	4	22	0.09	20.35
Israel	14	62	0.25	20.6
Italy	69	254	1.02	21.62
Japan	384	2471	9.89	31.51
Korea (South)	127	700	2.8	34.31
Mexico	39	218	0.87	35.18
Netherlands	47	215	0.86	36.04
New Zealand	43	208	0.83	36.88
Norway	43	159	0.64	37.51
Poland	29	143	0.57	38.08
Portugal	13	59	0.24	38.32
Slovenia	1	3	0.01	38.33
Spain	60	284	1.14	39.47
Sweden	130	444	1.78	41.25
Switzerland	114	478	1.91	43.16
Turkey	46	179	0.72	43.88
United Kingdom	310	1600	6.4	50.28
United States of America	2858	12,422	49.72	100
Total	5326	24,984	100	100

), including Luxembourg, Ireland, Switzerland, Norway, the United States, Iceland, Denmark, the Netherlands, Austria, Germany, Sweden, Australia, Belgium, Finland, Canada, France, Japan, the United Kingdom, South Korea, Italy, New Zealand, Israel, Spain, Slovenia, the Czech Republic, and Portugal.

3.2. Dependent Variable and Model Specification

Corporate environmental performance (CEP) is a dependent variable in this study, reflecting a company’s environmental impact and sustainability efforts [53,54]. It is operationalized as a composite measure encompassing three key dimensions. The first dimension, emissions, captures the level of greenhouse gas emissions (GHGs) and other pollutants released by the company, being quantified using metrics such as the total CO₂ and CO₂ equivalent emissions in million tons. The second dimension, resources, assesses the company’s efficiency in resource utilization, including energy consumption, water usage, and waste production, which are measured using indicators such as the total direct and indirect energy consumption in gigajoules, the total water withdrawal in million cubic meters, and the total amount of waste produced in thousand tons. The third dimension, innovation, evaluates the company’s commitment to environmental innovation, including the development and implementation of green technologies and practices, being quantified through metrics such as the number of green innovation patents and utility model patents obtained by the firm. The composite measure of CEP is calculated by averaging the standardized indicators associated with each dimension, ensuring that each dimension contributes equally to the overall score. This approach aligns with previous research that emphasizes the multidimensionality of environmental performance and the need for comprehensive measurement [53,54].

To analyze the relationship between CSR governance quality and CEP while accounting for the panel structure of our data, we employ a firm fixed-effects regression model. This methodological choice is crucial for our study for several reasons. First, the fixed-effects approach allows us to control for time-invariant unobserved firm characteristics that might influence environmental performance. This is particularly important in our study, as firms may have enduring cultural or structural features that affect their environmental practices but are difficult to measure directly.

Second, by using fixed effects, we can focus on how changes in CSR governance quality within a firm over time relate to changes in its environmental performance. This approach helps isolate the effect of CSR governance from other firm-specific factors. Finally, fixed-effects models can help mitigate certain forms of endogeneity that arise from omitted variable bias, particularly when the omitted variables are constant over time.

The choice of the fixed-effects model was further supported by conducting a Hausman test, which indicated that the fixed-effects model was more appropriate than random effects for our data. This statistical justification, combined with the theoretical considerations mentioned above, provides a robust foundation for our analytical approach. By employing this model, we can more confidently examine how the relationship between CSR governance quality and environmental performance is moderated by country-level factors while controlling for firm-specific characteristics that remain stable over time.

3.3. Independent Variables

Corporate social responsibility (CSR) governance quality is our independent variable in this study, reflecting a company’s practices to integrate economic, social, and environmental dimensions into its day-to-day decision-making processes [19,20]. This variable is operationalized to assess the extent to which a company communicates its commitment to CSR principles and incorporates them into its governance structure [53].

CSR governance quality, our key independent variable, was measured using a comprehensive index derived from Refinitiv’s ESG database. This index incorporates multiple factors, including the presence of a CSR committee, CSR reporting practices, and the integration of CSR into corporate strategy [53]. The index uses a rank-based approach, scoring firms from 0 to 100, with higher scores indicating stronger CSR governance structures.

3.4. Moderating Variables

We have three moderating variables that allow us to test our hypotheses. First, sustainable governance in environment (SGE) is a composite measure that assesses a country’s environmental governance by combining two critical components: Environmental Policy and Global Environmental Policy [55]. Environmental Policy evaluates the effectiveness of a country’s Environmental Policy in protecting and preserving the sustainability of natural resources and environmental quality. This component is measured on a scale from 10 (best) to 1 (lowest), tied to four qualitative evaluation levels that reflect the ambition and effectiveness of Environmental Policy goals and their implementation across relevant policy sectors [55]. Global Environmental Policy assesses the extent to which the government actively contributes to the design and advancement of global environmental protection regimes. This component is also measured on a scale from 10 (best) to 1 (lowest), tied to four qualitative evaluation levels that reflect the government’s commitment to existing regimes, its contribution to their advancement, and the introduction of appropriate reforms [55].

The SGE composite measure is calculated by combining the scores from these two components, providing a comprehensive assessment of a country’s sustainable governance in environmental matters. This integrated approach ensures that both domestic and international aspects of environmental governance are considered, offering a nuanced understanding of a country’s overall environmental stewardship [55].

Second, people value environmental sustainability (VES) is our second moderating variable in this study, reflecting the attitudes, values, and beliefs of a country’s constituents regarding environmental protection [56]. This variable is operationalized using data from the World Values Survey (WVS) database, which compiles waves of surveys administered to more than 100,000 representative respondents across more than 80 countries [56]. The VES variable is calculated as the ratio of respondents in a country who prioritize environmental protection over economic growth. This measure captures the extent to which environmental sustainability is valued by the population of a country. Given that the WVS collects data in different time periods, missing values are treated with those available in the closest year to ensure a comprehensive and consistent dataset.

Third, climate mitigation laws or policies (CMLP) is our third moderating variable in this study. Climate mitigation laws or policies (CMLP) are legislative or executive dispositions aimed at reducing a country’s greenhouse gas emissions across various sectors [57,58]. This variable is operationalized as the number of laws (legislative acts) or policies (executive provisions) related to climate change mitigation adopted per year [57]. The CMLP variable includes measures that are directly related to emissions reductions, such as laws establishing a national carbon budget or cap-and-trade system, as well as measures that are indirectly related, such as laws or policies establishing relevant institutions or providing additional funding for research and development into low-carbon technologies [57]. Additionally, laws and policies addressing forests and land use are included if they explicitly support climate change mitigation through activities that reduce emissions and increase carbon removals [57]. General forest management and conservation laws are not included in this measure, even if they may have implicit consequences for climate change mitigation [57]. The data for this variable is sourced from the Climate Change Laws of the World database, which is a comprehensive collection of national-level climate change legislation and policies from around the world [57].

3.5. Control Variables

We included other firm-level and country-level variables that may influence firms’ baseline CEP (see

Table 2. List of variables and description.

Variable Name	Variable Description	Source
Corporate environmental performance (CEP)	A company’s environmental impact and sustainability efforts, measured across three key dimensions: emissions, resource efficiency, and innovation; these dimensions are combined into a composite score to provide a comprehensive evaluation of a company’s environmental performance.	Refinitiv Eikon
CSR governance quality	A company’s practices to communicate that it integrates economic, social, and environmental dimensions into its day-to-day decision-making processes (t − 1).	Refinitiv Eikon
Sustainable governance in environment (SGE)	A composite measure evaluating a country’s environmental governance based on two components: Environmental Policy, which assesses the effectiveness of national environmental policies in preserving natural resources, and Global Environmental Policy, which measures the government’s contribution to global environmental protection efforts; both components are scored on a scale from 1 to 10, and their combined scores provide an overall assessment of a country’s environmental governance (t − 1).	SGI *
Climate mitigation laws or policies (CMLP)	The number of legislative or executive measures aimed at reducing greenhouse gas emissions across sectors; this variable is quantified by the number of climate-related laws or policies adopted annually, including those directly targeting emission reduction or supporting climate mitigation efforts through funding, institutions, or land-use regulations (t − 1).	QoG **
People value environmental sustainability (VES)	It is measured as the ratio of respondents who prioritize environmental protection over economic growth, providing insight into the extent to which environmental sustainability is valued by a nation’s constituents (t − 1).	WVS ***
ROA	Net income divided by total assets (t − 1)	Compustat
Asset	Total assets of a firm (t − 1, logged)	Compustat
R&D expenditure	R&D expenditure spent (t − 1, logged)	Compustat
Slack resources	The ratio of the difference between a firm’s current assets and current liabilities to its total assets (t − 1)	Compustat
GDP growth	GDP growth of a country	WDI ****
GDP level	GDP per capita of a country (t − 1, in USD 1000s)	WDI
Population density	Population density of a country (t − 1)	WDI
Carbon emission level	CO₂ emissions per capita of a country (t − 1, metric tons)	WDI

* SGI: Sustainable Governance Indicators; ** QoG: Quality of Governance; *** WVS: World Value Survey; **** WDI: World Development Indicators.

).

ROA, calculated as the net income divided by the total assets in the prior year (t − 1), captures the firm’s profitability. Higher profitability can enhance a firm’s capacity to invest in environmental initiatives, as it has greater financial resources to allocate toward sustainability efforts. By controlling for profitability, we account for the varying ability of firms to pursue environmental performance improvements.

Total assets, measured as the firm’s total assets in the prior year (t − 1) and logged, accounts for differences in firm scale and resource availability. Larger firms with greater asset bases may have more resources to allocate toward environmental initiatives, such as investing in cleaner technologies or improving compliance with environmental regulations. Including the firm size helps isolate the impact of other predictors on environmental performance.

R&D expenditure, recorded as the logged R&D expenditure in the prior year (t − 1), standardizes variation across firms and reflects the influence of innovation investment. Higher R&D spending is often associated with an increased capacity for technological advancements, some of which may support sustainability goals, such as energy efficiency or emission reduction. Controlling for R&D expenditure enables us to distinguish the effects of technological investment from other factors influencing environmental outcomes.

Slack resources are measured as the ratio of a firm’s current assets minus the current liabilities to its total assets in the prior year (t − 1), representing the financial resources available to address unforeseen opportunities or challenges. Firms with higher slack resources may be more flexible in adapting to environmental requirements or investing in sustainable practices, as they have a cushion to absorb the associated costs. By controlling for slack, we recognize that a firm’s resource flexibility can influence its environmental responsiveness.

We further control for economic and environmental factors at the country level. Country GDP growth indicates the annual GDP growth rate, providing context on economic conditions that may affect firm performance. Economic growth can influence corporate environmental performance in various ways, such as by impacting consumer demand for sustainable practices or by increasing regulatory pressure on environmental issues. By controlling for GDP growth, we consider the broader economic environment in which firms operate.

Country GDP per capita level, captured in USD 1000s and adjusted for PPP where applicable, represents the country’s economic development level as of the prior year (t − 1) [59]. More developed economies often have stronger environmental regulations and greater public support for sustainability, which may drive firms toward better environmental performance. This control helps account for variations in environmental expectations and regulatory standards across countries.

Country population density, measured in the prior year (t − 1), reflects the population concentration [59], potentially impacting market and resource pressures on firms. Higher population density can increase the demand for sustainable practices, particularly in urban areas where environmental impacts are more visible. Controlling for population density allows us to account for potential environmental pressures arising from demographic factors.

Finally, country CO₂ emissions per capita, also measured in the prior year (t − 1) and reported in metric tons, accounts for environmental conditions and regulatory pressures that vary across countries [59]. Higher per capita emissions may indicate laxer environmental regulations, which could reduce incentives for firms to improve their environmental performance. Including this variable allows us to control for differences in the regulatory and environmental landscapes.

We included year dummy variables to control for time-specific effects that might influence corporate environmental performance across all firms, such as global economic conditions or major environmental events.

These control variables provide a comprehensive account of the firm- and country-level factors that may independently affect corporate environmental performance, allowing us to more accurately assess the impact of our main predictors.

Table 2 lists our variables and descriptions.

4. Results

Table 3. (a) Descriptive statistics. (b) Correlation coefficient.

		Mean		S.D.		Min		Max
1	CEP	32.04		29.74		0		98.98
2	CSR governance quality	29.44		33.17		0		99.88
3	SGE	4.76		1.57		2.91		8.69
4	VES	0.54		0.1		0.32		0.77
5	CMLP	0.86		1.04		0		7
6	ROA	−0.1		13.8		−2144.38		6.2
7	Assets (ln)	8.79		2.85		0.04		19.68
8	R&D expenditure (ln)	2.52		3.39		0		16.82
9	Slack resources	0.55		1.28		0		8.3
10	GDP growth	2.13		0.88		−2.74		8.49
11	GDP level	52,559.37		9820.45		18,600.37		70,920.32
12	Population density	109.92		138.06		3.01		530.24
13	Carbon emission level	12.38		4.16		3.54		16.4
		1	2	3	4	5	6
1	CEP	1
2	CSR governance quality	0.8 *	1
3	SGE	0.37 *	0.35	1
4	VES	0	0.11	0.33	1
5	CMLP	0.15	0.13	0.34	0.07	1
6	ROA	0.01	0.01	0	−0.01	0	1
7	Assets (ln)	0.51 *	0.41 *	0.24	−0.26	0.04	0.03
8	R&D expenditure (ln)	0.32	0.23	0.2	−0.21	−0.01	0.01
9	Slack resources	−0.23	−0.2	−0.1	−0.01	−0.05	0
10	GDP growth	−0.2	−0.16	−0.39 *	0.01	−0.1	0
11	GDP level	−0.29	−0.28	−0.51 *	−0.05	−0.24 *	0
12	Population density	0.29	0.22	0.47 *	−0.16	0.13	0.01
13	Carbon emission level	−0.38	−0.32 *	−0.76 *	−0.19	−0.26	−0.01
	Mean	32.04	29.44	4.76	0.54	0.86	−0.1
	S.D.	29.74	33.17	1.57	0.1	1.04	13.8
		7	8	9	10	11	12	13
7	Assets	1
8	R&D expenditure	0.53	1
9	Slack resources	−0.25	0.09	1
10	GDP growth	−0.22	−0.2	0.03	1
11	GDP level	−0.45	−0.25	0.06	0.23	1
12	Population density	0.59 *	0.55 *	−0.03	−0.31	−0.5	1
13	Carbon emission level	−0.28	−0.22	0.09	0.32 *	0.6 *	−0.55 *	1
	Mean	8.79	2.52	0.55	2.13	52,559.4	109.92	12.38
	S.D.	2.85	3.39	1.28	0.88	9820.45	138.06	4.16

*: Significant at p < 0.05.

a,b report the descriptive statistics and correlation coefficients of the variables used in the current study. The mean corporate environmental performance (CEP) score in our sample is 32.04 (SD = 29.74), indicating considerable variation in the environmental performance across firms. The average CSR governance quality score is 29.44 (SD = 33.17), suggesting that the firms in our sample exhibit a wide range of CSR governance practices.

At the country level, we observe that the mean sustainable governance in environment (SGE) score is 4.76 (SD = 1.57), reflecting diversity in national environmental governance across the OECD countries in our sample. The average value for people valuing environmental sustainability (VES) is 0.54 (SD = 0.10), indicating that, on average, slightly more than half of the population in these countries prioritize environmental protection over economic growth. The mean number of climate mitigation laws or policies (CMLP) is 0.86 (SD = 1.04), suggesting variability in the regulatory landscape for climate change mitigation across countries.

To assess potential multicollinearity among our variables, we calculated the Variance Inflation Factor (VIF) for our model. The mean VIF value was 2.34, which is well below the commonly accepted threshold of 10. This relatively low VIF value indicates that the degree of correlation among our independent variables is not severe enough to inflate the variance of our coefficient estimates substantially. Therefore, we can conclude that multicollinearity does not pose a significant concern in our analysis, enhancing the reliability of our regression results.

Table 4. Fixed-effects regression predicting CEP.

DV: Corporate Environmental Performance (CEP)	Model 1	Model 2
Firm-level CSR governance quality		0.188 ***
		(0.00874)
SGE	−0.252	−0.176
	(0.270)	(0.258)
VES	4.325	8.814
	(5.914)	(5.600)
CMLP	0.167 ***	0.151 **
	(0.0613)	(0.0618)
ROA	−0.00644 ***	−0.00524 ***
	(0.00155)	(0.00132)
Assets	3.282 ***	2.677 ***
	(0.392)	(0.353)
R&D expenditure	0.101	0.112
	(0.173)	(0.160)
Slack resources	0.0447	0.0112
	(0.122)	(0.111)
GDP growth	0.0537	0.0768
	(0.147)	(0.142)
GDP level	0.000154	−0.000100
	(0.000251)	(0.000237)
Population density	−0.143 *	−0.147 *
	(0.0816)	(0.0785)
Carbon emission level	1.228 **	1.852 ***
	(0.567)	(0.537)
Year = 2014	2.352 ***	2.542 ***
	(0.317)	(0.306)
Year = 2015	3.939 ***	4.010 ***
	(0.528)	(0.501)
Year = 2016	4.913 ***	4.993 ***
	(0.710)	(0.672)
Year = 2017	7.389 ***	7.189 ***
	(0.926)	(0.865)
Year = 2018	10.17 ***	9.573 ***
	(1.077)	(1.008)
Year = 2019	12.94 ***	11.83 ***
	(1.245)	(1.169)
Constant	−10.98	−7.690
	(16.65)	(15.63)
Observations	24,984	24,984
R-squared	0.210	0.261
Number of firms	5326	5326
R-squared	0.210	0.261
Log likelihood	−87,703	−86,860
Robust standard errors in parentheses

*** p < 0.01; ** p < 0.05; * p < 0.1.

and

Table 5. Fixed-effects regression predicting CEP (test of H1~H3).

DV: Corporate Environmental Performance (CEP)	Model 3	Model 4	Model 5	Model 6
Firm-level CSR governance quality	0.239 ***	0.194 ***	0.360 ***	0.418 ***
	(0.0205)	(0.00897)	(0.0334)	(0.0403)
CSR governance quality X SGE	−0.0107 ***			−0.0106 ***
	(0.00372)			(0.00379)
CSR governance quality X VES		−0.00753 ***		−0.00485 ***
		(0.00189)		(0.00187)
CSR governance quality X CMLP			−0.313 ***	−0.320 ***
			(0.0566)	(0.0571)
SGE	0.162	−0.217	0.0304	0.342
	(0.277)	(0.258)	(0.261)	(0.283)
VES	8.257	8.103	22.03 ***	21.34 ***
	(5.585)	(5.587)	(6.172)	(6.162)
CMLP	0.152 **	0.465 ***	0.148 **	0.352 ***
	(0.0614)	(0.107)	(0.0618)	(0.106)
ROA	−0.00538 ***	−0.00521 ***	−0.00532 ***	−0.00544 ***
	(0.00134)	(0.00130)	(0.00137)	(0.00139)
Assets	2.731 ***	2.690 ***	2.673 ***	2.734 ***
	(0.354)	(0.353)	(0.350)	(0.351)
R&D expenditure	0.120	0.104	0.0820	0.0852
	(0.160)	(0.160)	(0.159)	(0.159)
Slack resources	0.00528	0.00792	0.00306	−0.00501
	(0.111)	(0.111)	(0.112)	(0.112)
GDP growth	0.103	0.0633	0.0841	0.101
	(0.142)	(0.142)	(0.142)	(0.142)
GDP level	−0.000186	−0.000101	−0.000258	−0.000348
	(0.000240)	(0.000237)	(0.000234)	(0.000237)
Population density	−0.133 *	−0.143 *	−0.115	−0.0985
	(0.0780)	(0.0782)	(0.0771)	(0.0764)
Carbon emission level	1.804 ***	1.796 ***	1.957 ***	1.875 ***
	(0.535)	(0.537)	(0.535)	(0.534)
Year = 2014	2.587 ***	2.517 ***	2.686 ***	2.718 ***
	(0.307)	(0.306)	(0.306)	(0.308)
Year = 2015	4.097 ***	3.915 ***	4.196 ***	4.225 ***
	(0.503)	(0.502)	(0.500)	(0.506)
Year = 2016	5.085 ***	4.944 ***	5.299 ***	5.366 ***
	(0.675)	(0.672)	(0.673)	(0.678)
Year = 2017	7.455 ***	7.258 ***	7.426 ***	7.738 ***
	(0.875)	(0.864)	(0.864)	(0.876)
Year = 2018	9.969 ***	9.531 ***	9.990 ***	10.36 ***
	(1.024)	(1.007)	(1.005)	(1.028)
Year = 2019	12.28 ***	11.89 ***	12.38 ***	12.88 ***
	(1.186)	(1.166)	(1.163)	(1.185)
Constant	−5.979	−6.988	−12.46	−10.44
	(15.62)	(15.59)	(15.66)	(15.62)
Observations	24,984	24,984	24,984	24,984
R-squared	0.262	0.262	0.264	0.266
Number of firms	5326	5326	5326	5326
R-squared	0.262	0.262	0.264	0.266
Log likelihood	−86,848	−86,850	−86,806	−86,786
Robust standard errors in parentheses

* p < 0.05; ** p < 0.01; *** p < 0.001.

present the results of our hypothesis tests using panel data regression models. Model 1 includes only control variables, while Model 2 introduces the main effect of CSR governance quality. Models 3–5 test each hypothesis individually, and Model 6 presents the full model with all interaction terms. Model 2 shows a significant positive main effect of CSR governance quality on CEP (β = 0.188, p < 0.01). This finding supports the fundamental premise of our study that stronger CSR governance is associated with better environmental performance.

Hypothesis 1 proposed that CSR governance quality would have a stronger positive impact on CEP in countries with lower levels of sustainable environmental governance. The results of Model 3 and Model 6 support this hypothesis. The interaction term between CSR governance quality and SGE is negative and statistically significant (Model 3: β = −0.0107, p < 0.01; Model 6: β = −0.0106, p < 0.01). This indicates that as the level of sustainable environmental governance in a country increase, the positive effect of CSR governance quality on CEP decreases. To illustrate this interaction effect, we conducted a slopes analysis. The analysis revealed that the effect of CSR governance quality on the CEP is stronger in countries with low SGE (β = 0.293, p < 0.01) compared to countries with high SGE (β = 0.185, p < 0.01). This finding supports our argument that CSR governance plays a more crucial role in driving environmental performance in contexts where external environmental governance is weaker.

Hypothesis 2 suggested that CSR governance quality would have a stronger positive impact on CEP in countries where people value environmental sustainability less. The results of Model 4 and Model 6 support this hypothesis. The interaction term between CSR governance quality and VES is negative and statistically significant (Model 4: β = −0.00753, p < 0.01; Model 6: β = −0.00485, p < 0.01). This indicates that as societal environmental values in a country become stronger, the positive effect of CSR governance quality on CEP decreases. A slopes analysis further illustrates this interaction effect. The analysis showed that the effect of CSR governance quality on the CEP is stronger in countries with low VES (β = 0.241, p < 0.01) compared to countries with high VES (β = 0.147, p < 0.01). This finding supports our argument that internal CSR governance mechanisms play a more important role in driving environmental performance when external normative pressures for environmental responsibility are weaker.

Hypothesis 3 proposed that CSR governance quality would have a stronger positive impact on CEP in countries with fewer climate mitigation laws and policies. The results of Model 5 and Model 6 strongly support this hypothesis. The interaction term between CSR governance quality and CMLP is negative and statistically significant (Model 5: β = −0.313, p < 0.01; Model 6: β = −0.320, p < 0.01). This indicates that as the number of climate mitigation laws and policies in a country increases, the positive effect of CSR governance quality on CEP decreases. A slopes analysis further corroborates this interaction effect. The analysis revealed that the effect of CSR governance quality on the CEP is substantially stronger in countries with low CMLP (β = 0.418, p < 0.01) compared to countries with high CMLP (β = 0.098, p < 0.05). This finding supports our argument that internal CSR governance mechanisms play a more crucial role in driving environmental performance when external regulatory pressures are weaker.

5. Discussion

5.1. Summary of Findings

Our study examined the moderating effects of country-level factors on the relationship between CSR governance quality and corporate environmental performance (CEP). The results provide strong support for all three of our hypotheses, offering valuable insights into how the effectiveness of internal governance mechanisms varies across diverse institutional contexts.

First, we found that CSR governance quality has a stronger positive impact on the CEP in countries with lower levels of sustainable environmental governance. This finding suggests that in contexts where external environmental governance is weak, firms with strong CSR governance compensate for these institutional voids by implementing more robust internal environmental management practices. The effect of CSR governance on the CEP was significantly stronger in countries with low sustainable environmental governance compared to those with high governance levels.

Second, our results indicate that CSR governance quality has a stronger positive impact on environmental performance in countries where people value environmental sustainability less compared to economic progress. This supports our proposition that in societies where environmental values are less prominent, firms with strong CSR governance play a crucial role in driving environmental performance improvements, even in the absence of strong normative pressures. The positive effect of CSR governance on the CEP was more pronounced in countries with lower societal environmental values.

Third, we found that CSR governance quality has a stronger positive impact on environmental performance in countries with fewer climate mitigation laws and policies. This finding aligns with our hypothesis that in regulatory environments with fewer specific requirements for addressing climate change, firms with high-quality CSR governance go beyond compliance, voluntarily adopting more ambitious climate mitigation strategies. The effect of CSR governance on the CEP was substantially stronger in countries with fewer climate mitigation laws and policies.

These findings collectively demonstrate that the relationship between CSR governance and environmental performance is not uniform across national contexts but is significantly moderated by country-level institutional factors.

5.2. Theoretical Contributions and Implications

Our study makes several important theoretical contributions to the literature on corporate governance, CSR, and environmental performance. First, we advance the understanding of the contextual nature of CSR by demonstrating how the effectiveness of internal governance mechanisms in driving environmental performance varies across different institutional environments. This contribution responds to calls for more context-sensitive approaches to studying CSR and sustainability [60]. Our findings suggest that the impact of CSR governance on environmental performance is not universal but is contingent on the institutional context in which firms operate. This insight enriches our understanding of the complex relationship between internal organizational processes and external institutional pressures in shaping corporate environmental behavior.

Our findings align with the neo-institutional theory’s prediction that firms adapt their practices to their institutional environment [31]. The stronger impact of CSR governance on environmental performance in countries with weaker environmental institutions suggests that firms are compensating for institutional voids [39,41] in environmental governance. This supports the idea that organizations not only respond to their institutional context but can also play a role in shaping it [1,18,31,39], particularly in areas where formal institutions are less developed.

Our findings also extend and nuance previous research on CSR and environmental performance in OECD countries. While Kaufmann and Lafarre (2021) found a positive relationship between national governance quality and corporate social performance [19], our study demonstrates that firm-level CSR governance becomes even more critical in countries with weaker environmental institutions. This aligns with, but also refines, the findings of Hamad and Cek (2023), who observed moderating effects of CSR on financial performance [10]. Our results suggest that the relationship between CSR and performance outcomes is not uniform but highly context dependent, especially when considering environmental performance.

Second, we extend the application of institutional void theory beyond its traditional focus on market institutions to encompass environmental governance landscapes [26,27,28]. By doing so, we shed light on how firms navigate and perform in contexts characterized by weak environmental institutions. Our findings suggest that firms with strong CSR governance can effectively fill institutional voids in environmental governance, playing a crucial role in driving environmental performance improvements where external pressures are weak. This extends our understanding of the role of corporations in addressing global environmental challenges and provides new insights into how firms can adapt to varying institutional contexts.

Third, our study contributes to the growing literature on corporate governance and environmental performance [20,24,53,54] by providing a more nuanced understanding of when and where CSR governance matters most for environmental outcomes. By identifying specific institutional conditions under which CSR governance has a stronger impact on environmental performance, we offer a more fine-grained perspective on the value of internal governance mechanisms. This contributes to ongoing debates about the effectiveness of voluntary corporate environmental initiatives versus regulatory approaches [12,21,40,43,44]

Fourth, our research advances organizational adaptation theory [31] by demonstrating how firms calibrate their internal governance mechanisms in response to varying external pressures and institutional landscapes. Our findings suggest that firms with strong CSR governance can adapt more effectively to contexts characterized by weak environmental institutions, supporting the core tenets of organizational adaptation theory in the domain of corporate environmental management.

5.3. Corporate-Driven CSR and Environmental Leadership: Beyond Institutional Pressures

While our study focuses on how institutional contexts shape the relationship between CSR governance and environmental performance, it is important to acknowledge that some corporations develop and implement CSR and environmental programs as an intrinsic part of their mission and goals rather than solely in response to external pressures or requirements. This perspective offers a valuable counterpoint to our institutional focus and merits further discussion.

Indeed, many leading corporations have developed innovative environmental practices and solutions that go beyond compliance, often setting industry standards that are later adopted by governments and other companies. For instance, companies like Patagonia, Interface, and Unilever have long been recognized for their proactive and comprehensive approaches to environmental sustainability, often exceeding regulatory requirements and societal expectations in many of the countries where they operate [5,8].

This corporate-driven approach to CSR and environmental performance suggests that while institutional contexts are important, they are not the sole determinant of a firm’s environmental strategies and outcomes. Some firms may maintain high standards of environmental performance regardless of the institutional pressures they face, driven by internal values, long-term strategic vision, or the personal commitment of leadership [5,6].

Our findings should, therefore, be interpreted with this caveat in mind. While we demonstrate that institutional contexts significantly moderate the relationship between CSR governance and environmental performance, this relationship may be less pronounced for firms that have deeply embedded sustainability into their core business model and corporate culture. Future research could explore how these “sustainability leaders” navigate varying institutional contexts, potentially maintaining high environmental performance standards even in countries with weaker environmental governance or less stringent regulations.

Moreover, the role of such proactive firms in shaping institutional environments merits further investigation. By setting voluntary standards and demonstrating the business case for sustainability, these companies may act as institutional entrepreneurs, influencing regulatory developments and shifting societal expectations [18].

This perspective on corporate-driven CSR and environmental leadership enriches our understanding of the complex dynamics at play in corporate environmental performance. It suggests that while institutional pressures are significant, as our study demonstrates, they interact with firm-level factors in nuanced ways. Some firms may not only respond to institutional contexts but actively shape them, potentially accelerating the development of more robust environmental governance frameworks across different national settings.

5.4. Practical Implications

Our findings have several important implications for managers and policymakers. For managers, our results highlight the critical importance of developing strong CSR governance structures, particularly when operating in countries with weak environmental institutions, low societal environmental values, or limited climate regulations. In these contexts, robust internal governance mechanisms can serve as a key differentiator in driving superior environmental performance. Managers should consider investing in comprehensive CSR governance systems, including board-level CSR committees, executive roles dedicated to sustainability, and integrated reporting practices, as these can be particularly effective in contexts where external pressures for environmental performance are weak.

Moreover, our findings suggest that multinational corporations need to adopt a nuanced approach to CSR governance across their global operations. Rather than implementing a one-size-fits-all governance structure, firms should consider calibrating their CSR governance intensity based on the institutional context of each country in which they operate. This may involve strengthening CSR governance mechanisms in countries with weaker environmental institutions to compensate for the lack of external pressures.

For policymakers, our study underscores the complementary role that corporate governance can play in driving environmental performance, particularly in contexts where formal regulations or societal pressures are weak. While strengthening environmental regulations and fostering societal environmental values remain important policy objectives, policymakers should also consider measures to encourage and facilitate strong CSR governance within firms. This could include developing guidelines for CSR governance best practices, creating incentives for firms to adopt robust CSR governance structures, or incorporating CSR governance considerations into corporate reporting requirements.

5.5. Limitations and Future Research

While our study provides valuable insights, it is not without limitations, which also point to promising avenues for future research. First, while our dataset covers a large number of firms across OECD countries, future research could extend this analysis to include developing countries, where institutional voids in environmental governance may be more pronounced. This would provide a more comprehensive understanding of how CSR governance operates across a wider range of institutional contexts.

Second, our study focused on aggregate measures of environmental performance. Future research could examine how CSR governance impacts specific aspects of environmental performance, such as greenhouse gas emissions, water usage, or biodiversity conservation. This would provide a more nuanced understanding of the relationship between CSR governance and different dimensions of environmental impact.

Third, while we considered three key country-level moderators, future studies could explore additional institutional factors, such as the strength of civil society, media freedom, or the presence of green political parties. This would further enrich our understanding of the complex institutional landscape that shapes corporate environmental behavior.

Finally, future research could explore the mechanisms through which CSR governance influences environmental performance in different institutional contexts. This could involve in-depth case studies or survey research to understand how CSR governance structures translate into specific environmental management practices and how these practices are adapted to different institutional environments.

6. Conclusions

In conclusion, our study provides important insights into the contextual nature of CSR governance and its impact on corporate environmental performance. By demonstrating how the effectiveness of internal governance mechanisms varies across diverse institutional contexts, we contribute to a more nuanced understanding of corporate environmental management in an increasingly complex and globalized business environment.

Our findings highlight that the relationship between CSR governance and environmental performance is significantly moderated by country-level institutional factors. Specifically, we show that CSR governance has a stronger positive impact on environmental performance in countries with weaker environmental governance, less prominent societal environmental values, and fewer climate mitigation laws and policies. These results suggest that firms with robust CSR governance structures can effectively fill institutional voids, driving environmental performance improvements where external pressures are weak.

However, our study also reveals an important counterpoint to this institutional perspective. We show evidence that some corporations integrate CSR and environmental sustainability as an intrinsic part of their mission, maintaining high environmental standards regardless of the institutional pressures they face. These “sustainability leaders” demonstrate that while institutional contexts are important, they are not the sole determinant of a firm’s environmental strategy and outcomes. Such firms may even act as institutional entrepreneurs, potentially shaping the very institutional environments in which they operate.

Future research could further explore the interplay between institutional pressures and corporate-driven CSR, investigating how “sustainability leaders” navigate and potentially influence varying institutional contexts. Additionally, examining the long-term impacts of such proactive environmental strategies on both firm performance and institutional change could yield valuable insights.

In an era of pressing global environmental challenges, understanding the complex dynamics between CSR governance, institutional contexts, and corporate environmental performance is more critical than ever. Our study contributes to this understanding, offering a pathway for both reactive and proactive approaches to corporate environmental responsibility.