Firms' societal impact

Firms have impacts on the socio-economic and environmental systems through their activities. However, research related to corporate social performance has focused primarily on CSR and ESG policies at the organization level rather than on consequences and wider impacts of firm strategies. Recent research calls for a clearer distinction between firms’ societal impacts and value for stakeholders. I will discuss various concepts related to impact and decision-making, and propose some new research questions.

Organizations will use five types of capital to deliver their output. These capitals include manufactured, financial, human, social, and natural capital. While the capitals are needed as inputs to deliver products and services, firms will also have effects on the capitals at the macro level through the input-output-outcome-impact chain. The various sustainability effects generated by firms will affect the capital flows in various ways. Impacts can involve a reduction in negative externalities (e.g. carbon emissions) or an increase in positive externalities. Systems theory (dealing with, for example, feedback loops, stocks, information flows and delays) encourages us to view the capitals as interconnected (e.g., Meadows, 2008).

Impact can be understood as system-level change that addresses meso-level and macro-level effects beyond firm boundaries, and beyond value for single stakeholders (such as employees, suppliers, customers and local community). As Fichter et al. (2023) point out, system refers to “more complex aspects of the natural environment (e.g., natural habitats), parts of society (e.g., social groups) or the economy (e.g., markets), and to their interplay and the joint systems they create”. 

How do nation-level institutions and firm-level corporate governance contribute to the societal impact of firms? Several country characteristics such as legal origin, labor and environmental laws, and culture can affect societal impact. At the firm level, various variables measuring decision-making can be related to firm impact. In particular, stakeholder-oriented governance at the country and firm levels could affect impact. Relatedly, one could explore how impact relates to future financial performance of firms.

RQ1: Does stakeholder-oriented governance improve firms’ societal impact?

RQ2: Do increases in societal impact lead to higher future firm performance?