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1. 7FNCE044W Predictive Analysis For Decision Making
Answer:
Introduction
By definition, corporate social responsibility, also known as corporate citizenship, refers to
the self-regulating model of business that aids any firm to be accountable socially to the
public, stakeholders, and itself (Lee, 2016). Through corporate social responsibility, firms
can be aware of the level of influence they cause on every societal aspect comprising of
environmental, social, and economic factors. In 1984, Freeman proposed the stakeholder
theory suggesting that other than companies considering their interest, they should also
take into consideration the shareholder interest as well as that of the broader group of
stakeholders, everyone that can adversely be influenced or influence the company welfare.
Since its suggestion, several theories have been made on the theory (Waworuntu, 2014).
Among these is the instrumental stakeholder theory by Jones (1995) which stated that
corporate social responsibility efforts can be vital when it comes to acquiring important
resources or the larger support by stakeholders (Carol, 2020). On the other hand, Porter, in
1991, concentrated on corporate social responsibility from, specifically, environmental
grounds in which he cited that pollution reduction and profitability may not be reciprocally
exclusive aims (Latapí, 2019). According to him, pollution acts as a source of resource
wastage and therefore attempts to minimize pollution increase both the firm's corporate
social responsibility and the firm's level of competitive position. It is therefore worth noting
that corporate social responsibility comes with a range of potential benefits (Tilt, 2016).
Such benefits include enhanced reputation, greater chances for attracting investments,
advanced levels of risk management, support of market objectives, and the minimization of
regulatory oversight. Equally, the proper establishment of a working corporate social
responsibility is key to the overall returns of any business (Hongyan, 2018). Take, for
instance, a situation where a business with a better corporate social responsibility scheme,
then the business forms a harmonious alliance with the community hence smooth running.
Besides, the business, having established a better environment for the possible
shareholders, is likely to get capital funds any time hence no financial shortage (Linh, 2011).
As a result, more produce is likely available for the readily available markets hence high
returns. While no established evidence supports this, the opposite is likely true for firms
with no well-established corporate social responsibility that’s likely to miss harmony with
the surrounding society (Jamali, 2007). Other than the supporting theories, others cite the

2. opposite. In his argument in 2001, Jensen found it a difficult job for the managers to
maximize the interest of a heterogeneous group of stakeholders at the expense of the
company (Vaaland, 2008). Further, he states that the theory makes managers less
accountable for their actions. Finally, Tirole (2001) stated that the employment of corporate
social responsibility shifts the wealth to the stakeholders from the shareholders which may,
in turn, result in a lower return on equity and hence become the acquisition target (Wamitu,
2014).
From the above arguments, though corporate social responsibility comes with a lot of
benefits, there is yet to be established its influence on the overall return to the business thus
creating a research gap. Therefore, this study is set to establish the influence of corporate
social responsibility on the firm’s return for the FTSE100 index. The particular corporate
social responsibility measures included in the study include overall CSR score, social risk,
governance, and impact on the environment, and these act as the independent variables.
Research Questions
Is there a significant influence of the overall CSR score on the return for the FTSE100 index?
Is there a substantial effect of firms' impact on social risk by companies on the return for
the FTSE100 index?
Is there an evident impact of firms’ governance on the return for the FTSE100 index?
Does the firm's influence on the environmental impact significantly, the return for the
FTSE100 index?
Study Significance
Being a need to maximize the returns of the FTSE100 index, the results achieved from the
study will help identify the significant influencers of the above variable. In return, the
significant influencers will be considered and utilized to ensure high returns and thus the
study's significance.
Literature Review
This section involves the review of the existing works of literature on the association
between corporate social responsibility and financial returns. Imperatively, wide-ranging
studies have been performed regarding the relationship between the accounting-based
indicators of financial performances and corporate social responsibility (Godfrey, 2016).
While many definitions have been stated in regards to corporate social responsibility (CSR),
scholars have not arrived at a single definition that’s universally accepted. Nevertheless,
after analyzing 37 definitions that are mostly used, Dahsrud concluded that corporate social
responsibility has a lot of congruency in its descriptions and suggested the existence of five
dimensions which include charity, environmental, stakeholders, economic and social
dimensions (Cadez, 2017). As well, there is not yet established a unique CSR definition in
the academic world based on the ever-changing roles of corporate social responsibility in
the corporate world. However, depending on the dimension used, the impact of SCR can be

3. established (Brammer, 2006).
The Relationship Between Corporate Social Responsibility And Financial Returns (Empirical
Evidence)
Despite the many works of literature regarding corporate social responsibility and financial
returns, no valid conclusions have been made considering the high level of result
inconsistency (Sameer, 2021). Thus, the knowledge body can be regrouped into three in
which case, some researchers state that CSR is key towards improving the rate of returns;
others argue that corporate social responsibility influence negatively the firm’s financial
performances; and the last group argue that there is no established significant correlation
between financial returns and the CSR (Jamali, 2007). In support of this argument, in a
study by Odemilin et al (2010), there existed a positive but weak relationship between CSR
(product, human rights, economic, societal, and social responsibility) on the financial
returns. Similarly, Lita (2020) established that there is no substantial difference in the
financial returns of CSR and non-CSR firms hence no relationship between CSR and financial
returns. In a different case, Oeyono et al (2011), established a negative association between
the financial returns and corporate social responsibility whereas Crisostomo et al (2011)
found the relationship to be not only negative but also strong having used product,
economic, societal, human rights, decent work and labor practices as CSR indicators. Using
the linear regression modeling, Ahmed and Adeneye (2015) found that corporate social
responsibility had a negative influence on financial returns. In a different study, Qian
(2012), while comparing CSR and non-CSR banks stated that the former displayed a better
financial performance than the latter. Besides, the CSR-based firms give a better return than
the non-CSR firms and therefore a positive relationship between the variables (Estefania et
al., 2020). Differently, charitable events were established by Metaxas (2015) to positively
and significantly contribute to financial returns in the selected firms. As well, there was
proven a strong significant positive correlation between the environmental disclosure, a
dimension in CSR, and return on investment and equity (Clacher, 2012). A significant
positive impact was also established on the financial and stock returns by corporate social
responsibility (Yusuf, 2015). A positive partial correlation was also found for the firm value
arising from corporate social responsibility and the firm's profitability (Hongyan, 2018).
In the study by Brammer et al (2006), though there is stated a lack of an exact quantitative
measure of the CSR on the returns, established a wide positive influence of the same on
return for any given firm. Particularly, he states that the heterogeneous environment plays
a key role in the internal success of a business including the surrounding communities, and
government among other factors. Specific to the environment and surrounding community
CSR activities, Clacher (2012), stated that industrial firms with well-equipped methods for
controlling pollution cause less harm to the surroundings and as such, operate in a well-
placed environment that enhances peaceful operations with the community. Besides, firms
that extend hands of charity to the surrounding communities create a harmonious
environment for operations hence attracting more customers (Crisóstomo, 2011). In

4. different study by Estefania et al (2020), since customers are the core towards the returns
accrued for both the goods and service industries, argued that proper utilization of
corporate social responsibility by the firm towards customers is key towards high returns
for that particular firm. In addition, Savvas and Stelios (2016) found in their empirical study
that with a five-dimensional corporate social responsibility, possible derailing factors such
as legal battles, unhealthy competition with firms having better CSR, and the general
reputation of a firm is enhanced, a step that's healthy to the socio Economic Growth of the
firm.
From the above literary works, it is evident that corporate social responsibility plays a
significant role in the financial return index of firms. Therefore, a conclusion is made in this
section that depending on the social responsibility category used, different benefits are
accrued by the implementing firms. Besides, other than the benefits, corporate social
responsibility also have negative impacts on the financial returns of the firms. The
justification of the study topic choice is enhanced by the fact that the above works of
literature have no valid conclusion regarding the influence of corporate social responsibility
on the return index of different firms.
Study Hypothesis
Null Hypothesis (H0): There is no significant influence of overall CSR scores on the return
for the FTSE100 index.
Alternative Hypothesis (HA): There is a significant influence of overall CSR scores on the
return for the FTSE100 index.
Null Hypothesis (H0): There is no significant influence of a firm’s impact on the
environment on the return for the FTSE100 index.
Alternative Hypothesis (HA): There is a significant influence of a firm's impact on the
environment on the return for the FTSE100 index.
Null Hypothesis (H0): There is no significant influence of a firm's social risk on the return
for the FTSE100 index.
Alternative Hypothesis (HA): There is no significant influence of a firm’s social risk on the
return for the FTSE100 index.
Null Hypothesis (H0): There is no significant influence of a firm's impact on firm governance
on the return for the FTSE100 index.
Alternative Hypothesis (HA): There is no significant influence of a firm's governance on the
return for the FTSE100 index return.

5. Data
To achieve the study objectives, the data set was secondarily acquired from yahoo finance
(https://uk.finance.yahoo.com/quote/RR.L/sustainability?). A total of 50 firms existing in
the FTSE100 index were selected under the criteria that only firms with sustainability data
were selected. The data contained six variables which included company name, the overall
score of corporate performance, community impact score, governance score, social risk
score, percentage return on the index, and FTSE return index based on the closing value
percentage dated 31st December 2021. Thereafter, the data was exported to SPSS where
descriptive and inferential statistics were conducted. The variables, except for company
names and the FTSE100 index, were analyzed descriptively as shown in table 1 below.
Table 1. Descriptive statistics
From the table, the selected firms recorded an average overall score of 19.23 (SD=7.51)
with minimum and maximum values respectively of 0.7 and 36. The environmental risk
score was the lowest on average (M=6.20, SD=7.75) of the three measures followed by the
governance score (M=7.24, SD=8.35) while the social risk score was the highest of the three
(M=9.04, SD=7.18). The minimum and maximum values were 0 and 51 for environmental
risk score, 1.7 and 51 for the social risk score, and 3.0 and 63 for governance
correspondingly. These variables had standard deviation values larger than their respective
means showing that there was a higher level of variability in the recorded data for each
variable. Finally, the average value of return as per the FTSE100 index was -
.20%(SD=1.89%) with the lowest and highest values of -8.00% and 8.64% respectively. In
terms of distribution, the overall score was slightly skewed to the left (-.09) and this is
shown by the histogram below.
Fig 1. Histogram for overall CSR
Secondly, the environment risk score was highly skewed to the right (4.08) showing most
firms recorded a lower score and this is shown below.
Fig 2. Histogram for environmental risk score
Similar to the second case, the social risk score was highly skewed to the right (4.24)
showing that most firms recorded lower scores and this is displayed below.
Fig 3. Histogram for Social Risk Score
Fourthly, there was recorded a large positive skewness (6.31) of all the variables which also
indicates that most scores were low for the firms. This is displayed below.
Fig 4. Histogram for Governance score

6. Finally, the FTSE100 index return for the companies was also skewed to the right (.61)
which displays most values were lower as shown below.
Fig 5. Histogram for the FTSE100 index return by companies
Statistical Model
For this study, a multiple linear regression was used. This is an econometric model which
compares the linear relationship between a dependent variable with a group of two or more
independent variables. This is considering that the dependent variable is continuous and as
such, allows for the use of this kind of model. the general model embraces the form,
y = β0 + β1x1 +…+ βnxn
In which case, β0 is the intercept, β1 is the first variable coefficient, x1 is the first variable
value, and βn and xn n coefficient and value respectively. This analysis was done and the
results are presented below.
Table 2. Model Summary
The independent variables (overall CSR score, governances score, social risk score, and
environmental risk score) explained 45.8% of the model variation which is an average
percentage. Moreover, the variables jointly significantly predicted the FTSE100 index
return for these firms at a 5% level of significance (F (4, 45) = 9.51, p.05) and hence the
corresponding null hypotheses were all rejected. The resulting linear regression equation is,
Interpretation
The study sought to establish the influence of corporate social responsibility, categorically
social risk, environmental risk, governance score and the overall CSR score on the FTSE100
index return score by percentage. It was established that there was a joint influence of these
variables on the FTSE100 index return for the stated firms at the end of 2021. The joint
correlation was positive showing that the independent variables significantly improved the
rate of return of the FTSE100 index. Nevertheless, the individual predictors did not portray
significance in predicting the returns, a factor that’s likely to be attributed to the smaller
size of the sample and available confounders that affect the rate of return, particularly the
coronavirus pandemic that hit the companies, of the FTSE100 index other than the
corporate social responsibility factors. Comparing the study to past works of literature, then
the joint significance result is similar to that of Metaxas (2015) who found that the financial
returns of different firms are strongly dependent on the different corporate social
responsibility factors alongside external and internal business environmental factors.
Equally, the study result on the individual variable influence is similar to that by Lita (2020)

7. who found that there is no evident impact on the individual CSR factors on the financial
returns of firms. In a different study, Yusuf (2015), while investigating the influence of
social and environmental risks as well as governance score, established that these three
variables, being the core components of CSR, were key in coming up with the best returns
for firms, a finding that was different from the one in this study.
Conclusion
From the study, it is evident that the overall score of CSR, environmental risk, social risk,
and governance score when combined, significantly and positively improve the FTSE
returns. Nevertheless, this is not the case with individual variables which displayed no
significant influence on the returns. In answer to the research questions, therefore, it is
clear that governance score, social risk score, environmental risk score, and the overall
score of CSR have no impact on FTSE100 index return. The study results, therefore, open
the way for further research to establish the exact influence of both individual and joint
variables (overall CSR, environmental risk, social risk, and governance scores) on the
FTSE100 index return. Besides, the study is important both for data analysis and report
writing. To establish concrete harmonious results for both individual and joint variable
influences, I suggest a future study that will incorporate a larger sample size of between 500
and 1000 using the same variables then a comparison of results be made with the one from
this study.
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