Implications of oil price uncertainty on CSR and institutional quality

Implications of oil price uncertainty on CSR and institutional quality

An expert from RMIT University is available to talk to media about the implications of oil price uncertainty on CSR and institutional quality.

Dr Thao Tran (0423 716 961 or thao.tran2@rmit.edu.au)

Topics: oil price uncertainty, CSR, institutional quality, oil and gas firms.

“Our study of 283 oil and gas firms from 27 countries from 2002 to 2017

reveals how uncertainty discourages socially responsible behaviour from corporations, putting their reputations at risk. 

“We found that higher volatility in oil prices is significantly associated with lower Corporate Social Responsibility (CSR). 

“On average, a one standard deviation increase in the oil price uncertainty drops 62.92% to 78.77% of the oil and gas firm’s Environmental, Social and Corporate Governance (ESG) mean value. 

“The findings convey important implications for policymakers and practitioners. Promoting CSR investment is challenging through the high uncertainty period because firms tend to delay their CSR investment until the uncertainty is resolved.

“However, oil and gas firms should have taken the potential effects of the CSR delaying decisions into account. 

“Societies demand CSR from oil and gas companies, perhaps more so than in any other industry. If they do not respond to those expectations, they may put their reputations at risk.

“Oil and gas firms, therefore, need to weight the option value of waiting for better information and the potential reputational harm that may come with the increase in CSR risks.  

“It’s also becoming clear that the COVID-19 pandemic has caused a decline in oil demand and contributed to the unprecedented volatile period observed in the oil markets.

“Given the negative impact of oil price uncertainty on oil and gas firms’ CSR initiatives suggested by our study, the efforts to stabilise uncertainties in oil prices should be the focus of any energy policy, especially during this time.”

Dr Thao Tran is a researcher in the School of Economics, Finance and Marketing. Her research specialises in the area of banking, corporate finance, and energy markets. One of her main areas of expertise revolves around the impact of crude oil price uncertainty on firm performance as well as corporate decision-making, including tangible investments and corporate social responsibility activities.

***

For media enquiries, please contact RMIT Communications: 0439 704 077 or news@rmit.edu.au

22 January 2021

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22 January 2021

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