Rising externality costs and corporate
social responsibility case: EU legislation on
electric and electronic equipment
Purpose – The purpose of this article is to study how we may identify the link between rising externality
costs and corporate social responsibility (CSR) by using a market-centric approach to CSR.
Design/methodology/approach – The paper uses indicators measuring CSR performances triggered
by rising externality costs due to EU legislation on electric and electronic equipment (EEE). The case
study includes three leading companies in the global electric appliances industry.
Findings – The EU legislation on EEE has increased the externality costs of the electric appliances
industry. Some companies only meet the minimum requirements of the legislation, while others go
beyond what is required and engage in CSR. It is found that the strongest CSR impact is related to
output externalities in the authors’ sample in the EEE sector, while the strongest CSR impact in the
clothing sector, in an earlier study, is related to input externalities.
Practical implications – The ﬁndings suggest that governments need to adapt their CSR policies not
only to general sector-speciﬁc features, but in addition to the potential for reducing negative externalities
in different parts of the value chain in each sector.
Originality/value – This article contributes to a better understanding of how government policies raise
the externality costs of industries, which in turn lead these industries to strengthen their CSR
performance. The study also demonstrates the usefulness of a market centric approach to CSR.
Keywords Corporate social responsibility, Externality costs, Supply chain management, CSR potential,
Costs, European legislation
Paper type Research paper
There are many studies of the impact of public regulations on corporate social responsibility
(CSR) (e.g. Fox et al., 2002, Albareda et al., 2007, and Ruggie, 2008), but few of these
studies concern the internal strategies of the agent – the corporation. The aim of this article
is to contribute to a better understanding of how rising externality costs, due to government
policies, affect corporate social responsibility (CSR). We take a market-centric approach to
CSR. First the market-centric approach to CSR is presented. Then we show how we may
distinguish between input, process and output externalities, between CSR performance and
CSR impact, and between ﬁrst- and second-order CSR impact. Our understanding of CSR
as a corporate activity triggered by government incentives corresponds to the conception of
CSR in the corporate environmental management ﬁeld (see Berry and Rondinelli, 1998;
Dyllick and Hockerts, 2002; Khanna and Anton, 2002). While these contributions explain how
environmental policy incentives encourage proactive environmental management at the
corporate level, they do not provide a deﬁnition of CSR – or a similar concept – which relates
corporate environmental management to business transactions. The market centric
approach to CSR allow us to study how rising externality costs (linked to business
transactions) contribute to a stronger CSR performance, and enable us to determine where
in the value chain the CSR impact is likely to be strongest.
DOI 10.1108/17471111211234897 VOL. 8 NO. 2 2012, pp. 289-304, Q Emerald Group Publishing Limited, ISSN 1747-1117
SOCIAL RESPONSIBILITY JOURNAL
Thomas Laudal is a Senior
Researcher at the
University of Stavanger,
The author is very thankful for
the comprehensive comments
by anonymous reviewers of two
earlier drafts of this article. The
author would also like to thank
Professor Oluf Langhelle and
Research Fellow Bjørn-Tore
Blindheim at the University of
Stavanger for valuable
comments and support.