Heliyon 9 (2023) e13979

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Heliyon
journal homepage: www.cell.com/heliyon

Research article

Greenhouse gas emissions and corporate social responsibility in

USA: A comprehensive study using dynamic panel model
Khaleeq Ahmad a, Zahid Irshad Younas b, Wajiha Manzoor c, *, Nabeel Safdar d
a
University of Lahore, City Campus, Lahore Pakistan
b
Lecturer at Berlin School of Business and Innovation, Potsdamer Street, 180-182, Berlin, Germany
c
Department of Economics, COMSATS University Islamabad Campus, Pakistan
d
National University of Sciences and Technology, NUST Business School, Sector, H-12, Islamabad, Pakistan

A R T I C L E I N F O A B S T R A C T

Keywords: This study addresses the issues of Greenhouse Gas Emission and corporate social responsibility of
Greenhouse gas firms in USA. This paper estimates various econometrics estimations varying from multivariate
Corporate social responsibility regression, static panel modes and dynamic panel models. Finally, to control the endogeneity
Greenhouse gas emission
problem dynamic panel model is preferred to capture the relationship of greenhouse gas emis­
Firm size
Generalized method of moments
sions and corporate social responsibility. The result of the study shows a positive and significant
relationship between greenhouse gas emission and corporate social responsibility. Further, it is
also observed that firms with better corporate social responsibility performance can reduce
greenhouse gas emissions. This is the first research that attempts to explore two-way relationships
between greenhouse gas emission and corporate social responsibility by using various estimation
techniques varying from multivariate, OLS to dynamic panel GMM. From a policy point of view,
corporate social responsibility plays an important role in managing and reducing greenhouse gas
emissions, ultimately creating a secure environment for all parties while improving business
performance. Policymakers should create policies to control greenhouse gas emissions and
enhance corporate social responsibility.

1. Introduction

Global warming has become a universal issue nowadays, as greenhouse gas emissions (GHGE) have been resulted in global climate
change [1]. These greenhouse gases (GHG) are composed of many harmful gases in the environment including Carbon dioxide (CO2),
Nitrous Oxide (N2O), Methane (CH4) and many other injurious gases. The earth is the planet which has moderate temperature that lies
between the melting and boiling point, this temperature is maintained by the nature so that life can easily sustain. GHG accumulate in
the atmosphere which result in the formulation of a cover around the earth and do not let the heat energy to radiate into the space, thus
resulting in the greenhouse effect [2], which leads to global warming [3]. The increase in natural calamities like rise in see level, floods,
storms, drought and increase in insurance claims are all results of increased proportions of GHGE [4,5]. Further, in the coming century,
due to large scale industrialization, a rise of 5–6 ◦ C in average global temperatures is expected which could decrease the worldwide
gross domestic product (GDP) by an average of 5–10% [6]. From 1860s to 2000, the global temperature was increased form − 0.6

* Corresponding author.
E-mail addresses: ahmad.61926@yahoo.com (K. Ahmad), zahid1132_gcu@yahoo.com (Z. Irshad Younas), wajiha72001@yahoo.com, wajiha.
manzoor@comsats.edu.pk (W. Manzoor), nabeel.safdar@nbs.nust.edu.pk, nabeel479@yahoo.com (N. Safdar).

https://doi.org/10.1016/j.heliyon.2023.e13979
Received 19 October 2021; Received in revised form 13 February 2023; Accepted 16 February 2023
Available online 22 February 2023
2405-8440/© 2023 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license
(http://creativecommons.org/licenses/by-nc-nd/4.0/).
K. Ahmad et al. Heliyon 9 (2023) e13979

C–0.6 C and now the worldwide average temperature ranges from 0.6 to 0.9 ◦ C [7].
Although many countries like China, Canada, Australia, and Russia are causing an increase in the GHG emission rate but, in this
study the focus would be on the trends and emission rates of greenhouse gases specifically in USA due to the following facts and figures:
USA is the second highest emitter of greenhouse gases after China, with only 4% population of the world and was not part of Paris
agreement of 2015 till 2020. Paris agreement is an international agreement that deals with GHGE mitigation, adaptation, finance, and
signed in 2016. Its long-term objective is to keep the rise in the average global temperature well below 2 ◦ C above pre-industrial levels.
If the increase is kept to 1.5 ◦ C or less, the risks and effects of climate change will be significantly diminished. President Donald Trump
considered Paris agreement as a hindrance in their economic development and had announced on June 1, 2017 to withdraw from it,
which was due in 2020. This withdrawal could out weight the whole agreement. However, President Joe Biden (The new adminis­
tration) after resuming his office has announced in January 2021, to rejoin international accord to become part of global community to
mitigate greenhouse gases.
The environmental protection agency (EPA), of USA the regulatory authority has mentioned six key sectors i.e., transportation,
industrial, agricultural, electricity, commercial and land areas, which are responsible for Greenhouse gas emissions. Among all the
sector largest contribution in GHG emission’s is of transportation sector. It accounts for total 30% of emissions, on the second number
comes the electric production with 26% share in total emissions. Similarly, industrial, commercial, and residential, and agriculture
sector add 22%, 11% and 9% in total emissions. The CCPI report 2018 (Appendix A1) is showing the ten lowest ranked countries of the
world. USA is ranked at 56th number, Australia at 57th and Canada at 51st.This ranking is based on efforts made by countries to
control GHGE, countries which do not bother to make any effort to protect their environment and emit more GHG are ranked low. All
these are most developed nations of the world, but their low ranking is showing their poor efforts to protect environment and save this
globe from environmental degradation.
Moreover, according to IEA Global energy and CO2 status report 2018 (Appendix A2) USA is ranked second biggest emitter with
4888 CO2 emissions (Mt CO2) which is almost 15% of total emissions of the world. Moreover, there is an increasing trend in 2018 with
a dangerous rate of 3.1% increase relative to 2017. The rest of the world emission is 11 249 (Mt CO2) with growth rate of 1.7%.
Appendix A3, displays the figure of per capita CO₂ emissions in 2018 (in metric tons). USA gained the highest ranking; it emits 15.02
tons of CO2 annually. It is no more surprising that among countries are considered as highly industrialized nations. One reason might
be that as these countries are highly industrialized, so industrial waste and harmful gases released during production processes are
making these countries the top GHG emitter of the world.
Corporate social responsibility (CSR) refers to firm’s corporate commitment and engagement in socially healthy and environ­
mentally responsible actions which includes environmental performance, social equity, justice and economic well-being introduced by
firms to mitigate their negative perception and enhance their positive impact on society [8]. Corporate environmental performance
(CEP) is essential component of CSR which has become an important issue in contemporary international debate [9]. Business cor­
porations are responsible to work for betterment of the society and to provide sustainable environment [10,11]. On the other side firms
in USA are promoting their business by highlighting their efforts for introducing CSR in their business strategies for better profitability
and competitiveness. Thus, this is the high time to see the impact of CSR ranking of firms in reducing greenhouse gas emissions in USA
and vice versa, due to macro level appearance of the country and firm level CSR behavior. Thus, the study observes the impact of CSR
on greenhouse gas emissions and vice versa. The following diagram deals with conceptualization of this research.
Considering above-mentioned trends, facts and figures, this study has two main objectives. First objective is to examine whether a
firm’s GHGE reduction efforts are admired by society and there is an increase in its CSR Rating. Second objective is to see whether a
firm takes its high CSR rating as strategic assets, intentionally and voluntarily involve itself in GHGE mitigation activities to maintain
its CSR rating, social acceptance and greater benefits. It is also found from previous research that almost 90% papers did not properly
address endogeneity bias [12]. This study has contributed in the existing literature in many ways. First, the study will examine dual
impact of CSR index and greenhouse gas emissions (GHGES) by using USA data of 17 years (2002–2018) which is least tested in
previous studies. Second, this is a multi-theory-based study with Theoretical conceptualization, as CSR is so multi-dimensional area
that it should be studied with multiple theoretical aspects while in previous studies it was studies with single or two lenses. Third, when
a problem like endogeneity is inherent and unavoidable in panel data set, we should use a better and superior statistical technique to
better control for endogeneity [13].
The study is structured as follow. Section 2 onward provides details on Theoretical Framework, Literature Review, Materials and
Methods, Results and Discussion, and finally section 6 of the study deals with Conclusions and Implications.

2. Theoretical framework

A firm cannot reduce its Greenhouse gas emissions and increase its CSR rating without successfully handling and fulfilling demand
for CSR (External pressures) which is based on who well supply of CSR (Internal pressures) is maintained and handled. So, CSR is so
multidimensional issue that it can be studied and satisfied with multi-theory perspectives. Mutli-theory perspective has already been
used to study CSR and climate change related studies, for example, stakeholder theory and institutional theory [14], legitimacy theory
and stakeholder theory [15], Institutional theory and resource-based view (RBV) of [16], Agency theory proposed by Ref. [17], and
Stakeholder theories of [18] suggest that (GHG) and CSR can affect each other. So due to the diversity and complexity of topic this
paper is based on different management, psychological and environmental theories. The interlinking of these theories is explained
here. According to the shareholder theory proposed by Ref. [19], the only related and appropriate goal of organization is to maximize
shareholder’s wealth. Moreover, it is out of the scope of organization to get itself involve in social activities [19]. To achieve this
objective manager are hired to run the business in the best interest of shareholders. But manager quest for social and environmental

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performance may cause damage to the purpose of shareholder profit maximization [20–22]. However, Agency theory analyses
principal agent relationship. Agency theory addresses possible conflicts of interest in the conduct of business operations that is called
‘the agency problem’ and how this problem dealt with through various governance mechanisms [23].
Shareholders quest for profit maximization leads them to industrialization to generate economic benefits. GHG is the result of this
heavy industrialization which creates Greenhouse gas effect [2] and global warming. Global warming and climate change generate
concerns of the internal, external stakeholders [24] and societies and they put pressure on firms to take actions for sustainable
development. The term "stakeholders" refers to people or organizations that have the power to influence or be affected by an orga­
nization’s decisions and performance [25]. Several authors have used stakeholder perspective to address the climate change and CSR
related issues like [26,27]. According to Resource Dependent Theory (RDT) organizations need continuous supply of critical resources
from the environment in which these are working [28]. So, organizations can’t afford to ignore the demands of those who assure this
guaranteed and uninterrupted supply of vital resources. From CSR studies based on RDT, it has been found that firm’s environmental
performance improves having better relations with external groups [29,30].
Legitimacy, as defined in Legitimacy Theory, is a broad perception or assumption that an entity’s actions fall within some socially
constructed framework of norms, values, beliefs, and definitions [31]. Hence firms must continuously legitimize their activities to
enjoy congruity between society’s and corporation’s objectives [32]. Organizational legitimacy occurs when the values of an entity
align with the values of the larger social system [33], thus raising and assuring both supply of resources and the credibility of the
corporation’s activities [31]. CSR studies based on legitimacy theory demonstrate that organizations use corporate philanthropy and
social disclosure as a means of legitimization [34,35]. Institutional Theory also support the idea that for survival in each business
environment corporation must harmonize their activities with the existing environment to get a certain level of external societal
approval [36–38]. CSR studies based on Institutional theory include are [39,40]. From the perspective of supply of CSR transaction
cost is very crucial cost in formulation of environmental policies [41] and these must be considered while designing such policies
[42–44].
Resource Base View supports the idea that companies possess a heap of varied resources and skills that are uncommon across firms.
These resources and potencies are the main strength of organizations to create a competitive edge [45]. CSR-related studies that used
RBV and proved that capabilities related to investment in CSR can lead economic benefits to firms include [46–48]. Finally, Planned
Behavior Theory explains how attitude toward behavior, subjective norms, and perceived behavioral control (self-efficacy and
controllability) together shape up an individual’s behavior [49]. It can also be applied to study adaptation [50] and mitigation [51] of
climate related behaviors. Climate change and CSR related studies based on theory of plan behavior (TPB) are [52–54]. Positive brand

Fig. 1. Theoretical conceptualization.

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commitment results from consumers’ positive purchase intentions, inspiring them to buy the product [55]. The integrated effect of
these theories from (GHGE) to better CSR score has been shown through theoretical conceptualization which is mentioned in Fig. 1.

3. Literature Review

There are some previous CSR and its cost related studies such as carbon taxation or minimization of regulatory cost [56,57]. For
example, the claim is that taking proactive measures to reduce GHGE will increase costs for the company and reduce its ability to
compete in the market [57]. However, there are some studies reflecting the impact of mandatory and non-mandatory carbon infor­
mation disclosure to mitigate the effect of additional cost incurred due to CSR and include [58,59]. For example [59], states that CSR
the stakeholders will receive regular mandatory and optional reporting. Behavioral studies show that efforts to mitigate the bad effects
on environment and their disclosure can change the behavior of society, which is reflected from these studies, [60–64]. For example,
CSR has an effect on consumers’ approaches, buying intents [63], and consumer preferences [60].
Environmental performance may have positive, negative or no impact on firm value and studies that showing these effects are
[65–67]. For example [66], analyzed the market discipline effects of investors on GHGE and found that corporate value gets improved
when shareholders impose market disciplines that lead to a reduction in GHGE [65]. a firm’s voluntary green disclosure receives a
favourable response from shareholders. However [67], found that companies that perform well in the social sphere perform poorly in
investments. Some studies indicate that CSR can create tangible benefits and improves financial performance [68–76]. Further [76],
hypothesized that an increase follows an increase in carbon performance in business profitability. In contrast to this view [21], argued
that involvement in CSR activates may not be financially helpful for organizations.
There are some empirical investigations with broader spectrum of environment, climate change and CSR related issues, the ex­
amples of which are, CSR rating, pollution reduction score, GHGE reduction, risk reduction, customer loyalty, human rights, and
nuclear power etc. These studies include [77–85]. For example [79], finds that there is a positive association among CSR index and
GHGE score meaning that more efforts to reduce GHGE will tend to increase CSR index [80]. established the relationship between CSR
and GHGE and found that increased efforts in the activities which may reduce carbon emissions can lead a firm to earn more social
benefits rather than those who do not invest in environmental protection activities. Thus, the firms investing more on environmental
activities enjoy higher CSR index. However [83], conducted research on Korean firm level data to check the relationship between CSR
Index and greenhouse gas emissions (volume) on 393 firms from 2007 to 2014. He found a positive sign showing that more a firm emits
Greenhouse Gases; highly it will be rated in CSR Index.
In the light of above discussions, it is found that more research has been done on governance aspect of CSR. As global warming and
climate change has become an international and threatening issue, research on the dual relationship between environmental aspects
specially GHGE and its impact on CSR and vice versa is less focused area. Moreover, past researchers have theorized CSR and envi­
ronmental aspects with single or combination of two to three theories. In fact, CSR is so diversified issue that it should be studied with
multiple theories relating to management, psychological and environmental areas. Moreover, it is found from previous research that
90% of papers published in main journals did not properly address endogeneity bias [12]. This paper will fill this gap by theorizing
multi-theoretical framework and by examining following two hypotheses using GMM statistical technique because GMM is much
better statistical technique for controlling endogeneity as compared to OLS and Fixed Effect. Thus, followings are the hypothesis of the
study in the light of above discussions.
Ho1: Firms with less Greenhouse Gas Emissions have better GHGE score and thus have positive impact on corporate social re­
sponsibility index of firms.
Ho2: Firms with better CSR Score reduces their Greenhouse Gas Emissions and the CSR have positive impact on GHGE Score.

4. Material and methods

4.1. Data and data sources

This study utilizes panel data of 2327 number of US firms for the period from 2002 to 2018. The study only considers businesses
from the industries of basic materials, consumer goods, consumer services, health care, industrials, oil and gas, technology, and
utilities. The data is collected from Renkitiv Asset 4 database. Renkitiv asset 4 database ranks the firms on its environmental, social and

Table 1
Statistics of industries included in the study.
Industry wise Summary QTY Percentage

Basic Materials 129 6%

Consumer Goods 251 11%
Consumer Services 389 17%
Health Care 438 19%
Industrials 506 22%
Oil & Gas 169 7%
Technology 351 15%
Utilities 94 4%
Total no. Of firms 2327 100%

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governance (ESG) factors [86]. This database covers more than four hundred data points on ESG in Renkitiv. However, the study only
considers the weighted average ESG score as a proxy for corporate social responsibility performance (CSR). Table 1 below shows
statistics of industries included in the study.
The detailed descriptions of the variables are being provided below in Table 2.
Table 3 shows the descriptive statistics for all the variables under consideration. The table shows observations against each var­
iable. Mean, standard deviation, minimum and maximum of all the variables are reported. Standard deviation depicts the variation of a
specific variable form its mean. The table reports that SD of CSR is 53.793%. The values’ variations suggest that some of the businesses
incorporated in the analysis have high CSR scores while others have comparatively low ones. Among all the variables LEV has the
highest level of deviations from its mean i.e. 1333.995%. The lowest level of deviations is seen in tangible shares, which is only
0.052%. similarly, the other variables MTB, SIZE, ROA, STA, and GHGE have 12.750%, 2.079%, 23.975%, 0.072%, and 22.309% of SD
respectively.
The correlation matrix of all the variables is shown in Table 4 to show the association among variables included in this study. The
correlation of variable itself is always 1. The key variables CSR and GHGES show the positive relationship. The result is in line with
hypothesis of the study that the reduction in GHG emissions enhances GHG emission score which ultimately increases CSR rating.
Because if a company reduces its Greenhouse gas emission it is performing a social duty of protecting environment, hence corporate
rating should be increased. Firms with higher profits have high CSR ratings. Since, firms with high profitability are more likely to
disclose their information to financial market. Consequently, they will be scrutinized by public, government institutes, and special
group of interest. Therefore, they are more obliged to perform their social responsibility and reduce their Greenhouse Gas emissions.
Salary to Asset ratio (STA) is negatively associated in the index. LEV, MTB, SIZE, ROA and TSH have positive relationship with CSR.
The positive relationship between ROA and GHGES shows that firms with high profits have more resources to lower emissions and
have high GHGES. Likewise, the negative relation between GHGES and TSH shows that firms with less manufacturing facilities are
prone to low GHG emissions and will have high GHGES. Variance inflation factor (VIF) is a simple test to identify the presence of
multicollineraity. The results of VIF are far less than 10, which means absence of multicollinearity.

4.2. The econometric models and estimation issues

The paper investigates not only the dual relationship between GHGE score and the corporate social Responsibility (CSR) Index, but
also confirms that when a problem like endogeneity is inherent and unavoidable in panel data set, we should use a better and superior
statistical technique to better controlling for endogeneity [13]. This study will provide a step-by-step procedure on how GMM offers a
superior statistical technique for controlling endogeneity as compared to OLS and Fixed effects. To achieve these objectives, the study
has presented four models. Model 1 is used to see the impact of the GHGE on CSR while Model 2 is used to check the impact of CSR on
GHGE. However, Model 3 and Model 4 are displayed here, just to show how Two Step GMM use lagged values as “internal instruments”
from the existing model to better controlling for endogeneity and produce consistent and unbiased results [87].
The study includes many other controls variables which are related to the CSR index and GHGE score. This includes Market to book
ratio (MTB), a total asset which is used a proxy for firm SIZE, and Return on Assets (ROA), Total Debt to equity ratio is used as a proxy
of leverage (LEV), tangible share (TSH), salary to asset ratio (STA).
Model - 1
CSRit = 0 + 1GHGESit + 2LEVit + 3MTBit + 4SIZEit + 5ROAit + 6TSHit + 7STAit + εit (1)
Model - 2
GHGESit = 0 + 1CSRit + 2LEVit + 3MTBit + 4SIZEit + 5ROAit + 6TSHit + 7STAit + εit (2)
Model - 3
CSRit = CSRit− 1 + CSRit− 2 + GHGESit + LEVit + MTBit + SIZEit + ROAit + TSHit + STAit + εit (3)

Table 2
Measurement of the variables.
Variable Description Measurement and Purpose Unit

CSR Corporate Social Responsibility Composed of weighted average Social and Governance score (SG); Score
GHGES Greenhouse Gases emission Calculated on GHG emission basis: Lower the emissions higher will the score and vice versa; Score
Score
LEV Leverage Debt to Equity ratio at year indicates financial soundness of firm; %
MTB Market to book ratio of the firms Market capitalization divided by book value of equity at year t; reflects capital market’s future %
prospects;
SIZE Size of firm Natural logarithm of total assets at the end of year; controls for firm size effect; Log ($)
ROA Return on Assets Net income to total assets at year; indicates profitability of a firm; %
TSH Tangible Share Tangible assets to total assets ratio, at the end of year; reflects level of manufacturing facilities held; %
STA Salary to Assets ratio Total salary to assets during year; high salary indicates more profit sharing with employees.; %

Note: CSR= Corporate Social Responsibility, GHGES = Greenhouse Gas Emission Score, LEV = Leverage, MTB = Market to Book Ratio, SIZE=Firm
Size (Log of total assets), ROA = Return on Assets, TSH = Tangible Share, STA=Salary to Asset ratio.

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Table 3
Descriptive statistics.
Variable Mean Std. Dev. Min Max

CSR 84.024 53.793 0 285.440

GHGES 12.735 22.309 0 66.420
LEV 44.591 1333.995 − 77921.740 96050.000
MTB 0.773 12.750 − 1073.950 1523.480
SIZE 14.639 2.079 1.791 22.087
ROA 12.220 23.975 0.000 100.000
TSH 0.017 0.052 − 0.055 1.000
STA 0.072 0.702 − 108.727 7.578

Here, CSR is Corporate Social Responsibility, GHGES is Greenhouse Gas Emission Score, LEV is Leverage, and MTB is Market to Book Ratio. Moreover,
the firm size is, Log of total assets, ROA = Return on Assets, TSH is Tangible Share, and STA is Salary to Asset ratio.

Table 4
Correlation matrix.
VARIABLES CSR GHGES LEV MTB SIZE ROA TSH STA

CSR 1
GHGES 0.046 1
LEV 0.036 − 0.015 1
MTB 0.244 0.032 0.007 1
SIZE 0.039 0.453 − 0.001 − 0.008 1
ROA 0.404 0.201 0.007 0.236 0.159 1
TSH 0.025 − 0.016 0.011 0.013 0.096 0.056 1
STA − 0.026 0.148 − 0.009 0.023 − 0.139 0.049 − 0.059 1

Here, CSR is Corporate Social Responsibility, GHGES is Greenhouse Gas Emission Score, LEV is Leverage, and MTB is Market to Book Ratio. Moreover,
the firm size is, Log of total assets, ROA = Return on Assets, TSH is Tangible Share, and STA is Salary to Asset ratio.

Model - 4
GHGESit = GHGESit− 1 + GHGESit− 2 + CSRit + LEVit + MTBit + SIZEit + ROAit + TSHit + STAit + εit (4)
Lags of the dependent variables are employed as explanatory variables in GMM estimation techniques. Therefore, endogenous bias
is controlled using lagged values of the dependent variables. Because these tools are taken from the current econometric model, they
are referred to as "internal instruments" [87]. These instrumental variables do not correlate with error disturbance but strongly
correlate with the lagged dependent variable [87]. What happened at time t-1 is frequently one of the best indicators of what will occur
at time t. First-difference transformation (one-step GMM) and second-order transformation (two-step GMM), two different trans­
formation methods, can also be used as GMM estimators [88]. suggested using a second-order transformation (two-step GMM) to
prevent potential data loss caused by the internal transformation issue with the first-step GMM. The second-order transformation
(two-step GMM) applies "forward orthogonal deviations," which means that rather than deducting the average of all current

Table 5
Model 1 empirical results reported for OLS, Fixed Effects and Two-Step GMM (CSR as dependent variable).
Variable OLS FE GMM

CSR L2 – – 0.520*** (0.033)

GHGES − 0.036 (0.027) 0.176* (0.097) 0.141* (0.076)
LEV 0.001*** (0.000) − 0.001*** (0.000) − 0.001*** (0.000)
MTB 3.027*** (0.230) 0.145 (0.126) − 0.751*** (0.162)
SIZE − 0.439 (0.327) 3.649*** (0.445) 0.810* (0.450)
ROA 0.764*** (0.025) − 0.031 (0.042) 0.001 (0.057)
TSH 0.344 (12.318) − 7.832 (9.312) − 13.403 (9.100)
STA − 15.827*** (3.986) 2.840 (7.600) 6.003 (7.268)
CONS 73.033*** (4.703) 19.405*** (6.914) 22.042*** (6.740)
R-Sq. 0.191 0.001 –
AR(1) 0.000
AR(2) 0.185
Sargan test 0.000
Breusch-Pagan 0.000
D-Wu-Hausman 0.000

Probability value***, **, * refers to 1%, 5% & 10% level of significance respectively while standard errors in parenthesis. Here, CSR is Corporate
Social Responsibility, GHGES is Greenhouse Gas Emission Score, LEV is Leverage, and MTB is Market to Book Ratio. Moreover, the firm size is, Log of
total assets, ROA = Return on Assets, TSH is Tangible Share, and STA is Salary to Asset ratio. AR (1) and AR (2) results show that there is no
autocorrelation among explanatory variables and the model is correctly specified as per Sargan test results. Breusch-Pagan test for heteroscedasticity
shows the presence of heteroskedasticity in the data set. Moreover, the results of D-Wu-Hausman indicate the presence of endogenity in regessors.

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observations of a particular variable from its current value [87], the two-step GMM model applies "forward orthogonal deviations"
[88]. Due to the GMM model’s internal transformation process, lagged values, and endogeneity control [89]. The results reported using
the GMM may differ significantly from those reported using the OLS and Fixed Effect methods.

5. Results and Discussion

Table 5, gives GMM results of relationship between CSR (dependent variable) and GHGES (independent variable) in the presence of
other control variables reflect that the coefficient of GHGES is positive and significant at 1% level of significance, which indicates that
higher the greenhouse gas emission score (lower the emissions level) high will be the CSR rating and organization is more responsible
and philanthropist toward the welfare of society. The coefficient of GHGES is 0.141 which is positive and significant at high level of
significance of 1%. This reflects that the less a firm emits, the higher the GHGE score will be, and the higher the CSR will be rated. One-
unit increase in the level of GHGES brings about 14% increases in the ratings of CSR. It indicates that it a significant factor in the
determination of CSR rating. Findings of the study are consistent with our hypothesis and also with the previous studies like [79,80,90,
91]. However, these findings are inconsistent with [57,83]. SIZE is positively and significantly (at 1%) associated with CSR. It indicates
that big firms have ample resources and under more intuitional control to mitigate environmental degradation. So, with increase in
size there is an increase in CSR rating. MTB is negatively associated with the dependent variable at a significance level of 10%.
Leverage and CSR index are negatively related to each other at a significance level of 10%. It indicates that a firm with high level of
debt will focus more on the dealing with debt. It will invest more on financing its debt relatively to participating in CSR activities. Rest
of the control variables i. e ROA, TSH and STA are found to be insignificant.
Endogeneity bias can result in erroneous estimates and inferences, leading to misleading conclusions and unsuitable theoretical
interpretations. Even the bad sign for coefficients may result from this bias. The study has looked at suggested models using three
different methods: OLS, FE, and the GMM, in order to illustrate better how endogeneity bias may result in inaccurate estimates [13]. As
the study considers Two-step GMM a better technique so its results are explained in more detail. OLS and fixed effect results are also
shown for econometric comparative analysis which are also explained as model effectiveness.
The results reported using the two-step GMM are significantly different because the GMM model better controls for endogeneity,
includes lagged values, and applies an inside conversion process from those reported under OLS and Fixed Effect methods. Thus, the
GMM model deals a best available option and superior statistical estimation technique as associated to the OLS and FE. For example, in
Table 5, using an OLS approach, where inherent endogeniety is a common problem in panel data, the coefficient of GHGES is negative
and insignificant, whereas in Fixed-Effect method, which uses static panel data set and is utilized to better control for heterogeneity,
the factor of GHGES is significantly positive at significance level of 1%. While using GMM included lags of dependent variable as
explanatory variables in the form of internal instruments and convert static panel data into dynamic panel data, the coefficient is
positive and significant at high level of 1%. Similarly, the coefficient of Leverage (LEV) in OLS is positive and significant at 10%, and in
both Fixed Effects and GMM it is negative and significant at 10%.The coefficient of MTB in OLS is positive and significant at 10%, in
fixed Effects it is insignificant whereas in GMM it is negative and significant at 10%.In the same way, the coefficient of SIZE in OLS is
negative and insignificant in Fixed Effect it is significantly positive at level of 10% whereas in GMM it is positive and significant at level
of 1%.In the same way, the coefficient of ROA in OLS is positive and significant at 10% level of significance, in fixed Effects it is
negative and insignificant and in GMM it is positive and insignificant.
Table 6, Two Step GMM results of association among GHGES (dependent variable) and CSR Index (independent variable) in the

Table 6
Model 2 empirical results reported for OLS, fixed effects and Two-Step GMM (GHGE as dependent variable).
Variable OLS Fe GMM

GHGES L2 – – 0.072*** (0.001)

CSR Index − 0.008 (0.006) 0.004* (0.002) 0.006*** (0.001)
LEV − 0.000 (0.000) − 1.140 (0.000) − 9.060 (8.680)
MTB 0.065 (0.112) 0.038** (0.019) 0.013** (0.006)
SIZE 5.728*** (0.139) 0.130* (0.070) 0.113*** (0.019)
ROA 0.128*** (0.012) 0.005 (0.006) 0.004*** (0.001)
TSH − 29.832*** (5.913) 2.295 (1.454) 0.268 (0.327)
STA 33.994*** (1.869) 0.218 (1.187) 0.200 (0.159)
CONS − 69.478*** (2.126) 16.078*** (1.053) 8.259*** (0.614)
R-Sq. 0.268 0.123 –
AR(1) 0.000
AR(2) 0.185
Sargan test 0.000
Breusch-Pagan 0.000
D-Wu-Hausman 0.000

Probability value***, **, * refers to 1%, 5% & 10% level of significance respectively while standard errors are in parenthesis. Here, CSR is Corporate
Social Responsibility, GHGES is Greenhouse Gas Emission Score, LEV is Leverage, and MTB is Market to Book Ratio. Moreover, the firm size is, Log of
total assets, ROA is Return on Assets, TSH is Tangible Share, and STA is Salary to Asset ratio. AR (1) and AR (2) results show that there is no
autocorrelation among explanatory variables and the model is correctly specified as per Sargan test results.Breusch-Pagan test for heteroscedasticity
shows the presence of heteroskedasticity in the data set. Moreover, the results of D-Wu-Hausman indicate the presence of endogenity in regessors.

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K. Ahmad et al. Heliyon 9 (2023) e13979

presence of other control variables. Results of this study reflect that the coefficient of CSR Index is positive and significant at 10% level
of significance, which indicates that higher the CSR Index, high will be the GHGES. These results also confirm the greenwashing
strategies of firm regarding the CSR activities, as one side they are showing higher CSR performance but also emitting more greenhouse
gas emissions. The coefficient of CSR is 0.006 which is positive and significant at a significance level of 10%. One-unit increase in the
level of CSR Index brings about 0.6% increases in the GHGES.
Findings of the study are also consistent with the previous studies like [63,66,92–94]. However, results of this study are incon­
sistent with [67,95]. SIZE is positively and significantly (at 10%) associated with GHGES. It indicates that big firms have ample re­
sources and under more intuitional control to mitigate environmental degradation. So, with increase in size there is an increase in
GHGES. MTB is positively associated with GHGES at a significance level of 5%. This shows that shareholders and investors are more
concerned about environment and putting more pressure on management for the supply of CSR. ROA is positive and statistically
significant at level of 10%. Return on Asset (ROA) shows the profitability of a firm; the more profitable a firm is, more likely it will
involve in social activities to meet the CSR demand of the society and to create better image of the organization. Rest of the control
variables i.e., LEV, TSH and STA are found to be insignificant.
As GMM model offers a superior statistical technique for controlling endogeniety, ‘two step GMM’ are significantly different from of
OLS and Fixed Effect model. In Table 6, using an OLS approach, the coefficient of CSR Index is negative and insignificant, using Fixed
Effects method, the coefficient of GHGES is positive and significant at significance level of 1%, Using GMM, the coefficient is positive
and significant at a level of 10%. The coefficient of MTB in OLS is positive and insignificant, whereas in both in Fixed Effect and GMM it
is positive and significant at 5%. In the same way, the coefficient of SIZE in all the three approaches is positive; however, in OLS it is
significant at 10%, in Fixed Effect at 1% and in GMM 10%. In the same way, the coefficient of ROA in OLS is positive and significant at
10% level of significance, in Fixed Effect it is positive and insignificant and in GMM it is positive and significant at a level of 10. The
above comparison of results among OLS, FE and GMM in both model − 1 and model-2 clearly shows that GMM provides most reliable
judgments and consistent results in the presence of different sources of endogeneity, namely “unobserved heterogeneity, simultaneity
and dynamic endogeneity” [96].

6. Conclusion and implications

This study examined the dual association among GHGES and the CSR index of a firm. The firm that emits less GHG is expected to
have a high CSR index because reducing GHGE benefits all members of society. Moreover, a firm with a high CSR rating is expected to
make more efforts intentionally and voluntarily for GHGE reductions to improve its corporate image and enhance its GHGE score.
Understanding the impact of this dual relationship of GHGE and CSR in the USA is crucial at this stage because the USA is not only one
of the biggest emitters of GHG. This study has utilized a panel data set prone to endogeneity bias. To produce consistent, reliable and
unbiased results, we have adopted a step-by-step process to show how GMM (Two-Step GMM) is a superior statistical technique
compared to OLS and fixed effects to better control for endogeneity bias using STATA software. The lowest level of deviations is seen in
tangible shares, which is only 0.052%.
In our model-1 it was hypothesized that high GHGE score will upturn the CSR rating of a firm. The positive and significant results of
this study show that higher the GHGES, high will be the CSR rating. It shows that society is admiring GHG emission reductions efforts of
the respective firms. In our model-2 it was hypothesized that high CSR score will increase the GHGE score of a firm. The positive and
significant coefficient indicates that higher the CSR rating high will be the GHGES. It reflects that firms which recognize demand for
CSR as external pressures generated from the stakeholders and align their strategic decision towards fulfilling the demand for envi­
ronmental CSR, they enjoy high GHGES. In addition, it is also concluded that our variable, SIZE is also a key determinant of both GHGE
score and CSR rating, it remains significant in both the models. Hence, we can say that large-size firms enjoy a low level of emissions
and a high CSR rating. All these results favour our hypothesis and multi-theory-based theoretical conceptualization.
The study has contributed in the following ways; first, the study has examined dual impact of CSR index and GHGES by using USA
data of 17 years (2002–2018) which is least tested in previous studies. Second, this is a multi-theory-based study with Theoretical
conceptualization, as CSR is so multi-dimensional area that it can’t be studies with single or two theories. Third, this study empirically
proves that decision of US administration to withdraw from Paris agreement of 2015 is against public perception and it need to be
revisited. Fourth, when a problem like endogeneity is inherent and unavoidable in panel data set, we should use a better and superior
statistical technique to better control for endogeneity [13]. This study has provided a step-by-step procedure on how GMM offers a
superior technique for controlling endogeneity as compared to OLS and fixed effects.
The managers can use this study’s findings in a few different ways as society admire environmental protection efforts so managers
must make investment to fulfill demand for environmental CSR and include CSR related decisions as part of their strategy. Moreover,
for sustainable development, society and customer expectations must be incorporated in business strategic decisions. Customer
awareness regarding environmental and social issues can change the industrial behaviors, as customer can be a significant factor in
achieving organizational goals [11]. The present research also has implications for policy makers. There must be strong regulations to
limit the carbon emissions and every manufacturing firm should actively participate in the initiatives taken by governments. US
government and other countries must abide by the international treaties such as Kyoto protocol and Paris agreement. First limitation of
the study is that we have based our study on the GHGE score announced by a rating agency and do not we have emissions data in
quantities. Second limitation is that we have not included all variable that may affect GHGE score and CSR score. Further research can
be conducted on the performance of GHGE and CSR of other major contributories of world, as different legal and socio-economic
systems prevail in different countries.

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K. Ahmad et al. Heliyon 9 (2023) e13979

Author contribution statement

Khaleeq Ahmad: Performed the experiments; Analyzed and interpreted the data; Wrote the paper.
Zahid Irshad Younas: Conceived and designed the experiments; Analyzed and interpreted the data; Wrote the paper.
Wajiha Manzoor: Performed the experiments; Contributed reagents, materials, analysis tools or data; Wrote the paper.
Nabeel Safdar: Contributed reagents, materials, analysis tools or data; Wrote the paper.

Funding statement

This research did not receive any specific grant from funding agencies in the public, commercial, or not-for-profit sectors.

Data availability statement

Nil.

Declaration of interest’s statement

The authors declare no conflict of interest.

APPENDIX

A1: Showing the ten lowest ranked countries according to CCPI

Sr. Country Ranking

1 Saudi Arabia 60
2 Islamic Republic of Iran 59
3 Republic of Korea 58
4 Australia 57
5 USA 56
6 Kazakhstan 55
7 China 54
8 Russia 53
9 Malaysia 52
10 Canada 51
Source: CCPI Report 2018

A2: Region wise CO2 emissions (Energy related) from fuel combustion.

Total CO2 emissions (Mt CO2) Growth Rate (%)

2018 2017–2018

China 9481 2.5%

USA 4888 2.5%
Europe 3956 − 1.3%
India 2299 4.8%
Rest of the world 11 249 1.1%
World 33 143 1.7
Source: https://www.iea.org/geco/data/

A3: CO₂ emissions in 2018 tCO2 per

capita

2018

USA 15.02
China 6.97
Europe 6.24
India 1.71
World 4.4
Source::https://www.iea.org/t_c/
termsandconditions.

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