Understanding the puzzle of polluting companies' social responsibility

We call the paradoxical phenomenon that polluting companies, which are widely perceived as lacking a sense of social responsibility, actively engage in socially responsible behavior (e.g., making donations) the puzzle of polluting companies' social responsibility. Theoretically and empirically, we document that access to local government discretion in the standard for collecting pollutant discharge fees is an important reason for polluters to make donations. Using data on Chinese listed companies and the multi-period difference-in-differences (DID) design, we examine the effect of donations made by polluting companies on pollutant discharge fees paid by them. We consistently find that polluting companies that make donations face lower pollutant discharge fees, even as their pollutant emissions continue to rise than companies that do not make donations. Also, environmental, social, and governance (ESG) ratings of polluters by third-party organizations and different intensities of environmental regulations faced by polluting companies significantly affect the relationship between charitable donations and pollutant discharge fees.