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.