Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia

Mamo, Yodit Abebe; Sisay, Abrha Mesele; WoldeSilassie, Behailu Dessalegn; Angaw, Kiflie Worku Article Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia Cogent Economics & Finance Provided in Cooperation with: Taylor & Francis Group Suggested Citation: Mamo, Yodit Abebe; Sisay, Abrha Mesele; WoldeSilassie, Behailu Dessalegn; Angaw, Kiflie Worku (2024) : Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia, Cogent Economics & Finance, ISSN 2332-2039, Taylor & Francis, Abingdon, Vol. 12, Iss. 1, pp. 1-23, https://doi.org/10.1080/23322039.2024.2373540 This Version is available at: https://hdl.handle.net/10419/321531 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by/4.0/ Cogent Economics & Finance ISSN: 2332-2039 (Online) Journal homepage: www.tandfonline.com/journals/oaef20 Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia Yodit Abebe Mamo, Abrha Mesele Sisay, Behailu Dessalegn WoldeSilassie & Kiflie Worku Angaw To cite this article: Yodit Abebe Mamo, Abrha Mesele Sisay, Behailu Dessalegn WoldeSilassie & Kiflie Worku Angaw (2024) Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia, Cogent Economics & Finance, 12:1, 2373540, DOI: 10.1080/23322039.2024.2373540 To link to this article: https://doi.org/10.1080/23322039.2024.2373540 © 2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group Published online: 08 Jul 2024. Submit your article to this journal Article views: 2787 View related articles View Crossmark data Citing articles: 1 View citing articles Full Terms & Conditions of access and use can be found at https://www.tandfonline.com/action/journalInformation?journalCode=oaef20 DEVELOPMENT ECONOMICS | RESEARCH ARTICLE Corporate social responsibilities contribution for sustainable community development: evidence from industries in Southern Ethiopia Yodit Abebe Mamo a , Abrha Mesele Sisay a , Behailu Dessalegn WoldeSilassie b and Kiflie Worku Angaw c a Department of Public Administration and Development Management, Dilla University, Dilla, Ethiopia; b Department of Statistics, Dilla University, Dilla, Ethiopia; c Public Governance Institute, KU Leuven, Belgium ABSTRACT This study interrogates the contribution of corporate social responsibility to community development from socioeconomic, environmental, ethical, and philanthropic perspectives. A total of 401 households were selected randomly and proportionally from the Southern Nations Nationalities and Peoples Regional State and Hawassa City from the Sidama Region. Survey data were collected from local communities using the paper-assisted personal interview (PAPI) technique. Interviews with government officials and focus group discussions with local community members. Data were analyzed using a mixed research approach, where quantitative data were analyzed using a structural equation model and descriptive statistics, and thematic analysis was used for qualitative data. The study found that CSR contributes to many aspects of local community development. Our empirical model confirms that proper implementation of CSR initiatives substantially contributes to social development b¼0.913, economic development b¼913, environmental sustainability b¼0.784, ethical aspect 0.767, Philanthropic activities b¼0.814, and overall local development b¼0.960 where p0.001 statistically significant level. The study reasserts and reiterates the need to design appropriate policy instruments and law enforcement techniques, in addition to promulgating regulatory provisions and legal frameworks. The study sheds light on the imperativeness of CSR for smooth human-environment and business-resource relationships. The study contributes to literature, debate, and policy implications on emerging issues of CSR-business, and development discourses. IMPACT STATEMENT Our study passionately explores how Corporate Social Responsibility (CSR) initiatives by industries in Southern Ethiopia significantly enhance sustainable community development across socioeconomic, environmental, ethical, and philanthropic dimensions based on first-hand data. Well-implemented CSR programs lead to substantial improvements in social development, economic progress, environmental sustainability, ethical standards, and philanthropy. However, there is a critical need for well-designed policy instruments and regulatory enforcement to promote CSR and foster harmonious human-environment and business-resource relationships. Without this, industrial activities inevitably cause adverse effects, such as pollution and health damage, exacerbated by poor regulatory control and corruption. Industries must engage responsibly with local communities to benefit them while promoting efficient communication. This research offers valuable insights for policymakers, scholars, and practitioners on the importance of CSR in achieving sustainable development goals, emphasizing its relevance in contemporary business and development discourse and providing substantial implications for policy and practice in emerging economies. ARTICLE HISTORY Received 7 March 2023 Revised 31 May 2024 Accepted 23 June 2024 KEYWORDS Corporate social responsibility; local development; environmental sustainability; community development; Southern Ethiopia REVIEWING EDITOR Robert Read, Economics, University of Lancaster, Lancaster, United Kingdom SUBJECTS Development Studies; Development Policy; Development Theory; Sustainable Development CONTACT Yodit Abebe Mamo [email protected] Department of Public Administration and Development Management, Dilla University, Dilla, Ethiopia ß2024 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent. COGENT ECONOMICS & FINANCE 2024, VOL. 12, NO. 1, 2373540 https://doi.org/10.1080/23322039.2024.2373540 1. Introduction and problem analysis Corporate Social Responsibility lacks a precise definition and a common conceptual understanding. The World Business Council for Sustainable Development (Watts et al., 1999), defines CSR as a business’s commitment to act ethically and contribute to development vis- a-vis improving the quality of life of its employees and local community well-being at large. The European Commission defines CSR it is ‘businesses that voluntarily integrate social and environmental issues into their business operations and relationships with their stakeholders’(European Union, 2002). Of course, in advanced economies, it becomes both the legal and moral obligation of business enterprises to engage in environmental sustainability. CSR is more relevant in extractive industries, that consumes significant amounts of resources. It is because nowadays, sustainability is a great concern where human activities particularly extractive industries have brought undoubtedly unprecedented environmental impacts (Zhang et al., 2023). However, CSR receives less attention or lacks clear policy frameworks in developing countries such as Ethiopia (Mamo et al., 2023), regardless of the devastating multifaceted crises on human and animal health and the environmental impacts of gold extractive industries (Regassa, 2022). The underdeveloped socioeconomic conditions and high unemployment rate of emerging economies coupled with neglected government responsibility in providing appropriate policy and strategic frameworks towards CSR to promote local community development and ensure environmental sustainability results in multiple burdens on local communities as resource frontiers, the environment, and even for business companies (Barsoum & Refaat, 2015; Regassa, 2022). Consequently, companies’CSR initiatives do not reflect communities’expectations, exacerbating business-environment-development interfaces (Barsoum & Refaat, 2015). There are three dynamics of resource and economic development. First, countries need to improve their state’s economic status. Second, the local community at the grassroots level is entitled to benefit from resources, both directly and indirectly. Third, the environment should remain sustainable and safe for future generations (see also Perdeli Demirkan et al., 2021). Given this premise, many emerging economies depend largely on their natural resources, especially in the early stages of their economic development (Dogan et al., 2020). CSR plays a crucial role in that companies are obligated to balance this dynamic and maximize their profit margins. However, in Ethiopia, for example, extractive industries cause profound unprecedented damage to both human and environmental health and negatively affect environmental sustainability (Regassa, 2022). In the literature, this is referred to as a surrogate for the natural resource-curse hypothesis (Dogan et al., 2020). Empirical evidence asserts that despite some attempts to implement CSR initiatives, resource-rich countries and communities, such as Ethiopia, still face multifaceted human-environment crises, income inequalities (Dogan et al., 2020; Regassa, 2022), conflicts, armed violence over access to and control of resources (Idemudia, 2008), political instability, and interwoven actor networks of interest (Robbins, 2011). All of these are ascribed mainly to the presence of the natural resource extractive industry reiterating the reimagination and reconceptualization of CSR projects towards anthropocentrism (cf. Shrivastava, 1995; Walter & Evans, 2023). Butler (2015) indicates that CSR obligates businesses to engage in sustainable development agendas. Muthuri et al. (2012) highlight the need for CSR for sustainable development in developing countries, where high rates of poverty, illiteracy, disease, maladministration, and lack of good governance are common phenomena. Thus, businesses are expected to play a crucial role in solving these problems. For example, companies make a significant contribution to sustainable infrastructure development, such as the construction of schools and health centers, and to environmental protection to compensate for industrial crises that harm human life and the natural environment (Newell & Frynas, 2007; Shrivastava, 1995). The manufacturing industry’s CSR is thought to be linked to the growth of the community in which it operates (Mamo et al., 2023). Community development activities can either be targeted toward improving economic challenges, such as poverty and unemployment, or commitment to community welfare and environmental sustainability (Shrivastava, 1995). Ethiopia’s businesses primarily aim to maximize profit margins at whatever cost to employees, consumers, suppliers, environments, and residents of resource frontiers (Ayele, 2008; Regassa, 2022; Stebek, 2012). For this reason, businesses, particularly large and medium-sized manufacturing industries in 2 Y. ABEBE MAMO ET AL. Ethiopia, are continuously causing devastating human and environmental damage and sociocultural crises (Mamo et al., 2023; Regassa, 2022). More importantly, poor policy implementation instruments that govern the relationship between businesses, resource owners’local communities, and the environment have become more problematic. Frequently, in Ethiopia, the local community is disappointed, with an imbalance between what the industries promised and their actual performance (Mamo et al., 2023). On the one hand, there is evidence of a lack of proper law enforcement and policy instruments, regardless of the government of Ethiopia providing various regulatory frameworks for businesses. On the other hand, devastating human-environmental damages continue to occur where industries are operating (Mamo et al., 2023; Regassa, 2022). Previous CSR studies in Ethiopia had several limitations. For instance, Mamo et al. (2023) studied the socioeconomic contribution of CSR to local community residents, and a study by Regassa (2022) limited the environment and human health crisis of extractive industries by relying on a qualitative approach from a single extractive industry. Studies by Robertson (2009), and Kellow and Kellow (2021) emphasized a conceptual understanding of CSR, and Eyasu and colleagues studied the causal factors of CSR and business operations. However, the explicit contributions of industries to holistic local community developments of manufacturing industries remain largely unstudied. Furthermore, methodologically, previous studies have been limited to exploratory, descriptive, or story narration. Against this backdrop, the current study attempts to fill these gaps by evaluating the explicit contribution of manufacturing industries to local developments –socioeconomic, environmental, and philanthropic wellbeing using a structural equation model (SEM) based on data obtained using a multimethod mixed research approach. The study aimed to answer central question: To what extent are industries contributing to local community developments (socioeconomic, environmental, legal, and philanthropic) well-being? The study uses the stakeholder theory perspective to answer this research question. Stakeholder theory states that business firms are responsible for many stakeholders besides shareholders. Employees, suppliers, customers, government, investors, community, and environment (Krisnawati et al., 2014) that business firms owe corporate accountability toward a broad range of stakeholders’interests. The paper makes a threefold contribution: First, we try to fill methodological gaps in previous studies by using SEM on CSR and community development. Second, it sheds light on the relevance of CSR for promoting sustainable development from the developing [Ethiopia] countries context, where empirical studies are lacking. Third, our results contribute to CSR literature, debate, and policy implications. 2. Concept of CSR, community development, and hypothesis of the study CSR as a managerial practice originated in the 19th century when people became critical of and began to question the role of businesses in society (Visser et al., 2010). This was when industrial activities increased tremendously and imperialism was at the root of the fast-developing global economic system. CSR has become a global concern (Saiia et al., 2003). Business firms benefit the community’s wellbeing and environmental safeguarding (Blowfield & Frynas, 2005; Carroll, 1999; Du et al., 2013). In addition, CSR is a concept understood as where in companies integrate social and environmental concerns in their business operations and their interaction with their stakeholders voluntarily’(European Union (2002). In other words, CSR is a ‘way in which companies achieve a balance of economic, environmental and social imperatives’(Rai & Bansal, 2014). Businesses’practice of corporate social responsibility toward their host communities has far-reaching community development benefits. Businesses and organizations must pay more attention to Corporate Social Responsibility to avoid disputes, which can obstruct the achievement of the company’s specified goals (Nwoba & Michael, 2016). Moreover, many jurisdictions have been using CSR as a tool for socioeconomic development, recognizing that employees are a resource to be valued, ethical issues are central to the organization, and corporations have been required to work somewhat with suppliers and customers (Murphy & Schlegelmilch, 2013). In addition to the roles of governments, religious institutions, and traditional authorities, industries also play a significant role in community development (Adewuyi & Olowookere, 2010). In line with this, according to Moon (2007), businesses must utilize CSR to improve sustainable Community Development, particularly in their host communities, to raise their social status and strengthen their ability to exist. COGENT ECONOMICS & FINANCE 3 Due to this significant role, corporations’goals must include helping community development stakeholders achieve their own financial goals. Participation in CSR has become increasingly enticing as a result of stakeholders’growing awareness of it and the expectations that businesses support CD. Therefore, CSR is necessary to offset irresponsible corporate actions (Kotchen & Moon, 2012). In the modern world, stakeholders are frequently exposed to news reports in the media regarding the harmful effects on safety, health, and the environment caused by the operations of companies in the extractive sector (Unerman & O’Dwyer, 2007). Many economically viable activities in host communities, such as farming and fishing, may be affected by the operations of companies in the extractive industry. Mining and oil exploration have reportedly had an impact on ecosystems all over the world, which has led to the loss of local peoples’means of subsistence. CSR efforts include creating alternative means of subsistence for locals through skill training, agricultural projects, and educational sponsorships. Additionally, CSR in developing countries is mostly pro-poor. CSR programs can be implemented internally to combat poverty among staff members, as well as externally in the community. At the local level, Medina-Mu~ noz and Medina-Mu~ noz (2020) claimed that programs such as skill training for local communities can aid in reducing poverty. Community support is required, including donations and volunteer work to aid the needy, support educational and medical institutions, and involvement in initiatives to alleviate hunger. One of the CSR theories applied in this study is stakeholder theory. Freeman (2002) states that stakeholder theory suggests that a company’s obligation is not only to maximize profit and increase stakeholder satisfaction. According to Freeman and McVea (2005) and Friedman and Miles (2006), stakeholders are people interested in a company’s activities. The following is what stakeholders expect from their organizations: owners (financial, added value), employees (pay, work satisfaction, training), customers (supply of goods and services, quality), community (safety and security, contribution to community), and government (compliance, improved competitiveness) (Cannon, 1994). Moreover, Different authors (Fassin, 2009; Kassinis & Vafeas, 2006) define stakeholder pressure as the ability and capacity of stakeholders to affect an organization by influencing its decisions. Extending this theory, different researchers have pointed out several dimensions of CSR: customers, employees, shareholders, society, environment, media, and others (Maignan et al., 1999; Turker, 2009). 2.1. The concept of community development In the context of this study, we adopted the widely used meaning of community development given by the United Nations. According to the United Nations’definition, community development is an effort of individuals in a community conducted in such a way as to help solve community problems with minimum help from external organizations. External organizations include government and non-government organizations and corporations of various types and sizes, such as small and medium enterprises (SMEs) and multinational corporations (MNCs). The UN’s definition of community development emphasizes creativity and self-reliance in the community for shortand long-term goals, while maintaining various business firms’CSR roles. Hence, the Industry’s CSR role in community development in the context of this study is a combination of any direct and indirect benefits received by the community as a result of fulfilling the social, economic, environmental, philanthropic, and ethical role or commitment of corporations to the overall community and social system. 2.2. Hypothesis CSR offers prospects for community development and poverty reduction in developing countries (Ashley & Haysom, 2006; Ite, 2004). Firstly, CSR presents a significant opportunity for governments in developing countries to collaborate with the private sector to optimize the impacts of CSR on community development in poor communities (Fox et al., 2002). Imperatively, this asserts that governments are presented with the opportunity to harness CSR potential and align CSR initiatives with community development priorities. There are also optimistic arguments from a business perspective that CSR is a strategic concept that not only improves the competitiveness of a corporation but also contributes to the well-being of the society or community 4 Y. ABEBE MAMO ET AL. within which it operates (Burke & Logsdon, 1996; Porter & Kramer, 2002,2006). Some scholars have even suggested that CSR should be broadly rooted in the understanding that corporations and society need each other (Porter & Kramer, 1999,2011). Community development through CSR in the industry is essential to the government because companies and industries can complement the government’s efforts in community development and poverty reduction. Secondly, companies and industries exist in the same communities as the poor and, therefore, have the closest first-hand experience of the needs of neighboring communities and the best or most appropriate solutions to meet those community needs. Thirdly, CSR provides an essential opportunity for the government and private sector to increase the pool of resources to tackle community development challenges through CSR in a more direct, innovative, and sustainable way (Mitchell & Ashley, 2006). Furthermore, some scholars have argued that, once properly harnessed, in certain circumstances, CSR can offer more opportunities for the private sector to positively impact community development and poverty reduction than the government and its development partners (Spenceley & Meyer, 2012). Based on these arguments and facts, the following hypothesis is proposed. 2.2.1. Economic responsibility and CSR Carroll (1991) asserts that firms have four fundamental responsibilities, the most significant of which is economic responsibility given that African nations are afflicted by high unemployment, foreign loans, and poverty. The economic responsibility of industries participating in CSR activities includes developing the local economy, preventing corruption and all forms of inducement, paying taxes to the federal, state, and local governments, and employing locals to provide jobs, decent working conditions, personal funds, and other benefits (Amponsah-Tawiah & Dartey-Baah, 2016). Multinational cooperation in transitional economics is valued by policymakers and the communities in which they operate because of their role in poverty reduction and job creation, according to Lockett et al.’s(2006) analysis of CSR research conducted in Africa. International corporations, like Cisco Systems and Shell, establish new operations and open branches in developing nations to create jobs for local people and lower poverty-related unemployment. Thus, we hypothesize as follows: H 1a : There is a positive relationship between industries’economic responsibility and corporate social responsibility. 2.2.2. Social responsibility and CSR Promoting social amenities like roads, clean water, and health, as well as reducing poverty in local communities, are among the main responsibilities of industries’Corporate Social Responsibility. The degree to which a company engages in corporate social responsibility to assist the community in the areas of health, education and the arts is positively correlated with the company’s market share within its industry (S anchez, 2000). H 1b : There is a positive relationship between CSR and the social responsibility of industries and corporate social responsibility. 2.2.3. Ethical issues and CSR activities Carrying out business operations in a trustworthy and honest manner (avoidance of unethical behavior), trusting the promise and actions and contributing to the betterment of society and local communities. Corporate success has been shown to favorably correlate with ethical behavior and concern for people and the environment (Crowther & Aras, 2008). H 1c : There is a positive relationship between an industry’s ethical aspects and corporate social responsibility 2.2.4. Environmental responsibility and CSR CSR helps to protect the environment. It cannot be denied that some of the world’s largest corporations have made an evident commitment to CSR, for example, through initiatives aimed at reducing their COGENT ECONOMICS & FINANCE 5 environmental footprint (Ismail, 2009). Corporations believe that financial and environmental performance can work together to drive corporate growth and social reputation. This attitude can only enhance the employment value proposition, such as interest in ‘going green’and gaining traction (Perrin, 2016). Environmental-based CSR programs are essential for promoting human well-being, maintaining ecological integrity, and protecting the environment and its natural resources. This includes the availability and accessibility of assured resources such as clean air and water, and adequate livelihoods. H 1d : There is a positive relationship between the environmental aspects of industries and corporate social responsibility. 2.2.5. Philanthropic responsibility and CSR Philanthropy is expressed as a business organization’s desire to enhance welfare activities for the community and society through social and economic services. According to Dakare et al. (2011), a business organization can profit from using natural community resources. Thus, the community needs to be compensated directly or indirectly for what is taken out of the community. H 1e : There is a positive relationship between the philanthropic responsibility of industries and corporate social responsibility. 2.2.6. Corporate social responsibility (CSR) and community development As society expects business organizations to rise in the direction of their significant role-playing in the community, some companies are finding ways to integrate CSR into long-term business strategies in mutually beneficial ways for both communities and enterprises. CSR relates to business, government, and civil society collaboration, with the bottom line being the achievement of a win-win situation (Ismail, 2009). A CSR program can be viewed as an aid to alleviate poverty. According to Masum et al. (2020), managers and employees need to participate in voluntary and charitable activities within their local communities, especially in projects that enhance a community’s quality of life. Successfully implementing CSR programs in community development promotes growth, reduces poverty, and is financially beneficial for members of society. Development discourse claims that CSR offers new prospects for addressing poverty and underdevelopment in developing countries (Bohdanowicz & Zientara, 2008; Moon, 2007; Porter & Kramer, 2006). For instance, the United Nations (UN) has officially recognized the private sector’s important role in development and called for a ‘global partnership’for development (United Nations, 2012). State governments have been translating and domesticating this partnership, particularly in developing countries. H 2 : There is a positive relationship between CSR and Community development. 3. Materials and methods 3.1. Conceptual framework of the study The conceptual framework of the study illustrates the positive contribution of industrial CSR activities to sustainable community development based on the variables shown in the figure below. However, these industries inevitably experience adverse environmental and health consequences. Empirical data (Mamo et al., 2023; Regassa, 2022) show the adverse effects of industrial activity on Ethiopia’s local community and environment. Mamo et al. (2023) indicated that the soap and beverage industries in Hawassa, the flower factory in Welkitie, and the textile factory in Butajura towns, especially the soap factory, dispose of their waste in the open environment with little treatment. This exposes the surrounding community to various health problems such as asthma due to foul odors and skin diseases. Pregnant women who work in these industries or live nearby face an increased risk of abortion because of waste. Furthermore, the health and productivity of cattle (e.g., goats, sheep, and cows) are increasingly damaged when they drink factory-released waste liquids (Mamo et al., 2023). Regassa (2022) points out the extent of negative environmental and health consequences of the extractive gold mining industry. 6 Y. ABEBE MAMO ET AL. Nevertheless, the explicit contribution of manufacturing industries to sustainable community development in terms of socioeconomic and environmental sustainability, ethical compliance, and other sociophilanthropic activities remains largely unstudied. Therefore, this study, in conjunction with previous studies, will provide a significant impetus for policy formulation and assist the government in preparing legal guidelines for industries (Figure 1). 3.2. Description of the study area One of Ethiopia’s regional states is the Southern Nations, Nationalities, and People’s Region (SNNPR). Kenya (including a small portion of Lake Turkana) borders the SNNPR on the south, the Ilemi Triangle (a region claimed by both Kenya and South Sudan) on the southwest, South Sudan on the west, the Gambela National Regional State on the northwest, and the Oromia National Regional State on the north and east. The region is expected to have a population of 14,929,548, with 7,425,918 men and 7,503,630 women (Central Statistical Authority [CSA], 2007). Rural residents comprised 13,433,991 people (89.98%), whereas city dwellers comprised 1,495,557 people (10.02 percent). According to these estimates, SNNPR is Ethiopia’s most rural area. With an estimated area of 105,887.18 square kilometers, this region has a population density of 141 people per square kilometer. This region has 3,110,995 households, with an average of 4.8 people per home (3.9 persons per household in urban areas and 4.9 persons per household in rural areas). Sidama, the second study area region, has become Ethiopia’s newest 10th regional state since June 2020 and is located approximately 275 km south of Addis Ababa. Sidama became Ethiopia’s tenth regional state in November 2019, after serving as one of the administrative zones of Ethiopia’s Sothern Nations Nationalities and People’s Regional States. Sidama is found between 6100and 7050north latitude and 38210and 39110east longitude. It is largely bordered to the south, north, and east by the Oromia area, to the south by the Gedeo zone and Oromia, and to the west by the Bilate River. A total of 8 manufacturing industries located in Gedeo, Gurage, Wolayta, Gamo Zones and Bugarija city in the SNNPR region, and Hawassa City in the Sidama region, were purposefully chosen based on the recommendation of SNNPR and Sidama Region Investment office and the level of local community resides around these industries. METAD Agriculture Development PLC from Gedeo Zone, Tinaw Flower Factory and Destaw Textile from Gurage Zone, Dilbe Ali Plastic PLC and Floor factory from Wolaita Zone, Arba Minche Textile factory Figure 1. Conceptual framework of the study. Source: authors’conceptualization. COGENT ECONOMICS & FINANCE 7 analysis (resampling ¼5000) was utilized to estimate the path coefficients of the structural model. The findings show that economic aspects have a significant positive relationship with CSR practices (b¼0.761, p¼0.000). Therefore, H 1a was supported. The social aspect has a significant positive relationship with CSR practices (b¼0.913, p¼0.000), H 1b is supported, ethical issues have a significant positive relationship with CSR practices (b¼0.814, p¼0.000), H 1c is supported, environmental responsibility has a significant positive relationship with CSR practices (b¼0.784, p¼0.000), H 1d is supported, and philanthropic activities and CSR activities have a significant positive relationship (b¼0.767, p¼0.000), H 1e is supported. A significant positive relationship between CSR practices and community development b¼0.960 was found to be significant at p¼0.000. As a result, hypothesis H 2 was supported: CSR has a significant effect on community development, as shown in Figure 4. The effect of an independent variable on a dependent variable is known as the direct effect. Figure 4 and Table 8 show the significance of each path coefficient, which was used to calculate the regression coefficient estimate beta, p-value at 5% significance, and effect size (f 2 ). This study calculated the effect sizes of various factors (see Table 8). According to Sullivan and Feinn (2012), both statistical significance (p-value) and the highest significance should be reported in the results. To compute the effect size (f 2 ), which explains the highest effect of the omitted variable on the endogenous variable, Hair et al. (2014) recommend that changes in R should be studied when an exogenous variable is omitted from the model. (Sawilowsky, 2009; Selya et al., 2012) provided commonly used standards for effect size, which are 0.02, 0.15, and 0.35 for small, medium, and significant effects, respectively. According to Akter and Hani (2011), the study used the effect size (f 2 ) for all values, which can be used as a cut-off for the validation of the PLS model, and was estimated using the criteria provided by Wetzels et al. (2009). The effect size (f 2 ) for the study model was higher than the threshold value of 0.35 for the highest effect size of R 2 suggested by Akter and Hani (2011). Table 8. Structural model results. Relationship Hypothesis path coefficient (b)pValue Result f 2 Social Aspect !CSR H1a 0.761  Supported 0.389 Economic Aspect !CSR H1b 0.913  Supported 0.678 Ethical Issue !CSR H1c 0.767  Supported 0.358 Environmental Responsibility !CSR H1d 0.784  Supported 0.465 Philanthropic !CSR H1e 0.814  Supported 0.425 CSR Community Development H2 0.960  Supported 0.710 Source: Authors. Note. Significant at 0.05 level, Significant at 0.001 level. Table 7. Testing for multicollinearity assumption. Constructs Items/Indicator VIF Tolerance (1/VIF) Social Aspect SA1 3.012 0.332 SA2 1.511 0.662 SA3 3.101 0.322 SA6 3.003 0.333 SA7 2.815 0.355 Economic Aspect ECO1 2.897 0.345 ECO4 3.129 0.320 ECO5 2.288 0.437 ECO6 2.340 0.427 ECO8 2.867 0.349 Ethical Issue ENV4 2.872 0.348 ENV5 3.063 0.326 ENV7 1.399 0.715 ENV8 3.005 0.333 Environmental Responsibility ETH4 1.163 0.860 ETH6 2.153 0.464 ETH7 2.092 0.478 Philanthropic PHI1 1.332 0.751 PHI2 1.887 0.530 PHI3 1.843 0.543 Source: Authors. 14 Y. ABEBE MAMO ET AL. 5. Discussion High altitudes of poverty, illiteracy, disease, poor governance, unemployment, corruption, and lack of infrastructure in developing countries lead to underdevelopment. To overcome this problem and enhance community well-being, companies play a vital role in addressing these problems through Corporate Social Responsibility (Figure 5). 5.1. Social responsibility and CSR The results in Table 8 and Figure 4 show the significant or positive relation of the social responsibilities of industries with corporate social responsibility and community development. Social responsibility of industries and CSR are significant positive relationships indicated in Table 8 (H2, b, 0.913, pvalue 0.001), which has been found statistically significant at a 1% significance level. This means that industries fulfill their social responsibilities such as being actively involved in local community projects and activities, building schools for the community, and promoting healthcare delivery to the local community. Industries in Southern Ethiopia actively participate in providing educational material for local community children, building or contributing to school buildings, handing over supporting materials to poor people, and funding to educate and care for autistic children in the community. This Figure 4. The efect of corporate social responsibility. Figure 5. Finding of the study. Source: Authors. COGENT ECONOMICS & FINANCE 15 finding is in line with Knudsen (2015), who stated that donating to community education is a way to do good, and demonstrates a corporation’s responsibility to the community to improve social living standards by enhancing the quality of education. In addition, industries are participating in health protection activities such as planting trees in hospitals, donating blood, treating elderly people, and covering medical fees. This construction of the CSR contribution to community health care denotes corporations’ donating policies to help the community regarding health issues to improve the health condition of community members (Eweje, 2006; Mahmud et al., 2020). Within this, not all industries are in the same position and fulfill social responsibilities like other companies. The FGD we held with the local community also stressed this point. The local community indicates that even though the industries are promised to promote community well-being by providing clean water, building schools, and constructing roads to interconnect urban and rural areas, this has not yet occurred in our local area. From our observations, we can confirm this fact, and some industries in the study area still need to fulfill the required and promised responsibilities. 5.2. Economic responsibility and CSR Economic responsibility of industries and CSR, are significant positive relationship indicated in Table 8 (H1, b, 0.761, pvalue 0.001), has been found statistically significant at a 1% significance level. In this context, industries assessed in southern Ethiopia fulfill their economic responsibilities through employment creation in the local community, especially for educated but unemployed youth. This will lead to poverty reduction and improve the well-being of the local community. An interview with the regional investment commission indicated that most regional companies lack integration, which may be helpful in the transfer of technology, a skilled workforce, economic scale-up, and additional job opportunities. According to Youssoufou (2014), a socially responsible business organization must be able to integrate actions into the national economy, and the inter-industry linkage between the group’s activities and other sectors of the economy can measure it. The three primary obligations of the industries are hiring local workers, which ensures the supply of employment opportunities and good working conditions. In our case, industries are producing job opportunities for local communities, but the wages, working conditions, and working environment do not benefit the company’s employees. Even though these industries create employment opportunities for locals, they require job security and a suitable working environment. Low income and long work hours without relaxation impair employees’physical and psychological well-being according to a focus group with industry employees and their families. Consequently, most employees abandon their jobs. Furthermore, corporations that do not provide training and future employment opportunities, as well as employee safety, are not considered. Alemayehu (2017) states that corporations are very careful regarding CSR initiatives involving employee safety, security, benefits, development, and overall well-being. 5.3. Ethical responsibility and CSR The Researchers hypothesized that CSR would positively affect the ethical issues of industry activity, as shown in Table 8 (H3, 0.767, pvalue 0.000). This finding portrays the significant relationship between corporate social responsibility and ethics. According to an interview with the managers of companies in Hawassa City and Gedeo zone, gedeb woreda infers that their companies respect the norms, beliefs, and values of community members, which has helped them to create good relationships with local community members. This result is consistent with the findings of Szczecin (2014). Responsible companies can generate profits by simultaneously developing both in-house and external social relationships. 5.4. Environmental responsibility and CSR The result expressed in Table 8 (H4, b, 0.784, pvalue 0.000) shows that CSR positively and significantly affects the environment. Thus, other things that remain constant, CSR involve environmental conservation and protection. There is a positive correlation between environmental responsibility and corporate 16 Y. ABEBE MAMO ET AL. reputation, as pollution reduction enhances confidence and safety for employees, communities, and consumers (Ganescu & Dindire, 2014). According to interviews with the managers of the METAD industry in the Gedeo zone, the coffee processing industry, and the farmers around the site confirmed that the community, through the help of the industry planting trees every year, has a dual advantage for the farms and the environmental rehabilitation. This served as a shelter for growing coffee plants and protected the area from erosion. Companies with both CSR and Environment Management Systems (EMS) will have higher profits than those that have only one of them (Dubravsk a et al., 2020). In contrast, industries in Hawassa city, such as the ETAB soap factory, pollute the environment, dispose of wastes to the community, and seriously affect the health condition of the local community and cattle in the area (Mamo et al., 2023). This is because the Hawassa city administration’s inability to properly implement environmental policies and regulations and take corrective measures has played a significant role in polluting the environment and affecting the community’s health. 5.5. Philanthropic responsibility and CSR Based on the result (H5, b, 0.814, pvalue 0.000), indicates the relationship between philanthropyand CSR is statistically significant. This indicates that companies participate in charitable activities to support communities. In most company sites, the community members around the business organization state that the companies provide them with free services, especially TINAW flower companies, which provide free healthcare services for elders and pregnant women. In most of the surveyed zones, companies cover educational expenses for poor youth. According to interviews with company managers, they help poor and elderly orphan children by providing exercise books, pens, books, and chairs for community schools; sponsoring art and cultural activities; and sponsoring youth for sports events. 5.6. CSR and community development The Researchers hypothesized that CSR activity would have a significant positive effect on community development;the result in Table 8 (H6 50.960, p¼0.000) was found to be statistically significant at the 1% significance level. Industries may contribute to sustainable community development by maximizing positive economic, social, environmental, and ethical activities, and increasing philanthropic activities in the local community. This suggests that CSR plays a key role in community development. According to the FGD community members in Welkite and Butajira in the Gurage zone, and Gedeb woreda in the Gedeo zone confirmed that the companies in their community have contributed to their community development in areas such as the construction of tributary roads that link Kebele to Kebele, and bridges that link kebele to Woreda, provision of water supply which help to the day to day activities, supporting the poor people, create employment opportunity and alleviate poverty, planting trees to protect the environment degradation. 5.6. Research problem, solutions, and the theoretical contribution of the study This study aims to fill the theoretical, empirical, and methodological gaps that have not been addressed in previous studies. The primary objective of this study is to assess the extent of industries’socioeconomic, environmental, ethical, and philanthropic responsibility to enhance sustainable community development. This study was based on and supported the stakeholder approach, which claims that corporate organizations have stakeholders in addition to shareholders to whom they own obligations. Business organizations owe corporate accountability to a wide range of stakeholders’interests, including those of their workers, suppliers, consumers, government, investors, community, and the environment. The study found and demonstrated a positive relationship between CSR and community development. First, companies play a constructive role in the social development of their local communities by actively becoming involved in initiatives and events such as building roads and potable water systems and enhancing the quality of life for residents. Second, there is a strong and positive correlation between companies’CSR activities and local communities’economies. This indicates that industries are the primary source of employment for local COGENT ECONOMICS & FINANCE 17 communities, that certain industries supply agricultural supplies for farmers, and that some industries transfer skills to communities located nearby industries. Third, the study found that, except for the industries found in the Hawassa city administration, which have harmful effects on the overall health of society, industries invest in sanitation and health facilities to prevent industrial spillover effects on the environment and residents’health. Fourth, the ethical effects of companies on the neighborhood are positive. Except for some of the industries indicated above, industries operate in accordance with the moral and ethical standards established in the community and have conducted environmental impact assessments in conjunction with local communities. Finally, industries occasionally play charitable roles in nearby communities. For instance, the observed industries are actively involved in responding to various crises (natural or man-made), voluntarily providing financial and non-financial support to society’s most vulnerable groups (children, the elderly, women, etc.), and contributing to youth sports festivals. In conclusion, industry-wide CSR initiatives support community development for both the local community and general social and economic growth of the nation. 6. Policy suggestion To mitigate the adverse impacts of industries on the environment and society, the government should impose stringent regulations on these sectors and assess existing policies, rules, and regulations concerning industries in relation to their implementation. Merely providing regulatory frameworks does not guarantee success unless appropriate policy instruments and legal enforcement are provided. In addition, the industries carried out their responsibilities, benefited the community, and discussed with them to promote efficient communication and handle issues related to local community development. Additionally, the community needs to support the industry’s development agenda and play a constructive role in its development strategy for the community. 7. Conclusion The conclusions of this study, which only examined two Southern Ethiopian regions from the viewpoint of the local population, are generalizable to the area. Additionally, this study excluded industry workers, who need to be investigated. The structural equation model results show that industries have a positive and significant contribution to community development but not to the expectation level of the community. Some industries’activities have adverse side effects on communities living near the industry. Industries must fulfill their responsibilities to enhance sustainable community development and protect the community from the spillover effect of their business activities. The responsibilities of companies over the communities are social, economic, environmental ethical, and philanthropic. According to the study’s conclusions, industries’CSR positively contributes to the sustainable development of communities. According to our findings, industries play a positive and active role in social, economic, ethical, environmental, and philanthropic endeavors that improve the community’s standard of living. However, not all contribute equally to the community’s sustainable development. Some industries have adverse impacts on the environment and the local community, which leads to various diseases; the farming areas of the community are affected by the poorly treated water released by the industries, and cattle die as a result of this effect, which incurs unnecessary costs and develops a negative perception of the industry as a result of poor control mechanisms, corrupt officials, and irresponsible activities of companies. Acknowledgments We are grateful to the local community, industry managers, and government officials who participated in this study for their honest and cooperative responses to all questions solicited in this research. We would also like to thank the Dilla University, Research, and Dissemination Office for the financial support we received to carry out the research project on which this article is based. We are grateful to the anonymous reviewers and editors for their 18 Y. ABEBE MAMO ET AL. constructive suggestions, which improved the quality of the paper. However, any errors that remain in this article remain our intellectual responsibility. Disclosure statement The authors declare that they have no conflict of interest. Funding The study was funded by the Dilla University. About the authors Yodit Abebe Mamo is a Lecturer and Researcher at Dilla University, Dilla, Southern Ethiopia. She has BA degree in Public Administration and Development Management and MA degree in Public Management and Policy. Her research interests include Public Policy, Development Policy, Public Sector Reform, Gender, Capacity Building and Empowerment, Informal Economy, Livelihood and Community Development. The group’s main research focus areas are community development, public policy, development policy, and policy reform. This research work addresses the means of community development and the responsibilities of the public, business, and other sectors in achieving sustainable local community development. Abrha Mesele Sisay is a lecturer and researcher at Dilla University. He has MA degree in Development Management. His research interest include development, small scale enterprise, poverty, empowerment, government reform and governance. Behailu Dessalegn Woldeselassie is a lecturer and researcher at Dilla University. He has MA degree in Applied Statistics. His research interest includes healthcare dynamics, educational development, agricultural innovation, descriptive and inferential statistical analysis. Kiflie Worku Angaw is PhD research fellow at the Public Governance Institute, KU Leuven, Belgium. His research interests include public administration and policy training, policy work, policy capacity, civil service systems, policy advisory, policy analysis, and digital governance. 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