The effects of board characteristics and sustainable compensation policy on carbon performance of UK firms

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Abstract

This study examines the effects of board characteristics and sustainable compensation policy on carbon reduction initiatives and greenhouse gas (GHG) emissions of a firm. We use firm fixed effect model to analyse data from 256 non-financial UK firms covering a period of 13 years (2002-2014). Our estimation results suggest that board independence and board gender diversity have positive associations with carbon reduction initiatives. In addition, environment-social-governance based compensation policy is found to be positively associated with carbon reduction initiatives. However, we do not find any relationship between corporate governance variables and GHG emissions of a firm. Overall, our evidence suggests that corporate boards and executive management tend to focus on a firm’s process-oriented carbon performance, without improving actual carbon performance in the form of reduced GHG emissions. The findings have important implications for practitioners and policymakers with respect to the effectiveness of internal corporate governance mechanisms in addressing climate change risks, and possible linkage between corporate governance reform and carbon related policies.
Original languageEnglish
Pages (from-to)347-364
Number of pages18
JournalThe British Accounting Review
Volume49
Issue number3
Early online date6 Jan 2017
DOIs
Publication statusPublished - May 2017

Keywords

  • Carbon reduction initiatives, GHG emissions, board independence, gender diversity, ESG-based compensation.

ASJC Scopus subject areas

  • Accounting
  • Finance

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