Carbon Performance and Executive Compensation: The Moderating Role of Governance
Business Strategy and the Environment, vol.34, no.7, pp.8358-8389, 2025 (SSCI, Scopus)
- Publication Type: Article / Article
- Volume: 34 Issue: 7
- Publication Date: 2025
- Doi Number: 10.1002/bse.70007
- Journal Name: Business Strategy and the Environment
- Journal Indexes: Social Sciences Citation Index (SSCI), Scopus, International Bibliography of Social Sciences, ABI/INFORM, Aerospace Database, Agricultural & Environmental Science Database, Business Source Elite, Business Source Premier, Communication Abstracts, Environment Index, Geobase, Greenfile, INSPEC, Metadex, Pollution Abstracts, Psycinfo, Public Affairs Index, Civil Engineering Abstracts
- Page Numbers: pp.8358-8389
- Keywords: carbon performance, corporate governance, executive compensation, national governance quality, neo–institutional theory, social and environmental accounting, sustainability development
- Open Archive Collection: Article
- Azerbaijan State University of Economics (UNEC) Affiliated: No
Abstract
Amid growing global emphasis on corporate environmental responsibility, the role of executive compensation (EC) in driving carbon performance (CP) remains underexplored, particularly in a cross–country context. This paper addresses this limitation directly by examining the association between EC and CP, considering the moderating effects of corporate governance (CG) and national governance quality (NGI). Using a panel dataset of 1122 firms across 28 countries over an 18-year period (i.e., 13,413 firm-year observations), we find that EC is positively associated with carbon reduction initiatives (process-oriented CP) while negatively associated with carbon intensity (poor outcome-oriented CP). Our results further reveal that CG mechanisms, such as board size, independent directors, CEO–chair duality, gender diversity and sustainability committee, moderate the EC–CP nexus, strengthening the alignment between executive incentives and environmental objectives. Additionally, firms in countries with low NGI rely more on EC to achieve meaningful CP improvements. These findings remain robust across alternative model specifications and endogeneity tests. By integrating insights from neo–institutional theory, this study contributes to the literature by demonstrating how governance structures at both firm and national levels shape the effectiveness of EC in promoting sustainability. Our results offer practical implications for policymakers, investors and corporate leaders seeking to design governance frameworks that strengthen the link between executive incentives and CP in diverse institutional contexts.