This paper examines the effectiveness of the use of executive compensation linked to Corporate Social Responsibility (CSR) goals across US firms. Empirical analysis of a cross-industry sample of 746 listed companies for the period 2002–2013 showed that the use of CSR-linked compensation contracts for Named Executive Officers (NEOs) promotes CSR performance. More specifically, we found that linking NEOs’ compensation to CSR goals produces positive effects in the 3rd year after adoption. As firms accumulate experience and learn how to use the (...) system over the following eight periods, CSR performance increases monotonically. Furthermore, experience accumulated over time affects the different specifications of CSR performance asymmetrically, by reducing both environmental and social CSR concerns and increasing only environmental CSR strengths. Interestingly, we also found that the simultaneous use of other CSR-focused governance systems moderates the effect of a firm’s accumulated experience in using CSR-linked executive compensation on CSR performance: the existence of a CSR committee at the board level and the public release of a CSR report are likely to have a positive moderating effect, while the purchase of a CSR audit has no moderating effect. (shrink)

This article examines the impact of sustainability-oriented governance factors on companies reporting on due diligence requirements of conflict minerals (DDRCM). We use the rating scores that are assigned by the Responsible Sourcing Network (RSN) on a sample of multinational companies between 2015 and 2019. We consider whether the existence and type of an independent external audit, the existence of sustainability reports to communicate a firm’s message, the inclusion of sustainability-related targets in executive compensation contracts, and the existence of board-level sustainability (...) committees are associated with DDRCM reporting. We find that the combined effect of sustainability-oriented governance factors is associated with higher DDRCM reporting suggesting that sustainability governance plays an effective role in shaping the corporate response to conflict mineral risks. We also find that effective boards moderate the association between sustainability governance and DDRCM reporting suggesting that effective boards can substitute for the resources that are required for sustainability governance. (shrink)

Companies are expected to monitor sustainable behaviour to help improve performance, enhance reputation and increase chances of survival. This paper examines the relationship between sustainability committees and independent external assurance on the inclusion of sustainability-related targets in CEO compensation contracts. Using a sample of UK FTSE350 companies for 2011–2015 and controlling for governance and firm characteristics, we find both board-level sustainability committees and sustainability reporting assurance have a positive and significant association with the inclusion of sustainability terms in compensation contracts. (...) However, there is no joint impact between the voluntary use of independent external assurance and the role of sustainability committees on CEO compensation contracts. Sustainability-related terms in compensation contracts are more likely to be included, and higher compensation is likely to be paid, when assurance is provided by a Big4 firm and when a company operates in a sustainability-sensitive industry. Our findings highlight the potential of assured sustainability reports in assessing CEO performance in sustainability-related tasks, especially when sustainability metrics are included in CEO compensation contracts. Overall, our results suggest companies that invest in voluntary assurance are more likely to monitor management’s behaviour and be concerned about the achievement of sustainability goals. (shrink)

In response to demand from investors and other stakeholders, companies have increased voluntary disclosure of climate change-related policies and performance. Information intermediaries have correspondingly emerged to provide needed credibility and commensurability of climate disclosures. However, the provision of performance ratings and lax audit capabilities creates opportunities for firms to manipulate those ratings for impression management. This article explains how firms may attain an intermediary’s favorable assessment of climate performance using varied methods of strategic disclosure. Using data from a prominent climate (...) intermediary (CDP, formerly the Carbon Disclosure Project), I find that strategic disclosure is widespread and effective in attaining higher ratings, particularly through disclosure of forward-looking factors, suggesting that ratings may not be an accurate indicator of a firm’s true underlying performance. This article contributes to commensuration and impression management literatures, offers guidance for mechanism design to improve the reliability of intermediated voluntary disclosure, and highlights important areas for future research. (shrink)

Addressing climate change is among the most challenging ethical issues facing contemporary business and society. Unsustainable business activities are causing significant distributional and procedural injustices in areas such as public health and vulnerability to extreme weather events, primarily because of a distinction between primary emitters and those already experiencing the impacts of climate change. Business, as a significant contributor to climate change and beneficiary of externalizing environmental costs, has an obligation to address its environmental impacts. In this paper, we explore (...) the role of firms’ climate change targets in shaping their emissions trends in the context of a large multi-country sample of companies. We contrast two intentions for setting emissions reductions targets: symbolic attempts to manage external stakeholder perceptions via “greenwashing” and substantive commitments to reducing environmental impacts. We argue that the attributes of firms’ climate change targets are diagnostic of firms’ underlying intentions. Consistent with our hypotheses, while we find no overall effect of setting climate change targets on emissions, we show that targets characterized by a commitment to more ambitious emissions reductions, a longer target time frame, and absolute reductions in emissions are associated with significant reductions in firms’ emissions. Our evidence suggests the need for vigilance among policy-makers and environmental campaigners regarding the underlying intentions that accompany environmental management practices and shows that these can to some extent be diagnosed analytically. (shrink)

Investors with standard monetary preferences will give a fund manager incentives to increase firm profits, which can be achieved through a share in profits via carried interest. When investors have social preferences, it is not clear which incentives the manager should receive. We explore this puzzle by applying an agency theory perspective to impact investing, a practice where investors seek both financial returns and a measurable social or environmental impact. Using an inductive, qualitative approach, we identify and describe the ethical (...) tensions and challenges faced by fund managers to structure and implement impact-based variable compensation schemes. Our results indicate that economic incentives tied to non-financial objectives are useful to alleviate goal incongruity between principals and agents during fund creation but have the potential to lead to perverse effects during the fund lifecycle, where managers may exploit subjective non-financial metrics to maximize personal wealth. We introduce the concept of impact fidelity, a conceptual equivalent of fiduciary duty, to ensure that investment decisions reflect the asset owner’s impact preferences. (shrink)