article · Business Strategy and the Environment
An analysis of 15,876 firm-year observations across 22 industrialised European countries between 2002 and 2022 evaluates the influence of executive compensation and board sustainability integration on greenhouse gas performance. The research investigates both greenhouse gas management processes and actual greenhouse gas emissions. The findings show that while executive compensation correlates positively with management processes, it does not significantly reduce actual emissions. Furthermore, the interaction between executive compensation and board sustainability integration can create a legitimacy gap by failing to meet societal environmental expectations. The findings also reveal that companies investing in greenhouse gas management processes frequently exhibit higher emissions levels, suggesting that these management practices are often used primarily as symbolic tools to maintain corporate legitimacy rather than achieve genuine environmental improvements.
Corporate governance structures frequently promise environmental accountability, but procedural measures do not always lead to lower emissions. By showing that internal processes and executive incentives can serve as symbolic cover for high-emitting activities, this research alerts stakeholders and regulators that process-oriented corporate sustainability claims may not match real-world reductions in carbon footprints.
The abstract does not indicate an application pathway, as it focuses on empirical governance analysis rather than an applied commercial product or service.
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ABSTRACT This study examines the impact of executive compensation (EC) and board sustainability integration index (BSII) on both greenhouse gas emissions (GHGE) and greenhouse gas management processes (GGMP). Additionally, it investigates the relationship between GGMP and GHGE to assess the effectiveness of process‐oriented measures in reducing actual emissions. Through the lens of legitimacy theory and incentive alignment theory, we harness an extensive dataset encompassing 15,876 firm‐year observations across 22 industrialised European countries from 2002 to 2022. First, the findings show that although EC positively correlates with enhanced GGMP, it has an insignificant effect on GHGE reduction. Second, the results suggest that although BSII independently bolster sustainability initiatives, the moderating effect of BSII on EC (EC*BSII) may lead to a legitimacy gap. This gap emerges when the relationship of EC and BSII falls short of societal expectations regarding environmental performance, potentially eroding organisational legitimacy. Third, the findings indicate that firms that engage in GGMP also tend to have higher levels of GHGE, pointing to the use of GGMP by firms as a means of symbolic legitimation.
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DOI: 10.1002/bse.4073
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