Renewable Governance: Good for the Environment?
56 Pages Posted: 2 Aug 2018 Last revised: 3 Oct 2022
Date Written: September 16, 2022
We conjecture that board renewal mechanisms—those substantive enough to renew the thinking of the board—are required before investors can address the mismatch between their preferences regarding environmental sustainability and what insiders at firms are actually doing. We identify the adoption of majority voting for directors and the introduction of a female director as two corporate governance mechanisms potentially strong enough to renew a board’s thinking on sustainability. Using a sample of 3,293 firms from 41 countries, along with quasi-exogenous shocks to board renewal mechanisms in Canada and France, we find that both board renewal mechanisms are associated with significantly higher future environmental performance. Further tests provide suggestive evidence that board renewal is more strongly associated with environmental performance in settings with better institutions and more motivated institutional investors. These results suggest the importance of board renewal for alignment of firm policies with investor preferences around the world.
Keywords: Environmental performance, Ownership structure, Sustainability, Corporate social responsibility, ESG, Corporate governance
JEL Classification: G15, G23, G32, M49, Q50
Suggested Citation: Suggested Citation