Directors And Corporate Sustainability

Abstract

We show that the board of directors drives U.S. firms’ sustainability performance when directors acquire sustainability expertise at foreign firms where they serve on the board. This increase in sustainability comes both from improvements in environmental and social practices. Boards implement policy changes consistent with targeting greater sustainability by forming sustainability committees, linking executive pay to sustainability, and improving sustainability oversight and accountability. Directors also consider the tradeoffs between sustainability improvements and firm characteristics, with boards having a stronger impact on sustainability in firms from clean industries and firms that face less operational and financial constraints. Our findings are robust to alternative sustainability measures, board expertise proxies, and empirical specifications.

Keywords: Sustainability, Environmental, Social, E&S, Directors, Boards, Regulation

JEL Classification: F30, G15, G34