Assessing the Impact of Board Sustainability Committees on Greenhouse Gas Performance: Evidence From Industrialised European Countries

Abstract

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.