Carbon Risk and CEO Compensation
Posted: 22 Mar 2021
Date Written: March 1, 2021
We explore the association between CEO compensation and carbon risk using firm level emission data for US firms between 2010 and 2018. Our results show that firm’s carbon risk is positively associated with CEO’s total compensation, implying that CEO total pay (equity pay) increases by 0.17% (0.52%) if the carbon emission increases by 1%. Additional analyses show that the relationship is not driven by sample composition or omitted variables bias. To explore the causal direction of the relationship, we employ a difference-in-differences analysis using the 2016 Presidential election as an exogenous shock and find that the CEO pay-pollution sensitivity decreases after the election. In cross-sectional tests, we find evidence that the result is driven by CEOs with stronger influence or power.
Keywords: Climate Change, GHG, Carbon Risk, CEO Compensation
JEL Classification: G10; G18; G32
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