Abstract
Climate change presents a significant challenge for multinational corporations (MNCs), which are under increasing pressure to balance environmental sustainability with financial performance. This thesis examines the interrelationship between corporate governance mechanisms, executive compensation (EC), sustainability-based incentives (SBIs), and board sustainability committee initiatives (BSCI) and their collective impact on greenhouse gas (GHG) emissions and firm financial performance. The study is underpinned by the resource-based view (RBV), legitimacy theory, and stakeholder theory, which provide a theoretical foundation for understanding how corporate governance structures shape sustainability strategies and financial outcomes. The research employs a positivist philosophy, adopting quantitative methodologies to ensure objective and replicable findings.The study begins by outlining the increasing global focus on corporate sustainability and the need for effective governance mechanisms to drive environmental performance. A systematic literature review (SLR) synthesises prior research on executive compensation, sustainability incentives, and corporate governance, identifying inconsistencies in existing studies regarding the effectiveness of EC and SBIs in reducing emissions. This leads to the development of a novel Board Sustainability Committee Index (BSCI) as a measure of governance quality in corporate sustainability oversight. The study also draws upon the RBV to conceptualise BSCI as a strategic resource, legitimacy theory to distinguish between symbolic and substantive sustainability efforts, and stakeholder theory to highlight the role of governance in aligning executive incentives with stakeholder expectations. This research employs a philosophical stance based on positivism, using quantitative methodologies to ensure objectivity, replicability, and reliability. The study leverages a large dataset of 41,370 firm-year observations across 50 countries spanning 2002 to 2022, utilising advanced econometric techniques such as panel ordinary least squares (OLS), generalized method of moments (GMM), two-stage least squares (2SLS), and the Heckman selection model. These methods enable a robust causal analysis and mitigate concerns related to endogeneity, ensuring accurate findings on the influence of corporate governance structures on sustainability and financial performance.
The findings reveal four key insights. First, the study establishes that EC and SBIs significantly improve GHG performance, with firms demonstrating lower total GHG emissions and implementing process-oriented GHG mitigation initiatives (PGGMIs) when executive incentives are explicitly tied to sustainability goals. However, the results also indicate that EC alone, without sustainability-specific incentives, does not drive substantive emission reductions but instead encourages firms to engage in symbolic environmental commitments.
Second, the presence of a strong BSCI enhances the effectiveness of SBIs, ensuring that executive incentives translate into substantive sustainability actions rather than symbolic compliance. This highlights the importance of board-level sustainability oversight in driving meaningful environmental change.
Third, the study explores the financial implications of sustainability initiatives. The findings indicate that firms that successfully reduce total GHG emissions experience long-term financial benefits, measured through Tobin’s Q and Return on Assets (ROA). However, while substantive reductions in emissions yield financial gains over time, PGGMIs do not always generate immediate financial benefits, highlighting a time-lag effect in sustainability investments. Fourth, the study finds that external regulatory environments play a crucial role in shaping corporate sustainability strategies. Firms in regions with strong carbon tax policies and stringent climate regulations exhibit higher sustainability performance and financial resilience compared to those in lax regulatory environments. Additionally, coastal firms, which face greater climate-related risks, are more likely to engage in proactive GHG reduction strategies than their inland counterparts.
The findings contribute to multiple theoretical perspectives. The study extends RBV by positioning BSCI as a strategic intangible asset, demonstrating that firms with strong governance structures gain a competitive advantage in sustainability-driven markets. It advances legitimacy theory by showing that firms engaging in symbolic sustainability efforts without substantive emission reductions fail to achieve long-term financial and reputational benefits. The research also contributes to stakeholder theory by emphasizing the role of governance mechanisms in aligning executive incentives with stakeholder demands, ensuring that sustainability commitments translate into tangible outcomes.
The practical implications of this research suggest that policymakers and corporate leaders should focus on strengthening board-level sustainability committees, integrating explicit sustainability-based incentives into executive compensation, and fostering regulatory environments that incentivise substantive corporate sustainability efforts. By addressing critical gaps in the literature, this study provides valuable insights into how corporate governance can drive both environmental accountability and long-term financial success in multinational corporations.
| Date of Award | 9 Apr 2025 |
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| Original language | English |
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| Supervisor | Yongsheng Guo (Supervisor) & Chi Keung Lau (Supervisor) |