Exploring the association between financial and nonfinancial carbon-related incentives and carbon performance

Christian Ott and Jan Endrikat

Accounting and Business Research, 2023, vol. 53, issue 3, 271-304

Abstract: Firms increasingly respond to pressures to reduce their carbon emissions by providing financial and nonfinancial carbon-related incentives that should align and extrinsically motivate individuals’ behaviour towards improved carbon performance. We explore whether and how the provision of carbon-related incentives is associated with carbon performance. We employ data on carbon-related incentives and carbon emissions that S&P 500 firms voluntarily disclose to the CDP. Correcting for sample-induced endogeneity and time-series dependencies, we find that financial carbon-related incentives are associated with superior carbon performance, while nonfinancial carbon-related incentives are not associated with carbon performance. Financial carbon-related incentives appear to extrinsically motivate managers and employees and channel their efforts towards improving carbon performance. However, nonfinancial carbon-related incentives do not appear to be effective. These differences may be explained by the fact that financial carbon-related incentives trigger different cognitive and motivational mechanisms (e.g. utility, expectancies) in individuals than nonfinancial carbon-related incentives.

Date: 2023
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DOI: 10.1080/00014788.2021.1993777

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