Avoiding Harm by Doing Good. The Substantive Role of ESG Payments for Preventing ESG Misconduct

Emma García‐Meca, Jennifer Martínez‐Ferrero and Nazim Hussain

Business Strategy and the Environment, 2025, vol. 34, issue 4, 4354-4371

Abstract: This paper examines whether an ESG‐based compensation policy plays a substantive or symbolic role in the prevention of firm ESG‐related misconduct. We anticipate that companies linking ESG to board compensation will experience fewer ESG‐related misconducts, aiming to avoid adverse consequences, mitigate market reactions, and minimize harm to stakeholders. We also expect that institutional ownership strengthens this relationship. By analyzing a sample of European firms between 2015 and 2020, we found that boards with an ESG‐linked compensation policy reduce irresponsible actions, confirming the substantive role of ESG‐linked compensation in curbing ESG misconduct. Our findings also show a complementary effect of institutional investors in this association. Finally, we found that variations in negative ESG media coverage of misconducts that result from undertaking ESG‐linked compensation policy can be explained by differences in legal systems and stakeholder orientation between countries. Specifically, our results suggest that ESG‐linked compensation only plays a meaningful substantive role in constraining ESG wrongdoing in civil law countries and those characterized by greater public enforcement, increased control over corruption, and higher environmental awareness.

Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
https://doi.org/10.1002/bse.4207

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:bstrat:v:34:y:2025:i:4:p:4354-4371

Ordering information: This journal article can be ordered from
http://onlinelibrary ... 1002/(ISSN)1099-0836

Access Statistics for this article

Business Strategy and the Environment is currently edited by Richard Welford

More articles in Business Strategy and the Environment from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().