Does adopting voluntary ESG practices affect executive compensation?

Menachem Abudy, Ilanit Gavious and Efrat Shust

Journal of International Financial Markets, Institutions and Money, 2023, vol. 83, issue C

Abstract: The Equator Principles (EP) is a voluntary framework of environmental guidelines for financial institutions in project financing. This paper examines the impact of an EP adoption on executive compensation. Compared to a matched sample of non-adopting banks, we find that total compensation significantly increased in banks that adopted the EP. The increase was driven by larger grants of equity-based compensation. This effect of EP adoption on executive pay does not depend on the risk management framework of the bank or on the timing of the adoption. Lastly, we do not find evidence of a change in the adopting banks’ performance.

Keywords: ESG; Executive compensation; Banks; Financial institutions; Equator principles (search for similar items in EconPapers)
JEL-codes: G21 M12 M14 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:83:y:2023:i:c:s1042443122001901

DOI: 10.1016/j.intfin.2022.101718

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