Executive compensation clawbacks and corporate climate engagement

Ghafoor, Abdul and Bayraktar, Yasar and Gull, Ammar Ali and Šeho, Mirzet (2026) Executive compensation clawbacks and corporate climate engagement. Journal of Accounting Literature. pp. 1-28. ISSN 0737-4607

Preview

Text AAM.PDF - Accepted Version Available under License Creative Commons Attribution Non-commercial. Download (723kB)

Abstract

Purpose

The purpose of this study is to investigate how the adoption of executive compensation clawbacks affects the climate engagement initiatives of firms listed in the US Based on agency theory, we test two competing arguments – (1) the proactive risk management view and (2) the excessive caution view – to examine whether clawback provisions improve or constrain corporate climate engagement efforts.

Design/methodology/approach

Our sample includes firms listed in the US from 1996 to 2017. We measure corporate climate engagement by creating a Climate Engagement Index (CINDEX) based on four variables: (1) the appointment of sustainability executives, (2) Carbon Disclosure Project reporting, (3) climate-related lobbying and (4) pro-climate coalition membership. To investigate causality and mitigate possible endogeneity issues, we employ several empirical methods, including propensity score matching, instrumental variable regression and a battery of robustness tests.

Findings

Our results support the proactive risk management view. We find that clawback provisions increase corporate climate engagement. Specifically, firms adopting clawback provisions exhibit an increase in climate engagement of approximately 0.12 standard deviations relative to firms without such provisions. Furthermore, we show that the positive effect of clawback provisions persists across both environmentally sensitive and non-sensitive industries, as well as in firms with or without ESG-linked compensation policies. Finally, we document that climate engagement initiatives driven by clawback provisions reduce firms' exposure to climate change risks.

Practical implications

Our results have practical implications, showing that clawback provisions are valuable governance tools that promote corporate climate engagement and help mitigate climate-related risks. Boards, managers and investors should consider clawbacks not only as safeguards against misconduct but also as mechanisms to align executive incentives with environmental objectives. Policymakers and regulators have a clear role in incorporating clawback provisions into sustainability frameworks to strengthen corporate accountability and support long-term climate goals.

Originality/value

Our study extends the existing literature on clawback provisions beyond financial outcomes by linking them to corporate sustainability. We identify clawback provisions as a key governance mechanism for promoting climate engagement and demonstrate their effectiveness across various organizational contexts. This contributes to a deeper understanding of how compensation-based governance mechanisms affect environmental performance.

Item Type:	Article
Identification Number:	10.1108/JAL-02-2025-0053
Dates:	Date Event 18 February 2026 Accepted 20 March 2026 Published Online
Uncontrolled Keywords:	Corporate governance, Environmental performance, Climate change risk, Clawback provisions, ESG compensation, Climate engagement
Subjects:	CAH17 - business and management > CAH17-01 - business and management > CAH17-01-08 - accounting
Divisions:	Business School > Accountancy, Finance and Economics
Depositing User:	Gemma Tonks
Date Deposited:	24 Mar 2026 11:21
Last Modified:	24 Mar 2026 11:21
URI:	https://www.open-access.bcu.ac.uk/id/eprint/16937

Actions (login required)

View Item