The benefits of being greener: unravelling the association between carbon performance and market value

This study examines the interrelations among pay incentives, board sustainability committee initiative, carbon performance and market value. Using data from listed firms in emerging economies, we find that pay incentives and board sustainability committee initiative increase the firms' process-based carbon performance but have no similar effect on outcome-based carbon performance. We detect that board sustainability committee initiative has a positive moderating effect on the association between pay incentives and outcome-based carbon performance. We also find that higher level of process-based carbon performance is associated with low market value, but outcome-based carbon performance does not seem to impact on market value. Accordingly, two factors, namely, enhanced board sustainability committee initiatives and increased process-based carbon performance, are found to be channels through which carbon performance affects market value. Our findings call for firms, practitioners and policymakers to design and implement effective board sustainability committee initiative and pay incentive mechanisms to improve actual carbon performance.