Are lead independent directors greener? Evidence from climate change commitment and ESG performance

Purpose

This paper sheds light on how appointing a lead independent director (LIDIR) affects a firm’s commitment to climate change and to what extent environmental, social and governance (ESG) performance is affected by a firm’s commitment to climate change in the presence of a LIDIR.

Design/methodology/approach

The authors utilise ordinary least squares (OLS) and a sample of 12,236 firm-year observations in the United States (US) over the 2002-2019 period to test the predictions. The authors also apply alternative research designs such as propensity score matching, Heckman two-step and instrumental variable techniques to address endogeneity concerns.

Findings

The authors find that a LIDIR representation on the board is positively associated with a firm’s commitment to climate change. The authors also find that the association between a LIDIR representation on the board and a firm’s commitment to climate change is more pronounced in firms with a combined Chief Executive Officer (CEO) and board chair positions than firms with both positions separated. Additional analysis suggests that increased commitment to climate change in the presence of a LIDIR improves ESG performance.

Originality/value

While the effect of a LIDIR on firm financial outcomes has received much attention, there is lack of empirical evidence on whether lead independent directors are greener. The authors provide new and important contribution to the literature by investigating the relationship between a LIDIR representation on the board and non-financial outcomes from the perspective of climate change commitment and ESG performance. The findings may be informative to policymakers seeking to deal with climate change impacts on society to encourage the appointment of a LIDIR.