ESG-based executive compensation and waste management: Global evidence.

Abstract

The world generates over 2 billion tons of solid waste annually, which is estimated to rise by 70 % by 2050 due to population growth, urbanization, and industrialization. This escalating waste crisis severely threatens human habitats, endangering both environmental and public health. Effective waste management becomes critical in combating global warming as solid waste generation rises. In this vein, the current study investigates the impact of executives' environmental, social, and governance (ESG) compensation on waste management practices within firms worldwide. We utilize a dataset spanning 43 countries and comprising 17,443 firm-year observations from 2002 to 2019. We employ the system generalized method of moments (GMM) to analyze the relationship between executives' ESG compensation and waste management. Our findings reveal that executives' compensation tied to ESG performance is associated with reduced waste generation and increased recycling initiatives. Specifically, an increase of one standard deviation in ESG compensation reduces total waste by 1.07 %. We also observe a similar association between ESG compensation policy and waste management. However, the relationship between executives' ESG compensation and waste management is more pronounced for firms operating in environmentally sensitive and low-stringency environments than those operating in environmentally non-sensitive industries and under high-stringency conditions. Additionally, we find that this relationship is pronounced for firms with low levels of firm-level corporate governance quality compared to those with high levels. This research informs policymakers and stakeholders by highlighting the importance of incorporating ESG considerations into executive compensation contracts to promote sustainable waste management practices and preserve the environment.