Corporate governance mechanisms and renewable energy transition

What is it about?

The intensity of carbon emissions has led to the serious problem of global warming, and the consequences in terms of climatic disasters are gaining increasing attention worldwide. The energy sector is responsible for most global emissions, so developing clean energy is crucial to combat climate change. In this study, we examine the relationship between corporate governance mechanisms and renewable energy (RE) consumption, and explore the interaction between RE production and RE use. Based on a sample of 3,896 firms covering 45 countries worldwide, we show that appropriate governance mechanisms positively impact RE consumption. These include the existence of a sustainability committee, ESG-based compensation policy, financial performance-based compensation, sustainability external audit, transparency, board gender diversity, and board independence. Using a bivariate probit regression, we show that the decision to use RE implies the decision to produce RE by the firms, and vice versa. Finally, while RE use positively impacts firm value, we find no significant effect on current profitability. Overall, the findings suggest that RE transition requires, first of all, establishing appropriate governance mechanisms within companies. Keywords: Corporate governance, Executive compensation, Sustainability committee, Renewable energy, Climate change JEL classification: G34 ; M14 ; P18 ; Q56 ; Q20

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