DBJ Discussion Paper Series, No. 2001

Renewable Governance: Good for the Environment?

Alexander Dyck
（University of Toronto）
Karl V. Lins
（University of Utah）
Lukas Roth（University of Alberta）
Mitch Towner（University of Arizona）
Hannes F. Wagner（Bocconi University）

July 2020

Discussion Papers are a series of preliminary materials in their draft form. No quotations,reproductions or circulations should be made without the written consent of the authors in order toprotect the tentative characters of these papers. Any opinions, findings, conclusions or
recommendations expressed in these papers are those of the authors and do not reflect the views of
the Institute.

Renewable Governance: Good for the Environment?
Alexander Dyck
University of Toronto
Karl V. Lins
University of Utah
Lukas Roth
University of Alberta
Mitch Towner
University of Arizona
Hannes F. Wagner
Bocconi University

July 2020
We test the impact of firms’ corporate governance structures (G) on firms’ environmental
performance (E) using a sample of 3,293 firms from 41 countries. We find that better governance,measured using a variety of metrics, improves firms’ environmental performance. Contemporary
governance mechanisms that focus on board renewal, through enhanced investor power in director
elections or appointment of female directors, are associated with the greatest improvements
globally. Quasi-exogenous shocks to these board renewal mechanisms support the interpretationthat G drives E. Female directors have a stand-alone impact, as the positive female director effectholds when we directly control for director characteristics.
Keywords: Environmental performance, Ownership structure, Sustainability, Corporate social
responsibility, ESG, Corporate governance
JEL Classification: G15, G23, G32

Author contacts: adyck@rotman.utoronto.ca; karl.lins@eccles.utah.edu, 1655 E. Campus Center Drive, Salt Lake
City, UT 84112 (corresponding author); lukas.roth@ualberta.ca; mitchtowner@ email.arizona.edu; andhannes.wagner@unibocconi.it. We thank Bo Becker, Douglas Cumming, Shaun Davies, Xavier Giroud, Dirk Jenter,
Adair Morse, Laura Starks, seminar participants at the Development Bank of Japan, Hong Kong Baptist University,
Temple University, University of Alberta, University of Arizona, University of Geneva, University of Illinois at
Chicago, University of Nebraska, University of Bern, University of Neuchatel, and participants at the 2019 American
Finance Association Meeting, 2019 International Workshop on Financial System Architecture and Stability, 2019Telfer Conference on Accounting and Finance, 2019 Queens Conference on Green Finance: New Directions in
Sustainable Finance Research and Policy, 2019 ECGI and Bar Ilan University Conference on Executive Compensationand on Sustainability, 2018 Swedish House of Finance Conference on Sustainable Finance, 2018 UN PRI Academic
Network Conference, and 2018 University of Tennessee Smokey Mountain Finance Conference for helpful comments
and suggestions. We are grateful to the Social Sciences and Humanities Research Council of Canada for financial
support. Lukas Roth gratefully acknowledges financial support from the Winspear Endowed Roger S. Smith Senior
Faculty Fellowship. Part of this research project was undertaken when Lukas Roth was a Shimomura Fellow at the
Research Institute of Capital Formation at the Development Bank of Japan.

“Given the groundwork we have already laid engaging on disclosure, and the growing investment
risks surrounding sustainability, we will be increasingly disposed to vote against management andboard directors when companies are not making sufficient progress on sustainability-related
disclosures and the business practices and plans underlying them.”—Larry Fink, CEO of Blackrock, January 14, 2020

1. Introduction
Institutional investors are increasingly concerned about environmental sustainability and alack of action by some firms to address it. In the survey of Krueger, Sautner, and Starks (2019),
institutional investors state that environmental risks have financial implications for their portfolio
firms and that these risks have begun to materialize. These investors also state that engagement isimportant to address these risks, and more so than divestment. The core investor concern is
captured in the theoretical framework of Bénabou and Tirole (2010)—insiders, when short-termoriented, will not invest enough today to mitigate future environmental risks.
Investors have choices on the type of engagement to pursue. A typical approach is torequest improvements in environmental performance directly, and/or improvements inenvironmental disclosures (see Christensen, Hail, and Leuz, 2019). This approach assumes that
better information allows outsiders to be more focused in the specific actions they demand, andthat insiders will listen. However, the extensive international corporate governance literatureshows that such an approach may be naïve—investors need effective governance before boards
will consider and act on their requests.
In this paper, we ask whether governance is a fundamental driver of environmental
sustainability. If this proves to be the case, investors arguably should prioritize engagements that
improve governance; in the presence of effective governance, subsequent engagements to improve
environmental disclosure or environmental performance should be more effective.
We address the hypothesis that governance (G) directly impacts environmental
sustainability (E) using a sample of 3,293 firms from 41 countries. We first measure governanceusing ‘traditional’ methods. For example, Aggarwal, Erel, Stulz, and Williamson (2008) construct1

an index of governance strength based on several indicator variables, most of which relate to thepower of the board relative to the top executive, with high marks given for board independence(e.g. “Is a majority of the board independent?” or “Is the CEO the chair of the board?”).
However, investors today are moving beyond demands for board independence. As Coles,
Daniel, and Naveen (2014) point out, nominally independent directors have incentives to side withinsiders. The governance mechanisms investors are increasingly seeking, what we call‘contemporary’ governance, give them greater power to replace directors. Activist campaigns, as
studied in Brav, Jiang, Partnoy, and Thomas (2008) and Becht, Franks, Grant, and Wagner (2017),
are one approach to provide investors influence over the board. Another approach, studied by
Bebchuk and Hamdani (2017), seeks structural governance changes that provide investors with astrong voting process to give them greater power to nominate and elect their preferred directors.
To measure contemporary governance around the world we use two data items that areconsistently available globally and have some quasi-exogenous variation in our sample period.
The first measure is the adoption of majority voting rules. This requires that a board member
receives more than 50% of the votes cast (compared to a requirement to receive a plurality of votescast), as this makes it easier for outside investors to prevent insiders’ candidates from joining theboard (e.g., Cunat, Gine, and Guadelupe, 2012; Ertimur, Ferri, and Oesch, 2013; Doidge, Dyck,
Mahmudi, and Virani, 2019). Our second measure is a proxy for forced board renewal, comingfrom regulators, investors, or societal pressures. A significant example of forced board renewal
around the world is the concerted effort to increase female board representation. Ahern and Dittmar(2012) find that female board members are less likely than male board members to be insiders (andthus more independent), while Kim and Starks (2016a) find that skill sets of boards are enhanced
by female directors, including governance skills. A number of countries imposed minimum quotas
for female board representation during our sample period.
When it comes to firms’ sustainability choices, we hypothesize that both traditional andcontemporary governance mechanisms are likely to matter, but contemporary mechanisms are2likely to matter more. This is because, as pointed out in the opening quote, a wide gap in thinking
exists between investors and insiders regarding sustainability. Thus, to align firms’ sustainability
actions with investors’ desires, directors may need to be replaced, or must know they can be easily
replaced. In addition, we identify whether a firm is family controlled because, for these firms, priorresearch has shown that traditional governance mechanisms are generally ineffective. Whether
contemporary governance mechanisms affect family-owned firms has not been widely studied.
To test for the impact of governance on environmental performance, we construct a rangeof comprehensive firm-level environmental performance measures using line items (covering
areas such as CO2 emissions, renewable energy use, and waste recycling ratios) from acomprehensive global environmental data provider. We confirm that our primary results hold if
we use a materiality-weighted environmental performance score that uses only line items forfinancially material issues for a company’s particular industry as determined by the Sustainability
Accounting Standards Board (see, e.g., Khan, Serafeim, and Yoon, 2016).
Our results show that governance is indeed a fundamental driver of environmental
sustainability. Adding a traditional good-governance line item increases a firm’s environmental
performance by 2% to 3%. Adding a contemporary governance item—that is, a mechanism thatplausibly renews the thinking of the board—has an even stronger economic impact. Whenoutsiders have greater control rights arising from the adoption of majority voting provisions,environmental performance improves by 7% to 9%. When measuring board renewal with theintroduction of a female director, environmental performance increases by 11% to 15%. On theflip side, our results show that firms that are family controlled have 8% to 11% lower
environmental performance relative to widely held firms. Thus, when insiders, who are likely to
be short-term oriented, are also firmly entrenched, environmental performance suffers.
A natural concern is that an omitted factor could affect both governance and a firm’s
environmental performance (e.g., Hermalin and Weisbach, 2003). In addition to controlling fortime-varying observable characteristics, we estimate firm fixed effects specifications that control

3

for time-invariant unobservable firm characteristics. We also identify quasi-exogenous shocks tocorporate governance mechanisms that are not simultaneously shocks to firms’ environmental
performance. In some countries in our sample, legislation or outside pressure forced adoption ofmajority voting rules or mandated quotas for female board representation. For these countries, weemploy difference-in-differences specifications, comparing the subsequent environmental
performance of firms affected by the ‘treatment’ to otherwise similar unaffected firms. In thesesub-samples, firms that add one or more female directors increase their environmental performanceby 5% to 16% and firms that adopt majority voting increase their environmental performance by
21% to 40%. Taken together, our evidence is consistent with a causal interpretation that improving
governance leads to higher subsequent environmental performance.
Our international sample allows us to test the extent to which the impact of governance onfirms’ environmental performance depends upon country-level institutions. When examining
traditional governance mechanisms, extant research suggests that only in countries with highquality disclosure and investor protection does better firm-level governance help investors obtain
the outcomes they seek (see, e.g. Hail and Leuz, 2006; Doidge, Karolyi, and Stulz, 2007; Lel andMiller, 2019). However, with contemporary governance, in which board renewal is possible suchthat directors can more fully embrace investors’ views, investors may not need to rely on countrylevel disclosure and investor protections to get the sustainability outcomes they seek.
Our tests show that traditional governance mechanisms have a significant impact onenvironmental performance only in countries with strong disclosure and investor protection
regimes. Thus, the nominal investor power from traditional governance mechanisms only becomesreal power when institutions are strong. In contrast, the effect of the country-level institutional
environment for contemporary governance measures is more nuanced. An interesting finding isthat improving contemporary governance often improves environmental performance even if acountry’s institutions are weak. This suggests that the ability of investors to renew the board andreplace directors is a powerful mechanism to influence corporate outcomes around the world.

4

We further investigate the impact of governance on family firms, as these firms havesignificantly weaker environmental performance. Families control 23% of the firms in our sample.
We find that traditional governance line items and majority voting procedures do not impact theenvironmental performance of family-controlled firms—a not-surprising result, as family insiders
likely have enough voting rights to effectively have full control of the firm and its board. However,board renewal as measured by having a female director does matter—family firms with a female
director have significantly higher environmental performance.
Finally, we ask whether the positive impact of female board members on environmental
performance is attributable to specific characteristics that might be correlated with gender. Ahern
and Dittmar (2012), for example, document in their sample that compared to existing maledirectors, new female directors have significantly less CEO experience, are younger, and are more
highly educated. Further, they find that after controlling for these characteristics, there is no longer
a robust relationship between female board membership and performance. We obtain similar
director characteristics data for each director in our sample. We find similar differences incharacteristics between female and male board members; however, when we control for thesedifferences in our regressions, we continue to find a significant positive impact of director gender.
Taken together, the evidence provides investors with a roadmap if they seek to improvethe environmental performance of firms around the world. Investors that prioritize governanceimprovements will generate improvements in E, as we find that all forms of G improve E. Further,by differentiating between traditional and contemporary governance, we show investors that thegreatest returns across all industries and countries, are likely to come from engagements that focus
on renewing the mindset of the board.
Our findings speak to investors, analysts, and academics that are interested in materiality—that is, which specific reporting items matter for both environmental and financial performance(e.g., Khan, Serafeim, and Yoon, 2016; Christensen, Hail, and Leuz, 2019). Our paper
demonstrates that measured environmental performance is at least partly the result of prior5governance choices. Thus, research that seeks to identify actions that are material needs to accountfor the role that G plays in moving E in the first place.
Our paper also adds to a large literature on corporate social responsibility (CSR)/ESG.1
Relatively few studies have explored the impact of governance on environmental or social
performance, and these have focused on traditional governance metrics. Krueger (2015) finds thatfirms with agency problems (as proxied by leverage and liquidity) benefit less from positive CSRchanges. Ferrell, Liang, and Renneboog (2016) explore whether agency problems affect firms’
CSR scores, assuming governance directly affects compensation, and thus can indirectly impact E
and S scores. El Ghoul, Guedhami, Kwok, and Wang (2016) find that family blockholding
negatively impacts environmental performance in East Asia, while Hsu, Liang, and Matos (2019)find a positive relationship between government blockholding and environmental performance that
occurs primarily in emerging markets. We show that both contemporary and traditional
governance changes matter independently. Our tests based on quasi-exogenous shocks emphasize
the role of contemporary governance for environmental performance.
Our paper also extends existing work that explores the performance implications ofmajority voting rules (e.g., Cunat, Gine, and Guadelupe, 2012; Ertimur, Ferri, and Oesch, 2013;
Doidge et al., 2019) and female board participation (e.g., Adams and Ferreira, 2009; Adams andFunk, 2012; Ahern and Dittmar, 2012; Kim and Starks, 2016a) by showing the impact of thesegovernance structures for firms’ environmental performance. Our findings on the positive impact
of board renewal in family-controlled firms is particularly interesting for the literature on family
control, which internationally finds limited ability for governance to offset negative impacts offamily ownership (e.g., Morck, Wolfenzon, and Yeung, 2005; Bennedsen, Nielsen, PerezGonzalez, and Wolfenzon, 2007; Lins, Volpin, and Wagner, 2013).

1

See, e.g., Hong and Kacperczyk (2009), Edmans (2011), Liang and Renneboog (2017), Hong and Liskovich (2017),
Cronqvist and Yu (2017), Hart and Zingales (2017), Lins, Servaes, and Tamayo (2017).

6

2. Theoretical Predictions
Before turning to the empirical evidence, we develop hypotheses regarding connections
between governance mechanisms and firms’ environmental performance, building on thetheoretical framework of Bénabou and Tirole (2010).
Consider an investment choice to improve environmental performance, controlled either
by an entrenched insider or by an outsider, that requires a current cash outlay for some long-term
benefit. Bénabou and Tirole (2010) highlight two frictions that make the identity of the decisionmaker relevant for environmental performance. First, insider short-termism can arise fromcompensation and career concerns (e.g., Stein, 1989; Edmans, Gabaix, and Jenter, 2017; Flammer
and Bansal, 2017), where managers place a disproportionate focus on current performance.2
Second, insiders and outsiders can also receive non-pecuniary utility from environmental
investments, such as a ‘warm halo’ effect from endearing themselves to the community.
Entrenched insiders will choose a higher level of environmental performance than outsiders
only if insiders have both negligible short-termism and place a higher value on the non-pecuniary
benefits of environmental performance than outsiders (e.g., Masulis and Reza, 2015). Under thesestrong assumptions, better governance that conveys greater power to outside investors should
lower firms’ environmental performance. In all other cases, better governance increases firms’
environmental performance. If insiders and outsiders value the non-pecuniary benefits similarly,
better governance improves outsiders’ control rights, allowing them to reduce insider shorttermism. This positive impact of outsider control on environmental performance will be evengreater when outsiders place a higher value on the non-pecuniary benefits from environmental
investments than insiders. Notably, the resulting environmental investments are not necessarily
NPV enhancing, as the outsiders have an incentive to seek overinvestment because of the weight
they place on non-pecuniary factors.

2

Short-termism also emerges when family owners are insiders, as family owners consume private benefits thatsimilarly depend disproportionately on current cash flows (e.g., Kalcheva and Lins, 2007).

7

3. Sample and Summary Statistics
3.1. Environmental Performance Variables
At the time of writing our paper no apparent market leader exists for ESG data. We choose
the Thomson Reuters ASSET4 ESG database, since it offers the broadest coverage of publiclytraded firms worldwide, for the longest time series. ASSET4 analysts acquire information fromannual reports, corporate sustainability reports, NGOs, and news sources, at annual frequency. It
evaluates firms’ environmental commitments in three areas: Emission Reduction, Resource
Reduction, and Product Innovation. Within each area, ASSET4 analysts identify specific line items(e.g., “Are the firm’s greenhouse gas emissions/sales below the industry median in that year?”),with 70 items in total. Consistent coverage of firms begins in 2004, with coverage for a few
countries starting in 2009. We use data from the first year of coverage through year-end 2015 forour analysis. All variable definitions and data sources are provided in Table A1 in the Appendix.
One concern with any such commercial data is the weighting scheme employed for the line
items collected, which is not transparent and may not sufficiently weight real effects, althoughvendors tend to claim they focus on items material to investors. To mitigate concerns that a
particular proprietary weighting drives results, we create our own equally-weighted environmental
performance measure, which we construct from raw environmental data items. In addition, webuild a materiality-weighted environmental score, in which we weight the raw environmental data
items based on the materiality for that industry as determined by the Sustainability AccountingStandards Board (SASB).3 Using SASB weightings limits potential biases from ESG data
providers’ weighting choices.4

3

The SASB industry-based Materiality Map is, to our knowledge, the most comprehensive attempt yet to consider
specifically those sustainability issues that are likely to affect the financial or operating performance of firms. The
SASB classification was published in November 2018. We use the pre-publication online version as of December
2017 (see materiality.sasb.org).
4
Disagreement between ESG data providers is documented and analyzed in Christensen, Serafeim, and Sikochi(2019), and Gibson, Krueger, and Schmidt (2020), among others. At the same time, Ferrell, Liang and Renneboog,(2016) and Dyck et al., (2019) also study a large international sample of firms and find that their empirical results are
similar if they use alternative ESG data providers, such as Sustainalytics and Bloomberg, in place of ASSET4.

8

The proprietary-weighted aggregate scores that ASSET4 provides to investors (ASSET4
z-Scores) are rank-based scores that range from 0 to 100 and measure the environmental
performance relative to all other companies in a given year. For our equally-weighted measure, wefirst transform all line items into indicator variables such that a ‘one’ corresponds to better
environmental performance (e.g., a below-median greenhouse gas emission firm would get a‘one’) and then sum up the indicator variables in each of the three environmental categories, divideby the number of available indicators, and take an average across the three areas to produce ourequally-weighted aggregate environmental performance scores (see Appendix Table A2 fordetails).
We note here two things that are specific to environmental performance data. First, theydiffer from financial performance data in that disclosure is not mandatory, it is not required to beaudited, and information may be missing. Second, despite this, strong investor pressure exists to
produce these data and firms around the world are increasingly reporting against common
standards and seeking external assurance that their environmental performance data are valid. For
robustness, we explore in Appendix Table A3 whether missing data for environmental scores isimportant for our sample. We find that more than 70% of ASSET4’s line items are available ineach year and that these high reporting percentages are relatively stable over time and acrosscountries. This suggests that inconsistent reporting is unlikely to drive our empirical results
3.2. Governance Variables
ASSET4 provides a large number of governance line items and we use it as our primarysource of data for governance mechanisms. We first employ an aggregate ‘kitchen-sink’
governance score based on almost 40 line items. Next, we measure governance using specifictraditional governance mechanisms featured in the international corporate governance literature.
Third, and most importantly, we measure contemporary governance mechanisms that ‘renew’ thethinking of the board and are of growing interest to investors and academics.

9

3.2.1. Aggregate Governance Score
ASSET4 classifies its governance line items into five categories: Board Functions, Board
Structure, Compensation Policy, Shareholder Rights, and Vision and Strategy. The ‘Vision andStrategy’ line items, however, relate to a firms’ sustainability choices—as such, we exclude thesefrom our tests of the determinants of firms’ environmental performance (e.g., “Is the company’s
CSR report published in accordance with the GRI guidelines?”).5 As with our equally-weighted
environmental performance metric, we convert the remaining 38 governance line items into
indicator variables, take the average of all line items within each of the remaining four governancecategories, and take the average across these category scores (see Appendix Table A4 for details).
This ASSET4 Governance measure ranges from zero to one.
3.2.2. Traditional Governance Mechanisms
Outside investors will mostly or fully lack control rights when firms are owned andcontrolled by a family or other blockholder. Therefore, our first measure is whether a firm isblockholder controlled. It is challenging to systematically identify family and other blockholders
across time in an international sample. We measure blockholder control by combining detailed
firm-level ownership data from ASSET4, Datastream, Orbis (Bureau van Dijk), and the Global
Family Business Index (obtained from Center for Family Business at the University of St. Gallen,
Switzerland). We group all firms into three categories: firms controlled by a family, firms
controlled by nonfamily blockholders, and widely held firms without a controlling blockholder(details of the process are in Appendix Table A1).
The controlling blockholder type that is most relevant for our study is whether a firm isfamily controlled because of short-termism concerns as discussed in Section 2. Ample evidenceshows that private benefits for families come from current cash flows or cash holdings. Thus,

In addition, we exclude one line item from the ‘Compensation’ category (whether the firm has implemented
sustainability compensation incentives).
5

10

family insiders will be less willing to use current cash to make potential value-enhancing
investments, as such spending will limit their private benefits.6
Next, following Aggarwal, Erel, Stulz, and Williamson (2008), we construct a traditional
governance index based on several governance mechanisms they argued, at that time, ‘have
received the most attention in the academic literature and from observers.’ These mechanisms are
Board Independence: the board has more than 50% independent directors; Board Size: the board
has more than five members but less than sixteen; CEO/Chairman Separation: the roles of the CEO
and chairman are separated; Board Structure: directors are elected individually (no staggeredboard); Audit Committee Independence: the audit committee is composed solely of independent
directors; and Stock Classes: only one class of common stock (all shares have equal voting rights;
no dual classes).7 We obtain these data from ASSET4 and BoardEx.
These traditional governance mechanisms rely in large part on an increased role forindependent directors.8 More recent research, however, points out that under existing arrangements
for electing directors, independent directors are often co-opted by insiders. One reason for this isbecause independent directors are appointed by, or feel an obligation to, insiders (e.g., Shivdasani
and Yermack, 1999; Coles, Daniel, and Naveen, 2014; Bebchuk and Hamdani, 2017).9 Biases indecision making emphasized in the behavioral economics literature can compound this problem.10

6For example, markets put a lower value on corporate cash holdings when firms have entrenched insider/family
control, indicating a fear that cash will be consumed for private benefits (Kalcheva and Lins, 2007). Similarly, transfer
pricing schemes that involve trading between public companies overwhelmingly have private benefits created fromcurrent (rather than future) cash flows (Cheung, Rau, and Stouraitis, 2006; Desai, Dyck, and Zingales, 2007; Jiang,
Lee, and Yue, 2010). Further, family-controlled firms have been shown to both underperform and be unwilling to
make current investments particularly during periods where cash holdings are most valuable (Lemmon and Lins, 2003;
Lins, Volpin, and Wagner, 2013).
7
We do not include a measure (Auditor Ratification: auditors are ratified at most recent annual meeting) that was in
the Aggarwal et. al. (2008) index, as it is not available in ASSET4.
8This is obvious in the traditional governance index of Aggarwal et al. (2008). Three items explicitly focus on board
independence (board has more than 50% independent directors, board has an independent Chair, audit committee is100% composed of independent directors) and a number of the other items are related.
9
As an example, Bebchuk and Hamdani (2017) state “these arrangements provide controllers with decisive power toappoint independent directors and decide whether to retain them, independent directors have significant incentives toside with the controller and insufficient countervailing incentives to protect public investors in conflicted situations”(p. 1274).
10
See, for example, Tversky and Kahneman (1973, 1974), Shiller (1981), Barberis and Thaler (2003), Gennaioli andShleifer (2010).

11

As an example, in boards subject to ‘groupthink’, the desire for unanimity both overrides ‘theirmotivation to realistically appraise alternative courses of action’ (Janis, 1972) and can cause groupmembers to ignore ethical or moral consequences (Janis, 1971).
3.2.3. Contemporary Mechanisms of Board Renewal
One key contribution of our paper is that we go beyond traditional governance to explore
contemporary governance mechanisms that plausibly renew the mindset of the board. As the
opening paragraph of our paper points out—there appears to be a growing gap between outside
investors and insiders on the importance of taking concrete actions to address environmental risks.
With a large gap between the collective board attitude and the investors’ attitude toward a policy,
changing that policy likely requires stronger director incentives or changing the directors
themselves. For example, replacing one or more board members is an important mechanism usedby activists to change firm policies (e.g., Brav et al., 2008; Becht et al., 2017).
To achieve board renewal, Bebchuk and Hamdani (2017) note that investors have focusedon three ways to refine the voting process for directors: nominating committees composed ofindependent directors, majority voting, and giving investors enhanced proxy access. Of these, we
focus on the majority voting mechanism as we have available data around the world (fromASSET4), there is significant variation in the use of this mechanism across firms, and, as describedin Section 4, we have variation across time in firm adoption of this mechanism driven by external
factors and not environmental performance concerns. For mandatory nomination committee rulechanges, we are unable to find quasi-exogenous shocks that had an impact in any country during
our sample period.11 We are unable to use enhanced proxy access, as it so far remains a focus for
US firms and not elsewhere in the world.

11

In untabulated results, we find that a mandatory nomination committee rule is positively associated with subsequent
E scores. We choose not to focus on this measure because there is minimal variation in it. For all countries in our
sample, we do a manual check of whether mandatory nomination committee rule changes are introduced during oursample period and find no cases to exploit. For example, Hong Kong strengthened its definition of independence fornomination committee members in 2011, but we do not observe any significant change in director independence atthat time. Germany in 2007 introduced a requirement that nominating committees consist of at least 50% independent

12

Traditionally, in director elections the vote is for a slate of directors and shareholders could
vote either ‘for’ or ‘withhold’ their vote (which was equivalent to not voting). In such a voting
system, all that is required is a plurality of votes, which means directors can get elected with asingle yes vote. With majority voting rules, a board member needs to receive more than 50% of
the votes cast, giving outside investors the ability to veto insiders’ nominees for the board and,thus, substantially more power over director elections. Around the world investors have been
asking regulators, stock exchanges, as well as firms themselves to adopt majority voting policies.
For our tests, Majority Election is an indicator variable that equals one if the company’s board
members are generally elected with a majority vote, and zero otherwise.
An alternative route to board renewal is to force board turnover. Doing so brings directors
with new thinking more aligned with outside investors, and the injection of a new director’s view
can help overcome groupthink. Two ways to force board turnover are to introduce diversity
requirements on boards and/or impose limits on board member tenure. Internationally, a significant
example of forced board renewal are policies to increase female board representation.
Around the world, a large number of regulators and investors have pushed for more female
involvement in a variety of ways including ‘hard’ measures such as regulatory mandates thatspecify gender quotas and ‘soft’ measures including regulatory initiatives demanding firms
comply-or-explain against gender targets as well as investor coalition requests for enhanced female
board representation. As Adams and Ferreira (2009) describe, this push stems from two beliefs,
both related to governance: first, board quality will be improved by drawing from the broader
talent pool that includes women; second, as they note “[…] because they do not belong to the ‘oldboys club,’ female directors could more closely correspond to the concept of the independent
director emphasized in theory” (p. 292).

directors, but our coverage of German firms at that time is small. Other countries such as Denmark or Italy introduced
such requirements before the beginning of our sample period, while Portugal introduced them subsequently.

13

There is evidence that increased female board representation significantly impacts
governance. Adams and Ferreira (2009), for example, study US firms and find greater board
attendance and a higher sensitivity of CEO turnover to financial performance when women are on
the board. Among Norwegian firms, Ahern and Dittmar (2012) find that females added to theboard are less likely than male board members to be insiders (and, thus, more independent), andhave higher levels of education, are younger, and have less experience. Kim and Starks (2016a)
focus on director skills sets in US firms and find that female directors bring skill diversity to theboard, and in particular sets of expertise currently missing, one of which is corporate governance.12
To that end, in our tests, we use Female Director, an indicator variable that equals one if the firm
has at least one female director, and zero otherwise.
Finally, in some regression specifications we introduce an indicator that a firms’ board has
not been renewed, based on data on the average age and tenure of the board. In the UK, forexample, when board members’ tenure exceeds nine years, they are no longer considered
independent and can no longer serve on key board committees such as the audit and compensationcommittees (UK Corporate Governance Code, 2016). Old age provides another plausible indicatorof stale thinking. We combine these two indicators, categorizing boards as ‘Old or Stale’ using an
indicator variable that equals one if either at least 50% of directors have tenure greater than nine
years or at least 20% of the directors are over 70 years old, and zero otherwise. 13
3.3. Final Sample and Descriptive Statistics
Our starting sample consists of 27,913 firm-year observations with ASSET4
Environmental z-Score data between 2004 and 2015. We exclude 430 observations by requiring atleast 10 firms per country. We lose 506 observations by merging with Worldscope’s financial

12

The evidence of the impact of adding females to the board and increasing board diversity on firm performance ismixed. Adams and Ferreira (2009), Ahern and Dittmar (2012), and Adams, Akyol, and Verwijmeren (2018) findnegative effects, while others report positive impacts (e.g., Kim and Starks, 2016b, find diversity increases
performance related to M&A decisions).
13
Unfortunately, we cannot construct a firm level measure capturing mandatory director term limits that could identify
a stale board in our sample. Such mandatory tenure limits are infrequent and only present in 6.5% of our sample firms.

14statement data. We lose 1,834 observations after merging with Factset to obtain institutional
holdings. We lose 4,397 observations after requiring the ASSET4 Governance Score. We lose 215
observations constructing our Female Board dummy from BoardEx and ASSET4. Finally, we
exclude 84 singleton year-by-country or year-by-industry observations. Our final sample consistsof 20,447 firm-year observations and covers 3,293 firms from 41 countries.
In Panel A of Table 1 we report summary statistics for firms’ environmental performance,
governance mechanisms, and other characteristics. There is significant variation in firms’
environmental performance and governance structures across countries, industries, and time. As
we describe below, in all our tests we control for most of these sources of variation with fixed
effects. Regarding firms’ environmental performance, the average ASSET4 Environmental zScore is 54.2 and the average Equally-weighted Environmental Score is 39.1, where a perfect score
would be 100 for each of the two measures. Turning to the governance variables, 23% of oursample firms are controlled by a family. The average firm has 3.7 out of the 6 traditional
governance mechanisms (i.e., more than 50% of the board is independent, separation of chair andCEO, etc.). Majority Election is present in 55% of our sample firms, and 60% of firms have atleast one female board member.
In Panel B of Table 1 we report average environmental performance and governancemeasures for our sample firms by country. To facilitate comparisons across countries, we reportsummary statistics for the cross-section in year 2012. The countries where firms have the highest
environmental performance are all European. Countries where firms’ environmental scores arelowest are concentrated in Asia, Australia, and Africa. Traditional Governance is strongest in
Canada, UK, and Finland. More than 70% of firms domiciled in the UK, Canada, and Australia
elect their directors with a majority vote, while no more than 40% of firms have such a rule inJapan, South Korea, and Egypt. All firms in Finland, Israel, Norway, and Sweden have at least one
female board member, while less than 20% of firms do so in Japan and South Korea.

15

4. Does Better Governance Improve Firms’ Environmental Performance?
4.1. Baseline Tests of the Impact of G on E
Our baseline tests in Table 2 examine the relation between corporate governance and firms’
environmental performance using the following specification:

Log ( Scoreit ) =  +   X it −1 +  Yit −1 +  +  it ,(1)

where the dependent variable is the log of one of the environmental scores of firm i in year t, Xit-1
are measures of corporate governance in firm i in year t-1, Yit-1 are a set of firm-level controls inyear t-1, and  are year-by-country, and year-by-industry fixed effects.14 Our main variables ofinterest are the corporate governance measures.
We use logs of environmental scores to obtain better distributional properties and to reducethe impact of outliers.15 For firm-level control variables we use firm size (log of assets), cash, asset
tangibility, leverage, profitability, institutional ownership, and whether a firm is cross-listed on amajor US stock exchange. We include firm size as prior literature has shown it to be related toownership structures, and larger firms may be subject to more external pressures. Hong, Kubik,
and Scheinkman (2012) suggest that financial slack also explains adoption of sustainabilityoriented policies. Following them, we include cash, asset tangibility, and leverage to capture credit
constraints, and profitability to capture the impact of performance. Cross-listing captures broad
governance structures. Institutional ownership is included as Dyck, Lins, Roth, and Wagner (2019)find that institutional investors are a factor in environmental performance around the world.
Given the substantial variation over time, across countries, and across industries, we
include year-by-country fixed effects and year-by-industry fixed effects. These fixed effects

Environmental variables reflect data available to ASSET4 analysts that covers the firm’s fiscal year. A score forfiscal year 2010, for example, would reflect items that occurred during the 2010 fiscal year as well as information
contained in the company annual report and any company sustainability reports published after the fiscal-year end
early 2011. Thus, our baseline model with 2011 environmental scores would have fiscal-year-2010 right-hand-side
variables.
15
Our main results are unaffected if we use the raw scores rather than the log scores. Our results are also similar when
we use industryxcountry×year fixed effects though we lose 10% of the sample due to singleton observations.
1416

control for unobserved group heterogeneities and ensure that any relation between environmental
performance and corporate governance is identified both within country-year and within industryyear. Using such fixed effects guards against the possibility that our results are driven by aparticular industry or country in a given year. Finally, we cluster standard errors by country.
The tests in Table 2 show a significant and economically important relationship between
governance and firms’ environmental performance. Panel A reports the results using ASSET4
Environmental z-Scores as the dependent variable. In model 1, we test for the importance of boththe traditional governance measure of Family and Other Blockholder control, and the broadest
overall governance measure, ASSET4 Governance. We find a negative and statistically significant(p-value < 1%) coefficient on Family. The coefficient implies that when insiders are fully
entrenched, as is the case in family-controlled firms, environmental performance levels are 10%
below those in otherwise similar widely held firms. 16
The coefficient on ASSET4 Governance is positive and statistically significant (p-value <1%). Considering this measure, a one standard deviation improvement in governance is associatedwith an increase in environmental performance of 11.5% (computed as 0.818 × 0.14). The
ASSET4 metric is a kitchen-sink measure that contains both traditional and contemporary
governance mechanisms. To isolate the importance of traditional governance mechanisms, inmodel 2 we use the Aggarwal et. al. (2008) traditional governance index. Again, we find a positiveand significant impact (p-value < 5%) of governance on environmental performance. The
coefficient indicates that a firm that adds one additional traditional governance mechanism (e.g.,
separating the role of CEO and Chairman) is predicted to increase its environmental performanceby 3.1%. In model 3 we get a sense of the importance of renewed thinking on the board forenvironmental performance. The coefficient on Old or Stale Board is negative and significant (p-16

We note that in this specification, the coefficient on Other Blockholder is significant at the 10% level. Because thecoefficient is not significantly different from zero in any other specification in this or other tables, we do not emphasize
it. Our results are unaffected if we alternatively exclude any firms with non-family controlling blockholders (such as
the government) from our sample.

17

value < 1%). Firms that do not have an old or stale board have a 7.8% higher environmental
performance. In model 4 we assess the importance of providing outside investors with greater
power over director selection through majority voting. The coefficient on Majority Election ispositive and significant (p-value < 1%) showing that when investors have this power, firms havean 9.2% higher environmental performance. Finally, in model 5 we assess the importance offemale board representation, which is a proxy for board renewal as it is often the result of bothinvestor and societal pressures. The coefficient on Female Director is positive and significant (pvalue < 1%) and indicates that adding one or more female board members to an all-male board
would increase firms’ environmental performance by 14.7%.
In model 6 of Table 2 we include the proxies of board renewal as measured by Majority
Election and Female Director alongside the traditional governance index and blockholder control
in one specification. These measures could be correlated and including them all in one
specification helps us assess whether each measure has a unique impact on firms’ environmental
performance (or whether one measure dominates).
The results show that all governance mechanisms have an independent and significant
impact on firms’ environmental performance. We find that when outsiders have greater control
rights arising from the adoption of majority election provisions, environmental performance
improves by 8.2%. Further tests, provided in the Appendix (Table A5), show a greater impact offemale board membership on E performance when there are two or more female directors on theboard.17 Of particular interest, adopting the contemporary governance mechanisms of majority

17

In models 1 and 3 of Table A5, we include an indicator variable equal to one when a firm has one female director,
and another indicator variable for firms with more than one female director. As shown in Table 1, 31% of firms have
one female director and 29% have two or more female directors. In models 2 and 4 we include the variable percentage
of directors that are female. From model 1, firms with one female director have 11.4% higher E scores, while thosewith two or more female directors have 20.6% higher E performance. Both coefficients are significant at the 1% level.
The positive and significant coefficient on the percentage of female directors in model 2 is also consistent with more
female directors leading to greater firm E performance.

18

voting or additional female directors is estimated to improve environmental performance by three
to five times as much as adopting one additional traditional governance mechanism.18
We use the Equally-weighted Environmental Score as our dependent variable in Panel B
of Table 2. The Equally-weighted Environmental Scores help us to mitigate the concern noted
earlier that commercial vendors aggregate environmental scores may not give sufficient weight toreal effects. In constructing this score, we weight the line items in each of the three pillars equallyand thus employ different weights than those used by ASSET4 in computing its z-Score.
Nonetheless, we arrive at similar conclusions as to the importance of corporate governance forfirm’s environmental performance. As for the control variables, in both panels we find that larger
firms, more profitable firms, and firms with greater tangibility show stronger environmental
performance. Consistent with Dyck et al. (2019), firms with higher institutional ownershipgenerally have better environmental performance.
The line items we use in constructing the equally-weighted score allow us to create amateriality-weighted environmental score focusing only on the line items SASB identifies as
having a material impact on a firm’s financial condition or operating performance. To that end, inmodel 7 of Panel B of Table 2, we introduce as a dependent variable a Material Environmental
Score. This score is based on the ASSET4 line items that are material according the SASB
Materiality Map, with materiality depending upon industry. Because not all industries in our
sample have a mapping into the Materiality Map and not all line items in SASB can be matched
to ASSET4, the sample size for these tests is reduced from 20,447 to 12,837 observations. We
nonetheless find generally similar results, with family control, majority voting, and female director
continuing to have a significant impact, while traditional governance is no longer significant.

18

We also address the possibility that an omitted variable, environmental controversies, drives both the appointmentof the first female director and the improvement in environmental performance. As an example, Nike, Inc. faced
considerable outside pressure with the global boycott campaign due to apparent human rights violations during the
1990s. In response, the firm significantly improved its ESG performance, including the appointment of a female board
member. In unreported models, we test whether the appointment of a female director is related to prior-year
environmental controversies (measured using ASSET4’s environmental controversies indicators; see Appendix Table
A2). We find no significant relationship, with p-values ranging from 0.39 to 0.95.

19Because we obtain similar results using the alternative weights in the equally-weighted and
SASB-weighted environmental scores, this increases our confidence that idiosyncratic weighting
choices and standardization employed in the ASSET4 z-Score are not driving the finding that better
corporate governance improves firms’ environmental performance.
4.2. Firm Fixed Effects
In addition to our country-by-year and industry-by-year fixed effects, to help withidentification we introduce firm fixed effects that control for time-invariant unobservable firm
characteristics. For these tests, we keep only those observations where the governance variables
are time-varying during the sample period. We note that such a within-firm specification isrelatively demanding in terms of power as governance structures are generally sticky over time.
We report the results in Table 3 and they confirm our prior conclusions—when outsiders
gain more control as a result of the introduction of better governance mechanisms, firms’ futureenvironmental performance improves. Not surprisingly, since within-firm heterogeneity is
considerably smaller, the implied economic impact is attenuated.
4.3. Renewable Governance Shocks
To help with identification, we seek exogenous shocks to corporate governancemechanisms that are not simultaneously shocks to firms’ environmental performance. Specifically,board renewal mechanisms have the potential to provide such shocks, as in some countries in our
sample either legislation or outside pressures forced adoption of majority voting rules or female
board representation. There are no such shocks for family control and we could not find compellingexogenous shocks for the other governance mechanisms during our sample period.19
Our perhaps best chances of achieving identification come from quotas that are mandated
by legislation, and force some, but not all, firms to add female directors. The first such regulator-

19

This is not unexpected. Fauver, Hung, Li, and Taboada (2017) study performance changes after board reforms
across 41 countries and these reforms occurred in the late 1990s and early 2000s, pre-dating our sample period.

20

mandated female quota was introduced in Norway in 2003 (preceding our sample period). With aquota, firms are forced to add women to the board, independent of their beliefs regarding theimportance of environmental performance. This allows one to cleanly examine whether the
addition of one or more women to the board leads to subsequent improvements in environmental
performance, by comparing the firms treated with the quota to those that were not (e.g., because
they already had female board members).
Besides quotas, firms are also subject to pressures from large investor groups to change
their governance by adding female directors. For example, in the UK, in 2011, Lord Davies
published his Women on Boards review that made ten recommendations regarding disclosure andpolicies on diversity, including a recommendation that FTSE 100 firms should have 25% female
board representation no later than the year 2015. The effort was supported by investor groups suchas the Association of British Insurers which disclosed that it would now start monitoring female
board representation.
The best country in our dataset to explore the impact of quotas is France. In 2011, theFrench government passed legislation establishing female board quotas: a 20% minimum for both
sexes by January 1, 2014 and a 40% minimum by January 1, 2016. This was a hard quota, in thatfirms faced significant penalties if they failed to comply. The quota was imposed in the middle ofour sample period, allowing us to analyze multiple years of environmental performance data both
before and after the shock. In addition, there are a sizable number of firms from France in ourdataset, allowing us to construct a treated group and a control group of sufficient size for empiricalanalysis in a single-country study.
We define treated firms in two ways. Our first treated definition is firms that had less than
20% female board membership at the end of 2010 and have at least 20% female board membershipby the end of 2012. Control firms already had exceeded the 20% quota requirement in 2010. Our
second treated definition is firms that had no female directors in 2010 and thus needed to movequickly to elect women to the board to meet the minimum requirement. Control firms already had

21

at least one female director. As expected, untabulated tests confirm that both treated groups added
a significantly greater percentage of female directors following the passage of the quota legislation.
In Figure 1 and Table 4 we test whether the imposition of the quota significantly increased
environmental performance for the treated compared to the control firms. Panels A and B of Figure
1 contain plots of the ASSET4 Environmental z-Scores as well as the Equally-weighted
Environmental Scores in the two years prior to the quota, and in the two years after the quota
imposition for both definitions of treated firms. We consider both 2011 and 2012 to be thetreatment years because the mandate was not binding for three years and it plausibly takes time toappoint new directors. Comparing the pre and post periods, all figures in Panels A and B show amore substantial increase in environmental performance for treated compared to control firms.
Also of note, the figures provide no indication of significant differences in pre-trends forenvironmental performance across these two groups, with both groups increasing at a generally
similar rate.
In Table 4 we show results using a difference-in-differences specification that compareschanges in treated firms relative to changes in control firms. These tests mitigate the impact ofother potentially confounding factors by limiting attention to a window centered around the quota
event, by controlling for time-invariant firm characteristics with firm fixed-effects, and bycontrolling for time-varying firm characteristics using the same variables introduced in our priorregressions. We exclude any firms in which there was a change in family control, otherblockholder control, or cross-listing status to make sure the results are not driven by other majorchanges in the firm.
Models 1 and 2 of Panel A focus on the first treated definition, while models 3 and 4 focus
on the second treated definition. All specifications show that treatment increases environmental
performance. Specifically, we find a positive and significant coefficient on the Post × Treatedvariable, which is an interaction of the treated-firm dummy with the Post-mandated-quota variable.
In terms of economic significance, the effects on environmental performance of the mandated

22

quota is sizable—a firm that had fewer than 20% female board members at the time of legislation
increases its environmental performance by 5% to 7% more than firms that already met the quota.
These results are even larger for firms without any women on the board which increases its
environmental performance by 12% to 16% more than firms that already had women on the board
in France following the imposition of the mandated quota. This economic magnitude is very
similar to what we find in the Table 2 regressions. Because the addition of more female directors
was mandated for treated firms, our results support the interpretation that the appointment offemale directors leads to subsequent increases in firms’ environmental performance.
Turning to the adoption of majority voting provisions, there are no similar legislated
mandates. Fortunately, Canada provides a good example of an investor push that we can use as aquasi-exogenous shock that leads to majority voting adoption. As detailed in Doidge et al. (2019),
the majority voting shock was the creation of the Canadian Coalition for Good Governance(CCGG), an investor group whose first major campaign was a demand for firms to adopt a majority
voting policy to provide investors more power over director selection. Starting from a situation inwhich very few firms had majority voting in Canada, in 2005 and 2006 the CCGG contacted firms
through letters and phone calls, requesting they adopt this governance change. Over the next two
years, Doidge et al. (2019) report substantial increases in firm adoption and provide results that
support a causal interpretation that majority voting adoption was driven by the CCGG. Of crucial
importance for identification, at this time Doidge et al. (2019) document that in none of the CCGG
investor group private engagements with firms did they request that firms increase theirenvironmental performance.20
We test whether this shock that increased majority voting adoption leads to subsequent
increases in firms’ environmental performance. As with the France board-gender shock, we firstprovide a figure to compare changes in environmental performance of the group of firms treated
20

The first public indication the investor group took in environmental engagement was a process that began more thana decade later in 2016, to develop E&S guidelines, published in 2018, outside of our sample period
https://www.ccgg.ca/wp-content/uploads/2019/01/The-Directors-ES-Guidebook-2018.pdf.

23

by the majority voting shock compared to a control group. We define treated firms as those that
adopted majority voting either in 2006 or 2007, and control firms as those that did not change theirmajority voting policy during the 2004 to 2008 period. We then turn to a regression frameworkthat uses a difference-in-differences specification spanning the 2004 to 2008 period, that is, twoyears before and two years after the initiative to push firms to adopt majority voting policies.
Control firms capture any secular trend to increase environmental performance. We require thattreated and control firms have at least one observation before and after the adoption years and drop
the year of the initiative (2006). Further, to make sure the results are not driven by other majorchanges in the firm, we exclude any firms in which there was a change in family control, otherblockholder control, or cross-listing status. All specifications include firm fixed effects to control
for time-invariant firm characteristics.
Panel C of Figure 1 shows that, post-treatment, treated firms have larger increases in E
performance than control firms. Importantly, the figure also shows that both the treated and control
groups are improving their environmental scores at a generally similar rate in the pre-treatmentperiod, consistent with a parallel trends assumption.
Models 5 and 6 of Panel A of Table 4 show that treatment via the adoption of majority
voting increases E performance. Again, we find a positive and significant coefficient on the Post
× Treated interaction variable. In terms of economic significance, the effects on environmental
performance of the change in majority voting is large—firms that adopt majority voting increase
their environmental performance by 21% to 40%. Again, these results support the interpretationthat the adoption of majority voting rules that increase investor power in director elections lead tosubsequent increases in firms’ environmental performance.
The results from France and Canada are compelling, but of course have inherent limitations
due to their smaller sample sizes and the fact that these shocks occur in just two countries. To
increase confidence that these results are generalizable in nature, we next search for similar shocks
or pressures for improved governance across all countries in our sample. We find examples in nine24

countries of outside pressures for female board representation and detail these examples in Table
A6. These examples include some legislated mandates very similar to hard quotas with penalties
introduced in France, other softer quotas that are less binding, as well as pressure coming frominvestor groups. Unfortunately, we do not find similar shocks for majority voting aside from the
Canadian example just discussed. With these female board representation shocks from multiple
countries we conduct similar difference-in-differences analysis.
We present this multiple-country evidence in Panel B of Table 4. Models 1 and 2 focus
exclusively on the seven countries that legislated a quota for female board representation. Models
3 and 4 additionally include Germany and the UK where the shock was not legislation but rather
substantial pressure from large investor groups to change their governance by adding female
directors in 2011. The empirical approach is the same as in the France single-country example. We
define treated firms as firms without female board representation prior to the mandate and control
firms as firms that already have an at least one woman on the board. We include firm and year
fixed effects, as well as all controls from the previous specifications. Standard errors are clusteredby country.
Our results show that the effect found in France is generalizable across a larger set ofcountries. Again, we find a positive and significant coefficient on the Post × Treated interaction
variable. In terms of economic significance, in models 1 and 2 we find that a treated firm—one
that had no women on the board prior to the legislated quota—increases its environmental
performance post quota by 6% to 9% more than control firms that already had women on the board
prior to the quota. Results are virtually identical with the larger sample of seven countries inmodels 3 and 4.
Overall, the firm fixed effect regressions and the tests featuring country-level shocks torenewable governance mechanisms each support a directional interpretation—that is, G drives E.

25

5. The Impact of Country-Level Institutions
Our international sample allows us to test the extent to which the impact of governance onfirms’ environmental performance depends upon country-level institutions. A large body ofresearch that focuses on traditional governance measures shows that, in countries with high quality
disclosure and investor protection, better firm-level governance helps investors obtain theoutcomes they seek. Hail and Leuz (2006), for instance, find that firms have a lower cost of capitalif they are from countries with more extensive disclosure requirements, stronger securities
regulation, and stricter enforcement mechanisms. Doidge, Karolyi and Stulz (2007) find thattraditional governance metrics are linked to firm valuation only in countries with strong
institutions. Similarly, Lel and Miller (2019) find that directors face consequences for shareholderunfriendly actions only when country-level investor protections are strong.
Turning to contemporary governance measures, there is a less clear-cut impact of countrylevel institutions. When investors have sufficient power to renew the board and replace directors,
such directors are more likely to embrace investors’ views with or without monitoring or external
enforcement of shareholder protections. As a consequence, it is possible that country-levelinstitutions that enhance disclosure and protect investors may not be crucial, as investors haveeffectively protected themselves. The flip side of this argument applies to family-controlled firms.
For these firms, families control the board and it is unlikely that outside investors, even if given
nominal powers, will have any real influence on firm actions. Therefore, also for family-controlledfirms, country-level institutions may matter less.
To test the impact of country-level institutions, we follow extant literature in measuring
the strength of the institutional environment. Our first measure is from Hail and Leuz (2006), andit measures cross-country difference in securities regulation, which picks up both disclosure rules
and supporting enforcement institutions. Our second measure is from Djankov et. al. (2008) andmeasures cross-country differences in the power of investors to curb insiders’ self-dealing. Our
third measure is legal origin from LLSV (1998), under the hypothesis that in countries with an

26

English common law legal tradition investors will have higher quality information and legal
powers to protect their interests. We proceed by performing subsample analyses, where we split
the full sample by the median of each of these measures, explicitly allowing for differences in all
coefficients across the two subsamples.
In Table 5 we report the results of our subsample analyses for our two environmental
performance variables. Panel A presents results using the ASSET4 Environmental z-Scores andPanel B for the Equally-Weighted Environmental Scores. Focusing first on the traditional
governance variable, we find that the effect of greater traditional governance is only found incountries with strong institutions. Across all institutional measures, traditional governance has acoefficient close to zero and insignificant when institutions are weak. This result, for sustainability,
is consistent with the prior work that seeks to explain the importance of the institutional
environment for financial performance. Focusing next on the family control indicator, which
proxies for outside investors having minimal real power, we find that a country’s institutional
environment does not matter. The coefficients are negative and significant for all subsamples.
The effect of the country level institutional environment for contemporary governancemeasures is more nuanced. An interesting finding is that the institutional environment does notaffect the importance of the majority election and the female director indicator variable in some
important settings. For example, each of these variables is significant when we split countries by
the strength of their Securities Regulation in models 1 and 2. This provides some evidence that
improving contemporary governance may improve environmental performance even if a country’s
institutions are weak. We proxy for the strength of the institutional environment using the Antiself-dealing index and common law origin distinction in models 3 through 6. For the majority
voting indicator, we find positive coefficients that are similar in magnitude across all subsamples
and they are always significant in the weak institution subsamples.21 For the female director

21

The coefficient on Majority Election is never statistically different (p-value > 10%) between sub-samples.

27

indicator, we find a significant impact in the strong institution subsamples, and a marginal impact
in the weak institution subsamples.
The lessons drawn from Table 5 for investors interested in sustainability is that
contemporary governance measures work across countries with both weak and strong institutions
whereas traditional governance does not. This again underscores the utility of the current trend toseek sufficient power to renew the board and replace directors.
6. Can Governance Impact Environmental Performance in Family-controlled Firms?
Our prior tests have shown that family control is negatively related to firms’ environmental
performance around the world. Given that 23% of our sample firms are family controlled,
sustainability-minded investors who want to move the needle on environmental performance
should be interested in whether governance mechanisms are also effective in family firms.
To address this question, we specifically examine the impact of governance in family firms
and compare it to the impact of governance in nonfamily-controlled firms. To this end, we reestimate model 6 of Table 2 and include interactions between Family and the governancemechanisms Traditional Governance, Majority Elections, and Female Director.
Table 6 reports the results of each governance measure for family firms as well as fornonfamily-controlled firms (Widely Held/Other). For family-controlled firms, the reported
numbers are the sum of the coefficient estimates for a particular governance measure and its
interaction with Family. For the nonfamily-controlled firms, the reported coefficients of aparticular governance measure are equal to the coefficient estimate on the stand-alone governancevariable.
In both models 1 and 2, we find that better governance as measured by the traditional
governance index does not impact the environmental performance of family-controlled firms. We
also find that family firms with majority voting do not have better environmental performance.
These two results are perhaps not surprising. Family firm insiders likely have enough voting rights
to effectively have full control of the firm and its board. That is, family firm insiders likely control
28

enough votes to allow them to get their ‘family-friendly’ directors elected even under a majority
voting rule. However, governance does matter when it comes to board renewal as measured byhaving a female director—family firms with a female director have significantly higher
environmental performance (p-value < 1%). In fact, the model 1 coefficient implies that a female
director improves the environmental performance of a family firm by 12.4%, an impact almost
identical to that in our baseline specification on the full sample of firms in Table 2, model 6. Thisis consistent with female board members, who are more likely new to the board, being less prone
to ‘local’ thinking of established board members, and potentially having other preferences. We
discuss this below in Section 7.
Turning to the bottom half of the table, the results show that both traditional andcontemporary governance mechanisms have strong and significant impacts on widely held/otherfirms, which is expected given the results in Table 2.
7. Additional Robustness
In this section, we conduct additional tests to understand whether the relationship between
G and E is robust to different measures of environmental performance, and in subsets of industries
identified as ‘dirty’ where improvements in environmental performance via governance arguably
matter the most.
7.1. Alternative Environmental Performance Measures
Recall that in Table 2 we built a materiality-weighted environmental score, in which weweight the raw environmental data items based on the materiality for that industry as determinedby the Sustainability Accounting Standards Board (SASB). Our corporate governance results arerobust to measuring environmental performance using this SASB materiality map.
In this section we examine whether our results are concentrated in any particular pillar of
the ASSET4 measurement scheme. Specifically, in models 1 through 6 of Table 7 we use as
dependent variables the environmental performance scores from the three ASSET4 categories—

29

Emission Reduction, Resource Reduction, and Product Innovation—that constitute the two
aggregate environmental performance measures (see Table 1). One might argue, for example, that
reducing emissions and resources used in the production process of a firm are more material forinvestors than product innovation.
We find that governance mechanisms matter for environmental performance for allenvironmental category scores, with coefficients similar in magnitude and significance as thosefrom the baseline specification. Our interpretation is that the strong impact we find of corporate
governance on environmental performance applies very broadly and is not concentrated in specificenvironmental performance categories.
7.2. ‘Dirty’ Industries
Environmental performance improvement should be more salient in industries with higher
levels of environmental impacts. Accordingly, in this section we focus on the impact of governancefor environmental outcomes in plausibly ‘dirty’ industries. In these industries, improving
environmental performance is likely to be the most costly and insider short-termism problems are
therefore likely to be substantial. We use two different criteria to split the industries. First, we use
the ASSET4 Environmental z-Scores, categorizing as dirty the five SIC Divisions (out of 9) thathave the lowest average environmental scores. These SIC Divisions are Agriculture, Forestry,
Fishing; Mining; Services; Retail Trade; and Wholesale Trade. Second, we define dirty industries
more narrowly using the SASB categorization of industries by the degree to which environmental
performance scores are material. Dirty industries, according to SASB standards, include the SIC
Divisions Agriculture, Forestry, Fishing; Mining; and Services. Panel A of Table 8 details the
mapping and summary statistics by SIC Division, and shows significant differences acrossindustries in firms’ environmental performance.22

Note that family-controlled firms are not concentrated in ‘dirty’ industries (using the broad classification, families
account for 23% of firms in ‘dirty’ industries and 22% in ‘clean’ industries). This helps to address a potential concernthat the lower environmental performance of family firms that we have reported is a result of families choosing tocontrol firms in ‘dirty’ industries rather than ‘clean’ ones.
22

30

Using the broad categorization of industries that are dirty, model 1 of Panel B shows thatfamily control and contemporary governance mechanisms continue to significantly impact
environmental performance in dirty industries, and model 3 shows that traditional governance also
has a significant impact. We find the governance impact to be more muted when we use a narrow
categorization of industries deemed to be dirty. In this smaller sub-sample, the coefficients on all
governance variables are generally similar but are only significant for the female director indicator.
This result could stem either from entrenched insiders being more reluctant to listen to outsiders’requests for environmental performance when the short-term costs of improving environmental
performance are likely to be high, or from a lack of power.
Overall, the tests in this section show that G affects E where environmental risks are likely
more salient, with family control and having a female board member being important in all cases.
8. Director Characteristics, Board Renewal, and Improved Environmental Performance
In this section, we explore in detail the extent to which director characteristics account forthe observed effects of board renewal improving firms’ environmental performance. We firstconsider our result that majority voting rules, which increase investor power in director elections,lead to greater environmental performance. The adoption of majority voting rules could makeexisting directors care more about investors’ interests, and/or it could lead to the introduction of
directors with characteristics that correlate positively with a commitment to environmental
performance (e.g., age, experience, and education).
Second, we consider the positive impact of female board representation on firms’
environmental performance. This result could be driven by gender itself, and/or it could beobtained because a new female director has characteristics associated with greater concern for theenvironment. Ahern and Dittmar (2012), for example, document in their sample that compared toexisting male directors, new female directors have significantly less CEO experience, are younger,
and are more highly educated. Further, they find that after controlling for these characteristics,
there is no longer a robust relationship between female board membership and firm performance.
31

Alternatively, it is possible that gender has a unique stand-alone effect. Behavioral economics
research shows that women in general (not specifically female board members) have stronger‘other regarding’ preferences than men, such as a concern for the environment (e.g., Andreoni and
Vesterlund, 2001; Adams and Funk, 2012; Thaler, 2016; Cronqvist and Yu, 2017).
In Table 9 we estimate regression models that include director characteristics for each firm
for each year. If firms that adopt majority voting or appoint a female director exhibit systematicallydifferent board characteristics, which in turn are related to environmental performance, thosecharacteristics should subsume the direct effect of the change in governance. For these tests weobtain director characteristics data for each director in our sample from BoardEx. Following Ahern
and Dittmar (2012), we explore six director characteristics: whether the director has CEO
experience; if the director has a higher education degree other than an MBA; if the director has an
MBA degree; director age; tenure as a board member; and whether the director shares a last namewith someone else on the board (a rough measure of whether a firm has family members on theboard). We then aggregate the director characteristics at the firm-year level. The requirement tohave board characteristic data from BoardEx lowers the sample size from 20,447 to 15,874
observations.
In models 1 and 6, we re-estimate the baseline regression from model 6 of Table 2 for thesmaller BoardEx sample and find virtually identical results that introducing mechanisms of board
renewal improve firm E performance. In models 2 and 7 we explore the impact of board
characteristics alone, without the governance variables. We find that greater board-level CEO
experience and attainment of higher education other than an MBA are associated with significantly
stronger environmental performance. None of the other board characteristics matter forenvironmental performance. In models 3 and 8, by including governance mechanisms along with
firm-level board characteristics, we can assess whether board characteristics or governancemechanisms themselves, or both, are behind the improved environmental performance. Our focus

32

is on the coefficients on the renewable governance mechanisms of majority voting and female
directors.
We find that the board characteristics do not in any way subsume the stand-alone renewable
governance mechanism effect. Results are similar regardless of whether we focus on ASSET4 zScores or equally-weighted scores. For example, comparing model 3 relative to model 1, thecoefficient on majority voting is virtually identical (0.074 versus 0.075) and retains its level ofstatistical significance. The coefficient on female director also retains its statistical significanceand is actually slightly larger in magnitude (0.152 versus 0.146). These results suggest thatmajority voting improves E performance by changing the incentives for directors to consider
investors’ concerns, and that female directors affect E performance for reasons related specificallyto their gender.
We explore the female result further by comparing newly-hired female directors to newlyhired male directors. Similar to Ahern and Dittmar (2012), in our international sample female
directors have less CEO experience, are more educated, are younger, and less frequently share alast name with someone else on the board.23 Female directors have lower CEO experience which
all else equal would predict lower E performance, and simultaneously have higher education which
would all else equal predict greater E performance. Thus, our result that controlling for board
characteristics does not change the coefficient or significance of having a female director isconsistent with these characteristics having offsetting effects.
We further explore whether gender itself is a fundamental factor in models 4 and 5, and 9
and 10. Because more CEO experience and higher education other than an MBA are associatedwith higher E performance, we focus specifically on those female directors that have low levels of
CEO experience and low levels of higher education. We use ‘Low’ (‘High’) indicator variables

23

The reported differences are statistically significant controlling for industry, year, and country, with the following
p-values: CEO experience (0.111), have higher education degree other than an MBA (0.058), have MBA (0.026), age(0.207), share same last name (0.078). We do not find a significant difference in previous board tenure. The differences
are even greater if we compare newly-hired female board members to existing male board members (rather than newlyhired male board members).

33that are equal to one if a female director has CEO experience or higher education equal to or lower(higher) than the average of all other board members in that firm in that year, and zero otherwise.
If CEO experience and higher education drive the results, gender should have no direct impact for
female directors with relatively low levels of either of these. In all of these models we find apositive and strongly significant coefficient on the Low CEO experience indicator and the Low
higher education indicator. This indicates that a female director, independent of her othercharacteristics, strongly influences a firm’s environmental performance. Based on extant research,
this female effect could arise from any of three broad reasons: female directors have strong innate
preference for other-regarding behavior such as making environmental investments that havepositive social externalities (Adams and Funk, 2012; Cronqvist and Yu, 2017), female directors as
new board members shake up groupthink as discussed in Janis (1972), or female directors bringnew corporate governance skills (Kim and Starks (2016a). Unfortunately, existing internationalboard data do not yet allow us to differentiate between these explanations.24
9. Conclusion
With a seemingly large gap between investors’ attitude toward addressing environmental
risks and the collective board attitude toward doing so, to change firm policies investors may need
not only ‘traditional’ governance but also ‘contemporary’ governance mechanisms that plausibly
renew the mindset of the board. We test for the importance of both of these governance channels
in a large cross-country sample.
Our tests show that corporate governance drives firms’ environmental performance. Firms
with well-established traditional governance mechanisms, such as board independence or the
separation of the roles of CEO and Chairman, demonstrate stronger environmental performance,
but primarily do when country-level institutions are strong. We find the greatest improvement inenvironmental performance when investors are able to renew the mindset of the board by adopting
24

For example, outside the US firms are rarely required to disclose detailed director-specific skill sets similar to thoserequired under Regulation S-K rules since 2009 (see, e.g., Adams, Akyol, and Verwijmeren, 2018).

34

contemporary governance mechanisms. Based on our regression models, firms that adopt amajority director election provision or add one or more female directors on the board improvefirms’ environmental performance by three to five times as much as adopting an additional
traditional governance mechanism. Further, these contemporary governance mechanisms
generally work in countries with both weak and strong institutional environments. We find thatfamily firms, that are likely to suffer from insider short-termism, have weaker environmental
performance globally.
These findings, that enhanced investor power leads to improved environmental
performance, are consistent with a view that firms improve E because investors are asking for it.
The theoretical framework suggests this push comes from investors constraining insider shorttermism and/or from investors putting a high value on non-pecuniary benefits from E investments.
The results in this paper have important implications for institutional investors that want topush firms towards improving their environmental performance. They provide a roadmap whichsuggests that these investors should not focus on aggregate measures of ESG, or even E as a standalone measure. Instead, they should focus on improving governance mechanisms first, since doing
so contributes to improvements in firms’ environmental (E) performance. And, in particular,
investors should focus on any mechanism that is capable of renewing the mindset of the board.
The significant differences in the power of contemporary governance mechanisms
compared to traditional ones when we examine firms’ environmental performance may be usefulfor future research. Conclusions drawn in the governance literature have almost exclusively
focused on traditional governance such as director independence. Given our results, it would beinteresting to see how previously studied corporate policies are impacted by contemporary
governance mechanisms.

35

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Figure 1
Shocks and Environmental Performance: Single-Country PlotsThis figure shows the trends of the ASSET4 Environmental z-Score and the Equally-weighted Environmental Score
for years surrounding quotas for female board representation in France and a quasi-exogenous shock to majority
director election rules in Canada. All figures plot the average environmental scores for the treated firms and control
firms in the two years prior to and after the shocks. In Panel A, treated firms had less than 20% female board members
at the end of 2010 and have at least 20% female board members at the end of 2012. Control firms already met the
mandated quota (treatment years: 2011/2012). In Panel B, treated firms are firms that had no female board member atthe end of 2010 and the control firms that already had female board members (treatment years: 2011/12). In Panel C,
treated firms adopted majority voting in 2006 or 2007; control firms did not change majority voting policies during
the 2004 to 2008 period (treatment year: 2006).

Panel A: Quotas for Female Board Representation in France (20% Treatment)

Panel B: Quotas for Female Board Representation in France (0/1 Treatment)

Panel C: Majority Director Election Rules in Canada

41

Table 1
Descriptive Statistics
This table shows descriptive statistics of environmental scores, measures of corporate governance, and other key
variables. Panel A shows summary statistics for the full sample. Panel B shows country averages for the year 2012
and the number of observations for the year 2012 and the full sample. The sample period is 2004-2015. All variables
are winsorized at the 1st and 99th percentiles. All variables are described in Appendix Table A1.
Panel A: Summary Statistics
Variable

MeanMedianSD

Obs

A. Environmental Performance Measures
ASSET4 Environmental z-Score
Equally-weighted Environmental Score
Material Environmental Score

54.2
39.1
32.2

57.6
36.8
29.8

31.2
21.2
23.9

20,447
20,447
12,917

B. Governance Mechanisms
FamilyASSET4 GovernanceTraditional Governance
Board Independence
Board Size
CEO-Chairman Separation
Board Structure
Audit Committee Independence
Stock Classes
Old or Stale Board
Majority Election
Female Director
One Female Director
Two+ Female Directors
Percent Female Directors

0.225
0.559
3.650
0.465
0.840
0.656
0.331
0.615
0.745
0.193
0.548
0.596
0.310
0.286
0.103

0.000
0.567
4.000
0.000
1.000
1.000
0.000
1.000
1.000
0.000
1.000
1.000
0.000
0.000
0.091

0.418
0.140
1.431
0.499
0.367
0.475
0.470
0.487
0.436
0.395
0.498
0.491
0.462
0.452
0.111

20,447
20,447
20,447
20,447
20,447
20,447
20,447
20,447
20,447
17,366
20,447
20,447
20,447
20,447
20,447

C. Other Variables
Log(Total Assets)
Cash
Tangibility
Leverage
Profitability
Other Blockholder
Institutional Ownership
Cross-list

8.671
0.126
0.308
0.236
0.056
0.067
0.241
0.109

8.561
0.088
0.255
0.221
0.051
0.000
0.197
0.000

1.810
0.125
0.261
0.173
0.086
0.249
0.176
0.311

20,447
20,447
20,447
20,447
20,447
20,447
20,447
20,44742

Panel B: Summary Statistics by Country

Country

Australia
Austria
BelgiumBrazilCanadaChile
China
Colombia
Denmark
Egypt
FinlandFranceGermany
GreeceHong Kong
India
Indonesia
IrelandIsraelItaly
Japan
Luxembourg
Malaysia
MexicoNetherlands
New Zealand
NorwayPhilippines
PolandPortugal
RussiaSingapore
South Africa
South Korea
Spain
SwedenSwitzerland
TaiwanThailandTurkeyUK
Overall

Environmental
ScoresEquallyASSET4
weightedz-Score
Score
33.2
28.3
59.4
46.3
57.2
44.3
57.5
44.6
40.2
32.6
39.5
32.0
31.7
26.8
40.4
34.2
68.3
50.7
18.3
18.1
80.9
62.1
81.9
63.3
70.5
56.0
59.0
47.0
36.6
30.5
50.2
42.3
46.3
36.6
49.2
41.6
42.1
33.7
60.8
49.9
67.1
54.3
62.6
45.6
41.5
33.8
45.4
35.8
67.9
52.2
44.2
34.2
68.1
52.0
43.9
34.9
35.9
30.9
73.4
57.5
46.8
36.3
41.9
35.3
50.2
39.4
67.4
53.2
75.4
57.3
75.6
57.5
57.7
45.3
54.4
43.2
53.4
42.8
57.9
44.7
60.7
46.0
54.2
39.1

Governance Variables
Family
0.13
0.27
0.38
0.33
0.19
0.35
0.28
0.20
0.28
0.36
0.17
0.49
0.28
0.50
0.45
0.33
0.29
0.13
0.53
0.26
0.04
0.57
0.36
0.77
0.18
0.10
0.18
0.11
0.17
0.58
0.53
0.11
0.12
0.37
0.31
0.40
0.33
0.05
0.21
0.54
0.18
0.25

TradiASSET4
tional
Gov
Gov
0.71
4.11
0.58
3.40
0.61
3.13
0.52
3.84
0.73
5.42
0.42
3.00
0.53
2.57
0.50
3.90
0.58
4.00
0.36
2.18
0.62
5.38
0.54
2.11
0.58
2.03
0.49
2.56
0.55
2.83
0.46
3.05
0.46
3.25
0.70
4.67
0.56
4.00
0.59
3.00
0.36
2.21
0.62
4.00
0.55
3.62
0.44
3.81
0.70
3.91
0.69
4.70
0.63
4.53
0.46
3.32
0.49
2.83
0.60
2.58
0.48
4.31
0.61
4.23
0.65
4.16
0.40
3.27
0.57
2.26
0.60
4.73
0.60
3.91
0.43
2.75
0.55
3.58
0.45
3.25
0.72
5.27
0.56
3.65

43

Old orMajority Female
Stale
Election Director
Board
0.17
0.79
0.56
0.00
0.80
0.87
0.21
0.71
0.83
0.33
0.56
0.54
0.38
0.81
0.59
0.53
0.41
0.29
0.06
0.68
0.53
0.17
0.60
0.50
0.04
0.96
0.88
0.00
0.09
0.55
0.00
0.29
1.00
0.21
0.70
0.99
0.13
0.81
0.93
0.20
0.38
0.81
0.35
0.65
0.60
0.39
0.41
0.53
0.08
0.29
0.46
0.20
0.73
0.87
0.47
0.60
1.00
0.36
0.72
0.72
0.24
0.38
0.12
0.29
1.00
0.57
0.40
0.64
0.57
0.63
0.38
0.46
0.06
0.85
0.73
0.11
1.00
0.80
0.00
0.53
1.00
0.68
0.26
0.37
0.00
0.78
0.78
0.17
0.67
0.67
0.17
0.31
0.53
0.31
0.55
0.50
0.09
0.92
0.92
0.03
0.36
0.10
0.26
0.79
0.88
0.08
0.30
1.00
0.21
0.86
0.57
0.15
0.32
0.48
0.33
0.88
0.79
0.10
0.38
0.54
0.06
0.91
0.76
0.19
0.55
0.60

Obs
Year
2012

Full
Sample

272
15
24
57
229
17
120
10
25
11
24
89
72
16
106
80
28
15
15
43
349
7
42
26
33
10
17
19
23
12
32
44
119
59
42
40
58
75
24
24
276
2,599

2,099
141
242
358
1,998
107
783
56
186
59
264
861
541
152
941
529
194
147
98
422
2,129
64
278
190
334
129
151
126
149
120
239
426
580
305
427
417
508
418
150
151
2,978
20,447

Table 2
Do Governance Mechanisms Affect Firms’ Environmental Performance?
This table reports regression estimates of environmental scores on governance mechanisms and control variables. The
dependent variables are the natural logarithm of environmental scores. The ASSET4 Environmental z-Score is astandardized score, calculated by and obtained from Thomson Reuters ASSET4 ESG, and measures firms’
environmental performance relative to other companies. The Equally-weighted Environmental Score is the average ofthree category scores (Emission Reduction, Resource Reduction, and Product Innovation). The Material
Environmental Score in Panel B measures each firm’s environmental performance using only those line items fromASSET4 that are material according to the SASB Materiality Map. Appendix Table A2 describes the indicatorvariables used to calculate the environmental scores. All other variables are described in Appendix Table A1. The
sample period is 2004-2015. All variables are winsorized at the 1st and 99th percentiles. All right-hand side variables
are lagged by one year. Standard errors are clustered at the country-level and t-statistics are reported in parentheses.
*** ** *, , denote statistical significance at the 1%, 5%, and 10% level, respectively.
Panel A: ASSET4 Environmental z-Scores

Family t-1
ASSET4 Governance t-1(1)-0.100***(-3.15)0.818***(5.69)

Traditional Governance t-1

ASSET4 Environmental z-Scores t
(2)
(3)
(4)
(5)
-0.106***-0.095***-0.112***-0.114***(-3.35)(-3.00)(-3.58)(-3.81)(6)-0.104***(-3.32)0.031**(2.56)

0.025**(2.05)-0.078***(-3.46)

Old or Stale Board t-1

0.092***(4.05)

Majority Election t-1
Female Director t-1
Log (Total Assets) t-1
Cash t-1
Tangibility t-1
Leverage t-1
Profitability t-1
Other Blockholder t-1
Institutional Ownership t-1
Cross-list t-1
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

0.229***(11.46)-0.086(-1.20)0.192***(2.73)-0.161(-1.62)0.326**(2.27)
0.080*(2.00)
0.221*(1.95)-0.079**(-2.04)
Yes
Yes
20,4470.454

0.228***(11.47)-0.081(-1.13)0.194***(2.80)-0.158(-1.58)0.313**(2.19)
0.067(1.64)
0.245**(2.27)-0.067*(-1.72)
Yes
Yes
20,4470.449

0.227***(10.20)-0.042(-0.61)
0.237***(3.30)-0.227***(-3.30)0.271*(1.90)
0.058(1.50)
0.263**(2.48)-0.079**(-2.10)
Yes
Yes
17,3330.465

440.225***(11.28)-0.092(-1.30)0.197***(2.88)-0.160(-1.62)0.313**(2.21)
0.062(1.47)
0.259**(2.45)-0.067*(-1.77)
Yes
Yes
20,4470.450

0.147***(4.61)
0.218***(11.59)-0.076(-1.06)
0.197***(3.09)-0.149(-1.54)0.287**(2.08)
0.062(1.55)
0.256**(2.51)-0.053(-1.42)
Yes
Yes
20,4470.453

0.082***(3.53)
0.141***(4.53)
0.215***(11.45)-0.080(-1.10)0.198***(3.10)-0.152(-1.55)0.286**(2.05)
0.067*(1.71)
0.224**(2.13)-0.068*(-1.79)Yes
Yes
20,4470.457

Panel B: Equally-weighted Environmental Scores(6)-0.080***(-3.17)

Material E
Score t(7)-0.138**(-2.15)0.018*(1.89)

0.021(1.18)

0.069***(3.66)
0.109***(4.89)
0.186***(13.10)-0.001(-0.01)0.177***(3.73)-0.140*(-1.93)0.227*(1.92)
0.028(0.89)
0.128*(1.68)-0.027(-1.04)
Yes
Yes
20,4470.532

0.069**(2.07)
0.107***(3.57)
0.255***(11.08)-0.193(-1.20)0.169*(1.76)-0.216**(-2.04)0.180(1.05)
0.038(0.64)
0.149(1.35)-0.022(-0.38)
Yes
Yes
12,8370.516

Equally-weighted Environmental Scores t
Family t-1
ASSET4 Governance t-1(1)-0.076***(-2.98)0.673***(5.88)(2)-0.082***(-3.21)(3)-0.076***(-2.91)(4)-0.086***(-3.41)

0.022**(2.43)

Traditional Governance t-1-0.048**(-2.66)

Old or Stale Board t-1

0.076***(4.21)

Majority Election t-1
Female Director t-1
Log (Total Assets) t-1
Cash t-1
Tangibility t-1
Leverage t-1
Profitability t-1
Other Blockholder t-1
Institutional Ownership t-1
Cross-list t-1
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2(5)-0.088***(-3.62)0.197***(13.42)-0.005(-0.07)0.172***(3.31)-0.147*(-2.00)0.258**(2.12)
0.039(1.26)
0.122(1.46)-0.037(-1.35)
Yes
Yes
20,4470.530

0.197***(13.19)-0.001(-0.01)0.174***(3.41)-0.145*(-1.96)
0.248**(2.04)
0.027(0.86)
0.145*(1.86)-0.026(-0.95)
Yes
Yes
20,4470.524

0.196***(11.94)0.046(0.70)
0.206***(4.02)-0.189***(-3.72)0.223*(1.79)
0.023(0.78)
0.161**(2.07)-0.031(-1.11)
Yes
Yes
17,3330.541

450.195***(13.13)-0.010(-0.14)0.176***(3.49)-0.146*(-2.00)0.248**(2.05)
0.024(0.73)
0.154*(1.98)-0.027(-0.99)Yes
Yes
20,4470.526

0.113***(4.99)
0.189***(13.24)0.003(0.04)
0.176***(3.74)-0.138*(-1.92)0.227*(1.94)
0.024(0.76)
0.152**(2.05)-0.015(-0.59)Yes
Yes
20,4470.529

Table 3
Governance Mechanisms and Firms’ Environmental Performance: Firm Fixed Effects
This table reports firm fixed effects regression estimates of environmental scores on governance mechanisms andcontrol variables. The dependent variables are the natural logarithm of the ASSET4 Environmental z-Score and theEqually-weighted Environmental Score. All variables are described in Appendix Table A1. We drop firms with timeinvariant governance measures. Control variables (Family and all other firm controls) are included but not reported.
The sample period is 2004-2015. All variables are winsorized at the 1st and 99th percentiles. All right-hand side
variables are lagged by one year. Standard errors are clustered at the country-level and t-statistics are reported inparentheses. ***, **, * denote statistical significance at the 1%, 5%, and 10% level, respectively.
Panel A: ASSET4 Environmental z-Scores

ASSET4 Governance(1)0.133**(2.08)ASSET4 Environmental z-Scores
(2)
(3)
(4)
0.014**(2.33)

Traditional Governance-0.024*(-1.86)

Old or Stale Board

0.048**(2.49)

Majority Election
Female Director
Controls
Firm Fixed Effects
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

(5)

Yes
Yes
Yes
Yes
20,107
0.869

Yes
Yes
Yes
Yes
15,972
0.869

Yes
Yes
Yes
Yes
5,968
0.872

Yes
Yes
Yes
Yes
9,766
0.840

0.031**(2.54)
Yes
Yes
Yes
Yes
7,539
0.845

Panel B: Equally-weighted Environmental Scores

ASSET4 Governance(1)
0.078**(2.07)

Equally-weighted Environmental Scores
(2)
(3)
(4)

0.011**(2.15)

Traditional GovernanceOld or Stale Board-0.015(-1.40)0.035***(3.16)

Majority Election
Female Director
Controls
Firm Fixed Effects
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

(5)

Yes
Yes
Yes
Yes
20,107
0.915

Yes
Yes
Yes
Yes
15,972
0.914

46

Yes
Yes
Yes
Yes
5,968
0.918

Yes
Yes
Yes
Yes
9,766
0.896

0.020**(2.46)
Yes
Yes
Yes
Yes
7,539
0.899

Table 4
Governance Mechanisms and Firms’ Environmental Performance: Evidence from Outside Shocks
This table reports regression estimates of environmental scores for years surrounding quotas for female board
representation and a quasi-exogenous shock to majority director election rules. The dependent variables are the natural
logarithm of the ASSET4 Environmental z-Score and the Equally-weighted Environmental Score. All variables aredescribed in Appendix Table A1. Panel A shows results for female board quotas in France and quasi-exogenous shocks
to majority director elections in Canada. Models 1 through 4 focus on the France 2011 quota that mandated 20%
female board representation by 2014. Treated firms in models 1 and 2 had less than 20% female board membership at
the end of 2010 and have at least 20% female board membership by the end of 2012; control firms already had 20%
female board membership in 2010. Treated firms in models 3 and 4 had no women board members in 2010 and haveat least one female board member by the end of 2012; control firms already had at least one woman on the board of
directors. Models 5 and 6 focus on Canada and the initiative of the CCGG to increase majority voting adoption (Doidge
et al., 2019) leading to significant changes in firm adoptions in 2006 and 2007. Treated firms adopt majority voting
in 2006 or 2007; control firms do not change majority voting policies during the 2004 to 2008 period. Panel B shows
results for countries with female board quotas or for which there was significant outside pressure for greater female
board representation. Models 1 and 2 include all countries with legislated quotas for female board representation that
happen at least two years after our sample begins and two years before our sample ends. Models 3 and 4 supplement
countries with mandated quotas with Germany and the UK who both faced substantial outside pressure for more
female board representation in 2011. Further details for these quotas and outside pressure are in Appendix Table A6.
All specifications include two years before and after the event years. Firms that change family control, otherblockholder control, or cross-listing status are excluded. All variables are winsorized at the 1st and 99th percentiles.
All right-hand side variables are lagged by one year. Standard errors are robust in Panel A and are clustered at thecountry-level in Panel B. t-statistics are reported in parentheses. ***, **, * denote statistical significance at the 1%, 5%,
and 10% level, respectively.
Panel A: Single Country Experiences
Female Board Quota Introduction in France
Cutoff: 20%
Cutoff: 0/1
EquallyEquallyASSET4 E zASSET4 E zweighted E
weighted E
ScoresScoresScoresScores
(1)
(2)
(3)
(4)
Post × Treated
0.068***
0.053***
0.117**
0.156***(4.04)(4.13)(2.19)(3.90)Log (Total Assets)
0.242**
0.209***
0.265***
0.222***(2.36)(2.86)(2.60)(2.90)
Cash-0.366-0.430-0.202-0.268(-0.75)(-1.31)(-0.59)(-0.89)Tangibility
1.547*
0.671
0.511
0.177
(1.95)(1.43)(0.89)(0.41)
Leverage-0.710**-0.706***-0.646**-0.608***(-2.52)(-3.02)(-2.43)(-2.60)
Profitability-0.0010.110-0.819**-0.297(-0.00)(0.38)(-2.02)(-1.17)
Institutional Ownership
0.136
0.049
0.372*
0.153(0.90)(0.40)(1.95)(1.12)
Firm Fixed Effects
Yes
Yes
Yes
Yes
Obs
390
390
390
390
Adjusted R2
0.782
0.855
0.754
0.842

47

Majority Director Elections
in Canada
EquallyASSET4 E zweighted E
ScoresScores(5)(6)
0.212**
0.403***(2.57)(6.16)
0.057
0.389***(0.71)(5.23)
0.299
0.919*(0.48)(1.89)
1.094*
1.060**(1.78)(2.06)-0.579-0.335(-1.52)(-1.18)-0.3030.342(-0.64)(0.88)
0.109
0.410*(0.35)(1.69)
Yes
Yes
237
237
0.811
0.804

Panel B: Female Board Quotas for Broad Country Samples
Countries with Mandatory Female Board
Quotas Through Legislation or Outside
Pressure to Increase Female Board
Representation
Equally-weighted E
Equally-weighted E
ASSET4 E z-Scores
ASSET4 E z-Scores
ScoresScores
(1)
(2)
(3)
(4)
0.084**
0.056*
0.085***
0.056***(2.54)(2.21)(3.77)(3.30)
0.047
0.033
0.039
0.028
(1.02)(0.90)(1.34)(1.36)-0.140-0.037-0.126*-0.040(-1.05)(-0.48)(-1.88)(-0.91)-0.051
0.031-0.0080.052(-0.91)(1.11)(-0.10)(1.16)-0.072-0.087-0.017-0.045(-0.40)(-0.69)(-0.15)(-0.58)-0.040-0.011-0.031-0.015(-0.26)(-0.12)(-0.31)(-0.25)-0.1350.079-0.007
0.056(-0.77)(0.60)(-0.07)(0.84)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
1,728
1,728
3,048
3,048
0.907
0.943
0.902
0.943
Countries with Mandatory Female Board
Quotas Through Legislation

Post × Treated
Log (Total Assets)
Cash
Tangibility
Leverage
Profitability
Institutional Ownership
Firm Fixed Effects
Year Fixed Effects
Obs
Adjusted R2

48

Table 5
Country-level Institutions and the Effect of Governance on Firms’ Environmental PerformanceThis table reports regression estimates of environmental scores on governance mechanisms and control variables forfirms grouped by their countries’ investor protection laws and regulations. The dependent variables are the natural
logarithm of the ASSET4 Environmental z-Score and the Equally-weighted Environmental Score. We sort firms into
low and high country-level investor protection groups. In models 1 and 2, we split the sample based on below- or
above-median cutoffs on a country’s strength of securities regulation as in Hail and Leuz, (2006); it is the average ofthe disclosure index, liability standard index, and public enforcement index from La Porta et al. (2006). In models 3
and 4, we employ below- or above-median cutoffs on a country’s anti-self-dealing index that measures the average of
ex-ante and ex-post private control of self-dealing (Djankov et al., 2008). In models 5 and 6, we split the sample basedon whether a country has a code-based (civil law) or common law legal tradition (La Porta et al., 2006). All othervariables are described in Appendix Table A1. Control variables are included but not reported. The sample period is
2004-2015. All variables are winsorized at the 1st and 99th percentiles. All right-hand side variables are lagged by
one year. Standard errors are clustered at the country-level and t-statistics are reported in parentheses. ***, **, * denotestatistical significance at the 1%, 5%, and 10% level, respectively.
Panel A: ASSET4 Environmental z-ScoresGrouped by

FamilyTraditional Governance
Majority Election
Female Director
Controls
Country×Year FE
Industry×Year FE
Obs
Adjusted R2

Securities Regulation
Low
High
(1)
(2)
-0.104**-0.084*(-2.43)(-2.21)
0.004
0.045**(0.27)(2.86)
0.062*
0.103*(1.86)(2.15)
0.092**
0.156***(2.16)(3.41)
Yes
Yes
Yes
Yes
Yes
Yes
9,168
9,752
0.409
0.445

ASSET4 Environmental z-ScoresAnti-self-dealing Index
Legal Tradition
Low
High
Civil law
Common law
(3)
(4)
(5)
(6)
-0.106**-0.115**-0.113**-0.082**(-2.51)(-2.85)(-2.68)(-2.26)0.008
0.035**
0.001
0.044***(0.54)(2.92)(0.09)(3.18)
0.086***
0.078*
0.086***
0.088*(2.95)(1.88)(2.92)(1.90)
0.064
0.179***
0.055
0.192***(1.69)(4.39)(1.49)(4.76)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
9,483
10,669
9,941
10,209
0.390
0.456
0.428
0.459

Panel B: Equally-weighted Environmental ScoresGrouped by

FamilyTraditional Governance
Majority Election
Female Director
Controls
Country×Year FE
Industry×Year FE
Obs
Adjusted R2

Equally-weighted Environmental Scores
Securities Regulation
Anti-self-dealing Index
Legal Tradition
Low
High
Low
High
Civil law
Common law
(1)
(2)
(3)
(4)
(5)
(6)
-0.084**-0.061*-0.088**-0.084**-0.094**-0.057*(-2.31)(-1.92)(-2.49)(-2.50)(-2.69)(-1.88)-0.0010.038***
0.001
0.030***-0.0030.037***(-0.12)(3.34)(0.12)(3.37)(-0.37)(3.67)
0.064**
0.070*
0.077***
0.053
0.079***
0.060(2.47)(1.88)(3.43)(1.69)(3.45)(1.67)
0.074**
0.120***
0.053*
0.139***
0.045
0.149***(2.35)(3.81)(1.88)(5.09)(1.61)(5.81)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
9,168
9,752
9,483
10,669
9,941
10,209
0.490
0.505
0.467
0.513
0.500
0.522

49

Table 6
The Effect of Governance on Family-controlled Firms’ Environmental PerformanceThis table shows overall effects of governance mechanisms on firms’ environmental performance for firms withdifferent blockholders (family-controlled vs. widely held/other). Each regression model includes an indicator variable
for whether a firm is controlled by a family, the governance mechanisms in question, an interaction term between thefamily indicator and the governance mechanisms, and controls. The reported coefficient estimate on Family is the sumof the coefficient estimates on the governance measure and the interaction between the family indicator variable andthe governance measure. The reported coefficient on Widely Held/Other is the coefficient estimate on the standalone
governance variable. The dependent variables are the natural logarithm of the ASSET4 Environmental z-Score andthe Equally-weighted Environmental Score. All variables are described in Appendix Table A1. Control variables areincluded but not reported. The sample period is 2004-2015. All variables are winsorized at the 1st and 99th percentiles.
All right-hand side variables are lagged by one year. Standard errors are clustered at the country-level and t-statistics
are reported in parentheses. ***, **, * denote statistical significance at the 1%, 5%, and 10% level, respectively.
ASSET4 Environmental
z-Scores(1)

Equally-weighted Environmental
Scores(2)0.005(0.28)
0.037(0.78)
0.124***(2.96)

0.003(0.21)
0.025(0.70)
0.103***(3.04)

0.030**(2.09)
0.096***(3.79)
0.146***(4.30)
Yes
Yes
Yes
20,4470.457

0.022*(1.97)
0.082***(3.86)
0.110***(4.62)
Yes
Yes
Yes
20,447
0.532

FamilyTraditional Governance
Majority Election
Female Director
Widely Held/Other
Traditional Governance
Majority Election
Female Director
Controls
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

50

Table 7
Alternative Environmental Performance Measures
This table reports regression estimates of alternative environmental performance measures on governance mechanisms
and control variables. The dependent variables are the natural logarithm of environmental scores. The ASSET4
Environmental Category z-Scores are standardized scores, calculated by and obtained from Thomson Reuters ASSET4
ESG, and measure firms’ environmental performance relative to other companies for the categories Emission
Reduction, Resource Reduction, and Product Innovation. The Equally-weighted Environmental Category Scores forthe categories Emission Reduction, Resource Reduction, and Product Innovation are calculated as the sum of all
indicator variables in each category divided by the number of reported items times 100. Appendix Table A2 describes
the indicator variables used to calculate the environmental scores. All other variables are described in Appendix Table
A1. Control variables are included but not reported. The sample period is 2004-2015. All variables are winsorized at
the 1st and 99th percentiles. All right-hand side variables are lagged by one year. Standard errors are clustered at thecountry-level and t-statistics are reported in parentheses. ***, **, * denote statistical significance at the 1%, 5%, and
10% level, respectively.

Categories
FamilyTraditional Governance
Majority Election
Female Director
Controls
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2Emission
Reduction(1)-0.102***(-3.62)0.025**(2.22)
0.079***(3.18)
0.119***(4.11)
Yes
Yes
Yes
20,447
0.428

ASSET4
Resource
Reduction(2)-0.105***(-3.23)0.029**(2.36)
0.076***(3.04)
0.151***(4.06)
Yes
Yes
Yes
20,447
0.375

Environmental Category Scores
Equally-weighted
Product
Emission
Resource
Product
Innovation
Reduction
Reduction
Innovation
(3)
(4)
(5)
(6)
-0.084**-0.020***-0.018**-0.024***(-2.63)(-3.33)(-2.50)(-3.30)
0.009
0.002
0.001
0.005*(0.79)(1.06)(0.28)(1.93)
0.067***
0.019***
0.023***
0.023***(3.52)(4.14)(5.40)(4.44)
0.071***
0.023***
0.015***
0.030***(4.03)(5.17)(3.47)(4.25)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
20,447
20,447
20,447
20,447
0.416
0.537
0.495
0.476

51

Table 8
Governance Mechanisms and Firms’ Environmental Performance in Dirty and Clean Industries
This table shows summary statistics and regression estimates of environmental scores on governance measures and control variables for firms grouped by industries withlow and high environmental performance. Industries are classified as ‘dirty’ and ‘clean’ based on average industry-level ASSET4 Environmental z-Scores and the SASB
materiality map. The first classification is based on industry-level ASSET4 Environmental z-Scores; SIC Divisions ABFGI are classified as ‘dirty’ sectors because they are
below or equal to the median of 46.7 and SIC Divisions CDEFH are ‘clean’ sectors. The second classification is based on the SASB materiality map. We map the 11 subcategories from the SASB sections pertaining to environmental performance (Environment and Business Model and Innovation) and construct our own score as 2 points ifclassified as “material for more than 50% of industries in the sector”, 1 point if “material for less than 50% of industries” and 0 points if “issue not likely to be material for
any industries”. These scores suggest that the sectors that are most material (‘dirty’) are SIC Divisions ABI. SIC Divisions CDEFH are considered as ‘clean’ industries. The
dependent variables are the natural logarithm of the ASSET4 Environmental z-Score and the Equally-weighted Environmental Score. All variables are described in Appendix
Table A1. Control variables are included but not reported. The sample period is 2004-2015. All variables are winsorized at the 1st and 99th percentiles. All right-hand side
variables are lagged by one year. Standard errors are clustered at the country-level and t-statistics are reported in parentheses. ***, **, * denote statistical significance at the
1%, 5%, and 10% level, respectively.
Panel A: Summary Statistics

SIC
Industry Name /Division Classification

ASSET4 E Equallyz-Score weighted E
Score
A
Agriculture, Forestry, Fishing
39.9
30.8
B
Mining38.2
28.4
CConstruction
53.8
37.4
D
Manufacturing
66.8
47.9
E
Transport., Comm., Utilities
56.8
39.9
F
Wholesale Trade
46.6
33.0
G
Retail Trade
47.8
34.4
H
Finance, Insurance, Real Estate
49.4
37.3
I
Services
41.1
29.4
ABFGI ‘Dirty’ Industries, ASSET4
41.7
30.3
CDEH ‘Clean’ Industries, ASSET4
59.6
43.0
ABI
‘Dirty’ Industries, SASB
39.5
28.9
CDEFH ‘Clean’ Industries, SASB
58.3
42.0

Family

0.46
0.14
0.28
0.26
0.21
0.20
0.38
0.15
0.25
0.23
0.22
0.20
0.23

Averages
ASSET4 Traditional Old or Stale
Gov
Gov
Board
0.58
0.65
0.52
0.53
0.54
0.56
0.57
0.55
0.61
0.61
0.54
0.63
0.54

52

3.61
4.39
3.10
3.49
3.48
3.68
3.77
3.53
3.94
4.05
3.47
4.17
3.50

0.28
0.21
0.22
0.20
0.17
0.13
0.22
0.18
0.20
0.21
0.19
0.21
0.19

Obs
Majority
Election

FemaleDirector

0.68
0.67
0.44
0.50
0.56
0.51
0.56
0.55
0.59
0.61
0.52
0.64
0.52

0.34
0.41
0.55
0.56
0.66
0.64
0.70
0.70
0.62
0.55
0.62
0.50
0.62

Year
2012

Full
Sample

18
330
115
872
383
69
151
425
236
804
1,795
584
2,015

112
2,383
926
6,796
3,053
500
1,244
3,437
1,996
6,235
14,212
4,491
15,956

Panel B: Regressions Based on Dirty and Clean Industries‘Dirty’/’Clean’ Industry Classification
SIC Divisions
FamilyTraditional Governance
Majority Election
Female Director
Controls
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

ASSET4 Environmental zEqually-weighted
ScoresEnvironmental Scores
Industry-level ASSET4 Environmental z-Scores‘Dirty’‘Clean’‘Dirty’‘Clean’
ABFGI
CDEH
ABFGI
CDEH
(1)
(2)
(3)
(4)
-0.086**-0.110**-0.067**-0.081**(-2.15)(-2.66)(-2.34)(-2.36)
0.026
0.020
0.019
0.015
(1.32)(1.68)(1.48)(1.54)
0.086*
0.092***
0.063*
0.079***(1.98)(3.62)(1.80)(3.95)
0.144***
0.131***
0.099***
0.107***(4.14)(3.63)(4.07)(3.79)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
6,172
14,2096,172
14,209
0.493
0.414
0.556
0.491

53

ASSET4 Environmental zEqually-weighted
ScoresEnvironmental Scores
SASB Materiality Map‘Dirty’‘Clean’‘Dirty’‘Clean’
ABI
CDEFGHABICDEFGH
(5)
(6)
(7)
(8)
-0.071-0.110***-0.051-0.081**(-1.40)(-2.81)(-1.44)(-2.55)0.026
0.022*
0.023
0.015(1.15)(1.72)(1.43)(1.57)
0.076
0.091***
0.055
0.077***(1.38)(3.42)(1.26)(3.69)
0.148***
0.129***
0.098***
0.106***(4.83)(3.63)(4.91)(3.89)
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
Yes
4,411
15,954
4,411
15,954
0.521
0.419
0.571
0.498

Table 9
Director Characteristics, Board Renewal, and Improved Environmental PerformanceThis table reports regression estimates of environmental scores on board characteristics, governance mechanisms, and control
variables. The dependent variables are the natural logarithm of the ASSET4 Environmental z-Score and the Equally-weighted
Environmental Score. The board characteristics (CEO Experience, Higher Education, MBA, Age, Tenure, and Same Name)
are the average across all board members in a given firm-year. The below (above) median female characteristics are indicatorvariables equal to one if there is a new female board member in a given year whose characteristics are equal to or less (greater)
than the average of all board members in that year, and zero otherwise. All variables are described in Appendix Table A1.
Control variables are included but not reported. The sample period is 2004-2015. All variables are winsorized at the 1st and99th percentiles. All right-hand side variables are lagged by one year. Standard errors are clustered at the country-level andt-statistics are reported in parentheses. ***, **, * denote statistical significance at the 1%, 5%, and 10% level, respectively.

54

Female Characteristics
Grouping Variable
Majority Election
Female Director(1)0.075**(2.66)
0.146***(5.05)CEO Experience
Higher Education
MBA
Age
TenureSame NameASSET4 Environmental z-Scores
CEO
HigherExperience Education
(2)
(3)
(4)
(5)
0.074**
0.073***
0.074***(2.54)(2.91)(2.96)
0.152***(5.15)
0.207***
0.208***(2.92)(3.30)
0.135*
0.094(1.85)(1.27)-0.031-0.061(-0.24)(-0.48)0.005
0.005(1.27)(1.31)-0.004-0.000(-1.10)(-0.02)-0.126-0.064(-1.03)(-0.50)Female Characteristics
Below Median Group
Above Median Group
FamilyTraditional GovernanceControls
Country×Year FE
Industry×Year FE
Obs
Adjusted R2-0.100***(-2.95)0.033**(2.70)
Yes
Yes
Yes
15,874
0.459

Yes
Yes
Yes
15,8740.450-0.099***(-3.19)0.025**(2.19)
Yes
Yes
Yes
15,8740.462

0.130***(5.00)
0.091***(4.62)-0.094***(-2.93)0.032**(2.61)
Yes
Yes
Yes
17,3330.475

550.137***(4.86)
0.075***(4.03)-0.093***(-2.84)0.033**(2.63)
Yes
Yes
Yes
17,3330.475

Equally-weighted Environmental Scores
CEO
HigherExperience Education
(6)
(7)
(8)
(9)
(10)
0.064***
0.063***
0.062***
0.062***(2.98)(2.85)(3.13)(3.17)
0.115***
0.120***(6.03)(6.16)
0.171***
0.175***(3.47)(4.02)
0.111
0.079(1.68)(1.18)-0.029-0.051(-0.28)(-0.51)0.004
0.004(1.31)(1.39)-0.0030.001(-0.80)(0.20)-0.117-0.069(-1.31)(-0.72)-0.080***(-2.90)0.022**(2.41)
Yes
Yes
Yes
15,874
0.541

Yes
Yes
Yes
15,8740.532-0.079***(-3.15)0.016*(1.75)
Yes
Yes
Yes
15,8740.544

0.102***(6.16)
0.077***(5.09)-0.074***(-2.79)0.023**(2.42)
Yes
Yes
Yes
17,3330.551

0.108***(5.56)
0.062***(4.41)-0.073***(-2.71)0.023**(2.45)
Yes
Yes
Yes
17,3330.551

Appendix
Table A1
Variable Descriptions and Data Sources
Variable

Description

SourceA. Environmental Performance Measures
ASSET4 Environmental Proprietary-weighted aggregate scores of environmental performance that ASSET4 provides to investors. These rankz-Score
based scores range from 0 to 100 and measure the environmental performance relative to all companies in a given year.
Equally-weighted
Aggregate score based of 70 line items of environmental commitments across three categories (emission reduction,
Environmental Score resource reduction, and product innovation). Each line item is translated into an indicator variable such that a ‘one’corresponds to better environmental performance (e.g., a below-median greenhouse gas emission firm would get a ‘one’).
Category scores are calculated as the sum of all indicator variables in each category divided by the number of reported
items times 100. The Equally-weighted Environmental Score is the average of the category scores. Appendix Table A2
describes the indicator variables used to calculate the environmental scores.
Material Environmental Follows the approach of the Equally-weighted Environmental Score. The score is based only on those line items fromScore
ASSET4 that are ‘material’ according to the SASB Materiality Map.
ASSET4 E Category z- Category scores for emission reduction, resource reduction, and product innovation. These scores are proprietary-weighted
Scoresaggregate category scores that ASSET4 provides to investors. These rank-based scores range from 0 to 100 and measure
the environmental performance relative to all other companies in a given year.
Equally-weighted E
Category scores for emission reduction, resource reduction, and product innovation. The scores are based on line items of
Category Scores
environmental commitments across the three environmental categories. Each line item is translated into an indicatorvariable such that a ‘one’ corresponds to better environmental performance (e.g., a below-median greenhouse gas
emission firm would get a ‘one’). The category scores are calculated as the sum of all indicator variables in each category
divided by the number of reported items times 100. Appendix Table A2 describes the indicator variables used to calculate
the environmental scores.
B. Governance Mechanisms
FamilyIndicator variable that equals one if the firm is controlled by a family, zero otherwise. For each firm-year, we classify afirm as controlled by a family if any of the following conditions are met: 1) Orbis (Bureau van Dijk) identifies a family as
the ultimate owner of the firm with a minimum controlling threshold of 25% (following Lins, Volpin, and Wagner, 2013);
2) Orbis identifies the ultimate owner to be a Nominee, Trust, or Trustee, and the firm has dual class shares (obtained fromASSET4); 3) Datastream reports a minimum family stake of 20%, or Datastream reports a minimum family stake of 5%
and the firm has dual class shares; 4) the Global Family Business Index (obtained from Center for Family Business at the
University of St. Gallen, Switzerland) reports the firm as family controlled. For each firm, we impute intermittent years asfamily controlled if a firm is classified as family controlled in at least one earlier and one later year. We further extend
family control both backwards and forwards in time if ASSET4 indicates that the votes of a firm’s largest blockholder are
within 5% of the year during which a firm is known to be family controlled and the largest blockholder’s stake is at least
20%.
Widely Held
Indicator variable that equals one if the firm is not controlled by a blockholder, zero otherwise. For each firm-year, weclassify a firm as widely held if any of the following conditions are met: 1) Orbis classifies the firm as known to be widely
held and the firm is not classified as family controlled by the previous rules; 2) ASSET4 indicates the largest
blockholder’s stake is below 50%, or does not report any largest blockholder stake; 3) the firm is not classified as family
controlled.

56

ASSET4 (fromThomson Reuters)
ASSET4ASSET4, SASBASSET4ASSET4ASSET4,
Datastream, Orbis,
Global Family
Business Index

ASSET4,
Datastream, Orbis

Other Blockholder

ASSET4 GovernanceIndicator variable that equals one if the firm is not family controlled or widely held, zero otherwise. This category
includes controlling blockholders that are non-financial firms (themselves widely held), financial investors, governments,
banks, and insurance firms.
Aggregate score based of 38 line items of governance commitments across four categories (board function, board
structure, compensation policy, shareholder rights). Each line item is translated into an indicator variable such that a ‘one’corresponds to a better governance mechanism. Category scores are calculated as the sum of all indicator variables in eachcategory divided by the number of reported items. The ASSET4 Governance is the average of the category scores.
Appendix Table A4 describes the indicator variables used to calculate the governance scores.
Indicator variable that equals one if the board has more than 50% independent directors, zero otherwise.
Indicator variable that equals one if the board has more than five but less than 16 members, zero otherwise.
Indicator variable that equals one if the CEO is not the chairman of the board of directors, zero otherwise.

Board Independence
Board Size
CEO-Chairman
Separation
Board Structure
Indicator variable that equals one if all board members are individually elected (no staggered board), zero otherwise.
Audit Committee Indep. Indicator variable that quals one if the audit committee is composed only of independent directors, zero otherwise.
Stock Classes
Indicator variable that equals one if all shares of the company provide equal voting rights, zero otherwise.
Traditional Governance Sum of the six indicator variables Board Independence, Board Size, CEO-Chairman Separation, Board Structure, Audit
Committee Independence, Stock Class.
Old or Stale Board
Indicator variable that equals one if at least 20% of the directors is over 70 years old or if at least 50% of directors have atenure greater than nine years, zero otherwise.
Majority Election
Indicator variable that equals one if the board members are generally elected with a majority vote, zero otherwise.
Female Director
Indicator variable that equals one if the firm has at least one female director, zero otherwise.
One Female Director
Indicator variable that equals one if the firm has one female director on the board, zero otherwise.
Two+ Female Directors Indicator variable that equals one if the firm has two or more female directors on the board, zero otherwise.
Percent Female Directors Number of female directors divided by the number of directors on the board.
C. Firm Characteristics
Log(Total Assets)
Cash
Tangibility
Leverage
Profitability
Institutional Ownership
Cross-list

Natural logarithm of total assets in US$ million.
Cash and cash equivalents divided by total assets.
Property, plant, and equipment divided by total assets.
Total debt divided by total assets.
Net income plus after-tax interest expenses divide by total assets.
Total institutional ownership.
Indicator variable that equals one if the firm is cross-listed on a major US exchange, zero otherwise.

D. Board Characteristics
CEO Experience
Fraction of board members who have prior CEO experience.
MBA
Fraction of board members who hold an MBA.
Higher Education
Fraction of board members with non-MBA graduate degrees.
Same Name
Fraction of board members that have the same last name.
Age
Average age in years of all board members.
TenureAverage board tenure in years of all board members.

57

ASSET4,
Datastream, Orbis
ASSET4ASSET4, BoardEx
ASSET4, BoardEx
ASSET4, BoardEx
ASSET4ASSET4ASSET4
BoardEx, ASSET4
BoardExASSET4ASSET4, BoardEx
ASSET4, BoardEx
ASSET4, BoardEx
ASSET4, BoardEx

Worldscope
Worldscope
Worldscope
Worldscope
Worldscope
FactsetADR lists, CRSP

BoardEx
BoardEx
BoardEx
BoardEx
BoardEx
BoardExTable A2
Thomson Reuters ASSET4 ESG Environmental Data
We create environmental indicator variables based on the Thomson Reuters ASSET4 ESG environmental indicator values (line items). Indicator values are the answers
to Y/N questions, double Y/N questions, and numerical questions. We translate the answers to these questions into indicator variables. More specifically, for questions
with a positive direction (i.e., a ‘yes’ answer or a greater number is associated with better environmental performance), we translate the answers to Y/N questions into 0(N) and 1 (Y); the answers to double Y/N questions into 0 (NN), 0.5 (YN or NY), and 1 (YY); and the answers to numerical questions into 0 (value is less (or equal) thanzero; or value is less (or equal) than the median; see also column ‘Translation Numeric Values’) and 1 (value is greater than zero; or value is greater than the median; seealso column ‘Translation Numeric Values’). For questions with a negative direction (i.e., a ‘no’ answer or a lower number is associated with better social performance),
the opposite coding applies. The data are from the ASSET4 ESG database.

Items

A.
1)
2)
3)
4)
5)
6)
7)
8)
9)
10)
11)
12)
13)
14)
15)

16)
17)

18)
19)
20)
21)
22)
23)

24)
25)
26)
27)
28)

B.
1)
2)
3)

Emission Reduction
Biodiversity
Controversies
Biodiversity Impact

Description

Direction

Is the company under the spotlight of the media because of a controversy linked to biodiversity?

Negative

Translation
Question
Numeric
Type
ValuesY/N

Does the company report on initiatives to protect, restore or reduce its impact on native ecosystems andPositive Y/N
species, biodiversity, protected and sensitive areas?
Cement CO2 Emissions Total CO2 and CO2 equivalents emission in kilograms per tonne of cement produced.
Negative Number
Climate Change Risks Is the company aware that climate change can represent commercial risks and/or opportunities?
Positive Y/Nand Opportunities
CO2 Reduction
Does the company show an initiative to reduce, reuse, recycle, substitute, phased out or compensate CO2 Positive Y/Nequivalents in the production process?
Discharge into Water Total weight of water pollutant emissions in tonnes divided by net sales or revenue in U.S. dollars.
Negative Number
SystemEnvironmental
All real or estimated penalties, fines from lost court cases, settlements or cases not yet settled regarding Negative Number
Complianceenvironmental controversies in U.S. dollars.
Environmental
Does the company report on its environmental expenditures or does the company report to make proactive Positive Y/NExpenditures
environmental investments to reduce future risks or increase future opportunities?
Environmental
The percentage of company sites or subsidiaries that are certified with any environmental management
Positive Number
Management Systems system.
Environmental
Does the company report on partnerships or initiatives with specialized NGOs, industry organizations,
Positive Y/NPartnerships
governmental or supragovernmental organizations that focus on improving environmental issues?
Environmental
Does the company report or provide information on company-generated initiatives to restore thePositive Y/NRestoration Initiatives environment?
F-Gases Emissions
Does the company report on initiatives to recycle, reduce, reuse or phase out fluorinated gases such as
Positive Y/N
HFCs (hydrofluorocarbons), PFCs (perfluorocarbons) or SF6 (sulphur hexafluoride)?
Greenhouse Gas
Total CO2 and CO2 equivalents emission in tonnes divided by net sales or revenue in U.S. dollars.
Negative Number
EmissionsHazardous Waste
Total amount of hazardous waste produced in tonnes divided by net sales or revenue in U.S. dollars.
Negative Number
Implementation
Does the company describe the implementation of its emission reduction policy through a public
Positive Doublecommitment from a senior management or board member? AND Does the company describe theY/N
implementation of its emission reduction policy through the processes in place?
Improvements
Does the company set specific objectives to be achieved on emission reduction?
Positive Y/NInnovative Production Does the company report on the concentration of production locations in order to limit the environmental Positive Y/N
impact during the production process? OR Does the company report on its participation in any emissions
trading initiative? OR Does the company report on new production techniques to improve the global
environmental impact (all emissions) during the production process?
Monitoring
Does the company monitor its emission reduction performance?
Positive Y/NNOx and SOx
Does the company report on initiatives to reduce, reuse, recycle, substitute, or phase out SOx (sulphur
Positive Y/NEmissions Reductionoxides) or NOx (nitrogen oxides) emissions?
Ozone-Depleting
Does the company report on initiatives to reduce, substitute, or phase out ozone-depleting (CFC-11
Positive Y/N
Substances Reduction equivalents, chlorofluorocarbon) substances?
PolicyDoes the company have a policy for reducing environmental emissions or its impacts on biodiversity?
Positive Double
AND Does the company have a policy for maintaining an environmental management system?
Y/N
Spill Impact Reduction Does the company report on initiatives to reduce, avoid or minimize the effects of spills or other polluting Positive Y/Nevents (crisis management system)?
Spills and Pollution
Is the company directly or indirectly (through a supplier) under the spotlight of the media because of a
Negative Y/NControversies
controversy linked to the spill of chemicals, oils and fuels, gases (flaring) or controversy relating to theoverall impacts of the company on the environment?
Transportation Impact Does the company report on initiatives to reduce the environmental impact of transportation of its
Positive Y/N
Reduction
products or its staff?
VOC Emissions
Does the company report on initiatives to reduce, substitute, or phase out volatile organic compounds
Positive Y/N
Reduction(VOC) or particulate matter less than ten microns in diameter (PM10)?
Waste
Total amount of waste produced in tonnes divided by net sales or revenue in U.S. dollars.
Negative Number
Waste Recycling Ratio Total recycled and reused waste produced in tonnes divided by total waste produced in tonnes.
Positive Number
Waste Reduction
Does the company report on initiatives to recycle, reduce, reuse, substitute, treat or phase out total waste, Positive Y/Nhazardous waste or wastewater?
Resource Reduction
Cement Energy Use
Energy Efficiency
Initiatives
Energy Use

Total energy use in gigajoules per tonne of clinker produced.
Negative Number
Does the company report on initiatives to use renewable energy sources? AND Does the company report Positive Double
on initiatives to increase its energy efficiency overall?
Y/NTotal direct and indirect energy consumption in gigajoules divided by net sales or revenue in U.S. dollars. Negative Number

58

MedianMedianZeroMedianMedianMedianMedianMedianMedianMedian4)5)

Environmental
Resource Impact
Controversies
Environmental Supply
Chain Management

Is the company under the spotlight of the media because of a controversy linked to the environmental
impact of its operations on natural resources or local communities?

Negative Y/N

17)

Does the company use environmental criteria (ISO 14000, energy consumption, etc.) in the selection
Positive Double
process of its suppliers or sourcing partners? AND Does the company report or show to be ready to end a
Y/Npartnership with a sourcing partner, if environmental criteria are not met?
Green Buildings
Does the company have environmentally friendly or green sites or offices?
Positive Y/N
Implementation
Does the company describe the implementation of its resource efficiency policy through a public
Positive Doublecommitment from a senior management or board member? AND Does the company describe theY/N
implementation of its resource efficiency policy through the processes in place?
Improvements
Does the company set specific objectives to be achieved on resource efficiency? AND Does the company Positive Doublecomment on the results of previously set objectives?
Y/N
Land Use
Does the company report on initiatives to reduce the environmental impact on land owned, leased or
Positive Y/Nmanaged for production activities or extractive use?
Materials
Total amount of materials used in tons divided by net sales or revenue in U.S. dollars.
Negative Number
Materials Recycled and The percentage of recycled materials of the total materials used.
Positive Number
Reused Ratio
Monitoring
Does the company monitor its resource efficiency performance?
Positive Y/NPolicyDoes the company have a policy for reducing the use of natural resources? AND Does the company have Positive Doublea policy to lessen the environmental impact of its supply chain?
Y/N
Renewable Energy Use Total energy generated from primary renewable energy sources divided by total energy.
Positive Number
Toxic Chemicals
Does the company report on initiatives to reduce, reuse, substitute or phase out toxic chemicals or
Positive Y/Nsubstances?
Water Recycling
Does the company report on initiatives to reuse or recycle water? OR Does the company report on
Positive Y/Ninitiatives to reduce the amount of water used?
Water Use
Total water withdrawal in cubic meters divided by net sales or revenue in U.S. dollars.
Negative NumberC.
1)

Product Innovation
Animal Testing

6)
7)

8)
9)
10)
11)
12)
13)
14)
15)
16)

2)
3)
4)
5)

6)
7)

8)
9)
10)
11)
12)
13)
14)
15)
16)
17)
18)
19)
20)
21)

22)
23)
24)
25)

Is the company endorsing guidelines on animal testing (e.g., the EU guideline on animal experiments)?
Positive Y/N
OR Has the company established a programme or an initiative to reduce, phase out or substitute foranimal testing?
Eco-Design Products Does the company report on specific products which are designed for reuse, recycling or the reduction of Positive Y/Nenvironmental impacts?
Energy Footprint
Does the company describe initiatives in place to reduce the energy footprint of its products during their Positive Y/N
Reductionuse?
Environmental Asset
Does the company report on assets under management which employ environmental screening criteria or Positive Y/NManagement
environmental factors in the investment selection process?
Environmental Labels Has the company received product awards with respect to environmental responsibility? OR Does the
Positive Y/Nand Awards
company use product labels (e.g., FSC, Energy Star, MSC) indicating the environmental responsibility of
its products?
Environmental Products Does the company report on at least one product line or service that is designed to have positive effects on Positive Y/N
the environment or which is environmentally labelled and marketed?
Environmental Project Is the company a signatory of the Equator Principles (commitment to manage environmental issues in
Positive Y/NFinancingproject financing)? OR Does the company claim to evaluate projects on the basis of environmental or
biodiversity risks as well?
Environmental R&D
Does the company invest in R&D on new environmentally friendly products or services that will limit the Positive Y/Namount of emissions and resources needed during product use?
Environmental R&D
Total amount of environmental R&D costs (without clean up and remediation costs) divided by net sales Positive Number
Expendituresor revenue in U.S. dollars.
GMO Free Products
Does the company make a commitment to exclude GMO ingredients from its products or retail offerings? Positive Y/NHybrid Vehicles
Is the company developing hybrid vehicles?
Positive Y/N
Implementation
Does the company describe the implementation of its environmental product innovation policy?
Positive Y/N
Improvements
Does the company set specific objectives to be achieved on environmental product innovation?
Positive Y/NLabelled Wood
The percentage of labelled wood or forest products (e.g., Forest Stewardship Council (FSC)) from total
Positive Number
Percentage
wood or forest products.
Liquefied Natural Gas Does the company develop new products and services linked to liquefied natural gas?
Positive Y/NMonitoring
Does the company describe, claim to have or mention the processes it uses to accomplish environmental Positive Y/Nproduct innovation?
Noise Reduction
Does the company develop new products that are marketed as reducing noise emissions?
Positive Y/N
Organic Products
Does the company report or show initiatives to produce or promote organic food or other products?
Positive Y/NPolicyDoes the company have an environmental product innovation policy (eco-design, life cycle assessment,
Positive Y/Ndematerialization)?
Product Impact
Is the company under the spotlight of the media because of a controversy linked to the environmental
Negative Y/NControversies
impact of its products or services?
Product Impact
Does the company reports about take-back procedures and recycling programmes to reduce the potential Positive Y/N
Minimization
risks of products entering the environment? OR Does the company report about product features andapplications or services that will promote responsible, efficient, cost-effective and environmentally
preferable use?
Renewable Energy
Total energy distributed or produced from renewable energy sources divided by the total energy
Positive Number
Supplydistributed or produced.
Renewable/Clean
Does the company develop products or technologies for use in the clean, renewable energy (such as wind, Positive Y/NEnergy Products
solar, hydro and geo-thermal and biomass power)?
Sustainable Building
Does the company develop products and services that improve the energy efficiency of buildings?
Positive Y/N
Products
Water Technologies
Does the company develop products or technologies that are used for water treatment, purification or that Positive Y/N
improve water use efficiency?

59

MedianMedianMedianMedianMedianMedianMedianTable A3
Firms’ Disclosure of Thomson Reuters ASSET4 Line Items
This table shows averages of firms’ disclosures of Thomson Reuters ASSET4 line items, measured as the number ofreported line items divided by the number of possible line items a company could disclose. Numbers are shown forthe overall environmental score as well as for the three category scores for the first and last year companies of a
specific country are in the sample.

Country
Australia
Austria
BelgiumBrazilCanadaSwitzerland
Chile
China
Colombia
Germany
Denmark
Egypt
Spain
FinlandFranceUK
GreeceHong Kong
Indonesia
India
IrelandIsraelItaly
Japan
South Korea
Luxembourg
MexicoMalaysia
Netherlands
NorwayNew ZealandPhilippines
PolandPortugal
RussiaSingapore
SwedenThailandTurkeyTaiwanSouth Africa
OverallFirst Year in Sample
Overall Emission Resource Product
Year
Score Reduction Reduction Innovation
2004 0.69
0.71
0.64
0.72
2005 0.72
0.76
0.69
0.71
2004 0.70
0.71
0.65
0.73
2007 0.71
0.74
0.71
0.70
2004 0.71
0.73
0.65
0.75
2004 0.75
0.79
0.70
0.77
2008 0.77
0.84
0.71
0.76
2004 0.72
0.76
0.68
0.74
2009 0.66
0.68
0.59
0.73
2004 0.70
0.75
0.66
0.68
2005 0.70
0.76
0.68
0.68
2010 0.67
0.65
0.62
0.73
2004 0.73
0.76
0.70
0.73
2004 0.75
0.80
0.69
0.76
2004 0.74
0.78
0.68
0.75
2004 0.73
0.76
0.66
0.77
2004 0.65
0.62
0.66
0.66
2004 0.67
0.66
0.62
0.73
2008 0.65
0.63
0.57
0.76
2007 0.71
0.72
0.71
0.70
2004 0.67
0.71
0.62
0.68
2008 0.71
0.76
0.71
0.68
2004 0.70
0.72
0.66
0.71
2004 0.71
0.70
0.64
0.78
2004 0.78
0.82
0.71
0.82
2004 0.68
0.72
0.65
0.69
2007 0.65
0.64
0.65
0.66
2008 0.68
0.68
0.64
0.73
2004 0.77
0.81
0.71
0.78
2004 0.72
0.76
0.65
0.76
2004 0.71
0.74
0.65
0.75
2009 0.70
0.70
0.64
0.78
2008 0.66
0.65
0.63
0.69
2004 0.68
0.68
0.62
0.75
2007 0.75
0.81
0.74
0.72
2004 0.70
0.70
0.63
0.78
2004 0.71
0.76
0.66
0.73
2008 0.73
0.75
0.69
0.75
2008 0.68
0.66
0.63
0.74
2007 0.64
0.62
0.71
0.59
2008 0.72
0.75
0.72
0.69
0.71
0.74
0.66
0.75

60

Last Year in Sample
Overall Emission Resource Product
Year
Score Reduction Reduction Innovation
2015 0.71
0.75
0.66
0.72
2015 0.75
0.76
0.71
0.78
2015 0.75
0.79
0.70
0.74
2015 0.73
0.76
0.70
0.72
2015 0.72
0.76
0.67
0.73
2015 0.75
0.78
0.71
0.76
2015 0.72
0.74
0.68
0.75
2015 0.70
0.71
0.64
0.75
2015 0.72
0.73
0.70
0.72
2015 0.78
0.83
0.74
0.78
2015 0.75
0.79
0.71
0.76
2015 0.66
0.64
0.61
0.72
2015 0.79
0.83
0.80
0.74
2015 0.84
0.91
0.81
0.80
2015 0.82
0.88
0.79
0.78
2015 0.74
0.80
0.68
0.75
2015 0.75
0.76
0.76
0.74
2015 0.71
0.73
0.67
0.74
2015 0.72
0.73
0.69
0.73
2015 0.73
0.75
0.68
0.74
2015 0.73
0.80
0.68
0.71
2015 0.69
0.71
0.66
0.71
2015 0.76
0.80
0.73
0.75
2015 0.78
0.83
0.73
0.79
2015 0.77
0.81
0.74
0.77
2015 0.72
0.81
0.71
0.65
2015 0.78
0.83
0.75
0.76
2015 0.72
0.74
0.67
0.76
2015 0.77
0.80
0.72
0.78
2015 0.78
0.85
0.75
0.75
2015 0.71
0.74
0.65
0.73
2015 0.71
0.70
0.67
0.76
2015 0.68
0.69
0.63
0.72
2015 0.73
0.78
0.71
0.71
2015 0.77
0.82
0.74
0.74
2015 0.73
0.74
0.68
0.76
2015 0.78
0.82
0.74
0.78
2015 0.74
0.76
0.73
0.73
2015 0.76
0.79
0.71
0.76
2015 0.72
0.75
0.66
0.75
2015 0.74
0.78
0.71
0.73
0.74
0.78
0.70
0.75

Table A4
Thomson Reuters ASSET4 ESG Governance Data
We create governance indicator variables based on the Thomson Reuters ASSET4 ESG governance indicator values (line items). Indicator values are the answers to Y/Nquestions, double Y/N questions, and numerical questions. We translate the answers to these questions into indicator variables. More specifically, for questions with apositive direction (i.e., a “yes” answer or a greater number is associated with better environmental performance), we translate the answers to Y/N questions into 0 (N)and 1 (Y); the answers to double Y/N questions into 0 (NN), 0.5 (YN or NY), and 1 (YY); and the answers to numerical questions into 0 (value is less (or equal) thanzero; or value is less (or equal) than the median; see also column “Translation Numeric Values”) and 1 (value is greater than zero; or value is greater than the median;see also column “Translation Numeric Values”). For questions with a negative direction (i.e., a “no” answer or a lower number is associated with better social
performance), the opposite coding applies. The data are from the ASSET4 ESG database.

Items

Description

Direction

A.
1)
2)
3)

Board Functions
PolicyDoes the company have a policy for maintaining effective board functions?
Board Meeting Attendance
The average overall attendance percentage of board meetings as reported by the company.
Succession Plan for Executives Does the company have a succession plan for executive management in the event of unforeseen
circumstances?
4) External Consultants
Does the board or board committees have the authority to hire external advisers or consultants
without management's approval?
5) Audit Committee Independence Percentage of independent board members on the audit committee as stipulated by the company.
6) Audit Committee Management Does the company report that all audit committee members are non-executives?
Independence7) Compensation Committee
Percentage of independent board members on the compensation committee as stipulated by the
Independencecompany.
8) Compensation Committee
Does the company report that all compensation committee members are non-executives?
Management Independence9) Nomination Committee
Percentage of non-executive board members on the nomination committee.
Independence10) Nomination Committee
Percentage of nomination committee members who are significant shareholders (more than 5%).
Involvement
B.
1)
2)
3)

Translation
Question
Numeric
Type
ValuesPositive Y/N
Positive Number
Positive Y/N
Positive

Y/N

Positive Number
Positive Y/NMedianPositive Number

MedianPositive

Y/N

Positive Number

MedianPositive Number

MedianBoard Structure
PolicySize of Board
Background and Skills

Does the company have a policy for maintaining a well-balanced membership of the board?
Positive Y/N
Total number of board members which are in excess of ten or below eight.
Negative Number
Does the company describe the professional experience or skills of every board member? OR
Positive Y/N
Does the company provide information about the age of individual board members?
4) Board Diversity
Percentage of female on the board.
Positive Number5) Specific Skills
Percentage of board members who have either an industry specific background or a strong
Positive Number
financial background.
6) Experienced Board
Average number of years each board member has been on the board.
Positive Number7) Non-Executive Board Members Percentage of non-executive board members.
Positive Number8) Independent Board Members
Percentage of independent board members as reported by the company.
Positive Number9) CEO-Chairman Separation
Does the CEO simultaneously chair the board or has the chairman of the board been the CEO of Negative Y/N
the company?
10) Board Member Affiliations
Average number of other corporate affiliations for the board member.
Negative Number11) Individual Re-election
Are all board member individually subject to re-election (no classified or staggered board
Positive Y/Nstructure)?
C.
1)

Compensation Policy
Policy2)Compensation Improvement
Y/N
Tools
CEO Compensation Link to
Y/NTotal Shareholder Return
Total Senior Executives
The total compensation paid to all senior executives (if total aggregate is reported by the
Negative Number
Compensationcompany).
Shareholders Approval of Stock Does the company require that shareholder approval is obtained prior to the adoption of any stock Positive Y/N
Based Compensation Plan
based compensation plans?
Individual Compensation
Does the company provide information about the total individual compensation of all executives Positive Y/Nand board members?
Highest Remuneration Package Highest remuneration package within the company in US dollars.
Negative Number
Long Term Objectives
Is the management and board members remuneration partly linked to objectives or targets which Positive Y/N
are more than two years forward looking?

3)
4)
5)
6)
7)
8)

Does the company have a policy for performance-oriented compensation that attracts and retain Positive
the senior executives and board members?
Does the company have the necessary internal improvement and information tools for the board Positive
members to develop appropriate compensation/remuneration to attract and retain key executives?
Is the CEO's compensation linked to total shareholder return (TSR)?
Positive

61

MedianMedianMedianMedianMedianMedianMedianMedianY/NMedianMedianD.
1)

Shareholder Rights
Policy2)
3)

Voting Cap Percentage
Majority Requirements forElection of Directors
Shareholders Vote on Executive Do the company's shareholders have the right to vote on executive compensation?
Pay
Public Availability Corporate
Are the company's articles of association, statutes or bylaws publicly available?
Statutes
Veto Power or Golden Share
Does the biggest owner (by voting power) hold the veto power or own golden shares?
State Owned Enterprise (SOE) Is the company a State Owned Enterprise (SOE)?
Voting Rights
Are all shares of the company providing equal voting rights?
Anti Takeover Devices
The number of anti-takeover devices in place in excess of two.

4)
5)
6)
7)
8)
9)

Does the company have a policy for ensuring equal treatment of minority shareholders,
facilitating shareholder engagement or limiting the use of anti-takeover devices?
The percentage of maximum voting rights allowed or ownership rights.
Are the company's board members elected with a majority vote?

62

Positive

Y/N

Positive Number
Positive Y/N
Positive

Y/N

Positive

Y/N

Negative Y/N
Negative Y/N
Positive Y/N
Negative Number

MedianZeroTable A5
Alternative Measures of Female Board Representation
This table reports regression estimates of environmental scores on governance measures, alternative measures offemale board representation, and control variables. The dependent variables are the natural logarithm of the ASSET4
Environmental z-Score and the Equally-weighted Environmental Score. All variables are described in Appendix Table
A1. Control variables are included but not reported. The sample period is 2004-2015. All variables are winsorized at
the 1st and 99th percentiles. All right-hand side variables are lagged by one year. Standard errors are clustered at thecountry-level and t-statistics are reported in parentheses. ***, **, * denote statistical significance at the 1%, 5%, and
10% level, respectively.

FamilyTraditional Governance
Majority Election
One Female Director
Two+ Female Directors
Percent Female Directors
Controls
Country×Year Fixed Effects
Industry×Year Fixed Effects
Obs
Adjusted R2

ASSET4 Environmental z-Scores(1)(2)-0.105***-0.104***(-3.39)(-3.34)0.025**
0.023*(2.12)(1.91)
0.082***
0.085***(3.49)(3.67)
0.114***(3.74)
0.206***(5.31)
0.628***(4.11)
Yes
Yes
Yes
Yes
Yes
Yes
20,447
20,447
0.458
0.456

63

Equally-weighted Environmental Scores(3)(4)-0.081***-0.081***(-3.23)(-3.18)0.018*
0.016*(1.96)(1.74)
0.068***
0.071***(3.62)(3.80)
0.086***(3.90)
0.163***(5.99)
0.494***(4.48)
Yes
Yes
Yes
Yes
Yes
Yes
20,447
20,4470.534
0.531

Table A6
Shocks to Female Board Representation
This table reports shocks to female board representation that we can examine using data from our sample period.
Primary sources include regulatory websites, FACTIVA, industry reports of human resource consultancies, Deloitte(2017) and Fauver, Hung, Li, and Taboada (2017). We identify shocks that are either legislated female director quotas
or represent a significant documented push by outside pressure groups. We exclude countries where quota legislation
predates our sample period (e.g., Israel, Norway), or legislation occurs too late for post-treatment analysis (e.g., India,
Spain).
Country
Australia

Year
2011

Belgium
Denmark
FranceGermany

2011
2012
2011
2011

Italy
Malaysia

2011
2012

Netherlands
UK

2011
2011

Type
Description
Push by outside
ASX Corporate Governance Council updated its Corporate Governancepressure group and Principals and Recommendations for diversity in Australia, theLegislation
Australian Institution of Company Directors pushed for an increase in
the number of female board members. In 2012, legislation passed torequire mandated disclosure with measurable objectives to achieve
gender diversity.
Legislation
33% quota by 2017.
Legislation
Measurable objectives by 2013. Comply or explain.
Legislation
20% quota by 2014 and 40% by 2017.
Push by outside
A group of 18 multinational German firms publicly commit to promotepressure group
women into leadership positions (May 2010). A bipartisan
parliamentary group issues Berliner Erklaerung with the goal of
introducing a 30% female board representation quota (December 2011).
Legislation
20% quota by 2012 and 33% by 2015.
Legislation
Malaysian cabinet approved a 30% quota by 2016 for firms with morethan 250 employees.
Legislation
30% quota by 2013. Comply or explain if target not reached.
Push by outside
Lord Davies, a Labour government minister, published a report tellingpressure group
FTSE 100 companies they should double the number of female directors
by 2015. This report was met with enthusiastic support publicly andfrom a number of shareholder organization. For example, one of the
UK’s largest shareholder organizations, the Association of British
Insurers, disclosed that it would start monitoring the number of women
on FTSE boards.

64