Concerns over climate change are more pressing than ever. More and more firms are taking actions to improve corporate environmental sustainability (CES), such as appointing governance actors with assigned roles and responsibilities to improve the environmental sustainability of the corporation. For example, Royal Dutch Shell appointed clean energy leaders to manage Shell's transition from brown to green energy. However, only weeks before Shell was set to announce the strategy for the transition, its clean energy leaders left the firm. Intrigued by such developments, PhD scholar Ina Karn and co-authors wondered why improving CES remained a challenge, even though firms take actions such as appointing relevant actors.

Ina Karn and her co-authors Esha Mendiratta, Kerstin Fehre and Jana Oehmichen suggest that the impact corporate governance actors - such as boards of directors, top management teams, CEOs, and stakeholders- have on CES depends on their motivations, expertise and power. In their literature review, they assess whether these actors have the motivation, expertise, and power needed to impact CES and how they use it to shape CES. “To assess this, we use the motivation, expertise, and power framework, because research shows that these factors are essential for influencing strategic decisions and corporate outcomes. By examining how motivation, expertise, and power enable these actors to shape CES, we gain deeper insights into the processes behind corporate decision-making.”

Personally, Karn has always been interested in finding ways to address sustainability issues and contribute to greater environmental sustainability. “Conducting a systematic literature review helped me understand the research field of corporate governance and environmental sustainability in great detail by taking stock of existing knowledge and identifying relevant gaps, organizing it into a theoretical model, and synthesizing it to suggest directions for future research.”

Investor movements and active ownership

While synthesizing previous research into corporate governance actors impact on CES, the PhD scholar and her co-authors were surprised to find little research on the emerging movement of investor stewardship and active ownership. Karn: “In recent years, institutional investors like BlackRock and Vanguard have shifted from being passive owners to active monitors of their investee companies. They monitor by controlling votes, engaging in dialogue, and taking other actions to influence corporate decisions, often promoting these activities as stewardship and active ownership. Despite significant public attention and interest from scholars, policymakers, and regulators, it is surprising that there is so little research on these highly visible investor movements.” Another unexpected finding was that much of the existing literature on stakeholders tends to group various stakeholder types together rather than examining their individual influences. “This approach overlooks the distinct roles and varying impacts that different stakeholders have on corporate environmental sustainability (CES)”, Karn states.

With their work, Karn and her co-authors aim to guide future inquiry and inspire scholars to explore relevant issues highlighted in their research agenda. “The role of Chief Sustainability Officers (CSOs) has for instance proven to be an understudied area with the potential to improve CES. The roles and responsibilities of CSOs and how effective they are in strengthening CES are thus especially interesting and important directions for future research.”

Valuable insights for policymakers, investors, and managers

The authors not only aim to guide and inspire other scholars, they expect their findings to also provide valuable insights for policymakers, regulators, investors, and managers. For policymakers, who are continuously tightening policies to address sustainability challenges, it is crucial to understand the factors that drive or hinder corporate environmental efforts. Karn: “For instance, our finding that environmental committees positively impact CES suggests that policymakers should promote the adoption of such committees on corporate boards. In turn, investors involved in stewardship and active ownership might benefit from our insights while voting at shareholder meetings and during dialogues with investee firms. Previous research has for instance shown that CEO compensation structures often create conflicting pressures between short-term financial gains and long-term environmental goals. We hope this insight to be useful for investor to engage in constructive discussions with companies to address these challenges.”

In their literature review, Karn and co-authors also found relevant insights for members of nomination committees responsible for appointing new directors. “Our finding that environmental expertise among directors and top management team members positively affects corporate environmental sustainability can guide them in selecting candidates who can contribute towards enhancing the company’s environmental performance.”

Reference

Karn, I., Mendiratta, E., Fehre, K., & Oehmichen, J. (2022). The effect of corporate governance on corporate environmental sustainability: A multilevel review and research agenda. Business Strategy and the Environment, 32(6), 2926–2961. https://doi.org/10.1002/bse.3279

About the researchers

Ina Karn is a PhD Scholar in strategic management, corporate governance, and sustainability. She recently completed her dissertation at the Faculty of Economics and Business (FEB) of the University of Groningen. Before starting her PhD, she completed a Research Master in Economics and Business as well as a Master in Strategic Innovation Management at FEB.

Esha Mendiratta is Associate Professor of International Business at the Vlerick Business School in Belgium. Before joining Vlerick Business school, she was an Assistant Professor at the Faculty of Economics and Business (FEB) of the University of Groningen. Her research focuses on the antecedents and consequences of the composition of boards and top management teams. Diversity and sustainability are also key concepts in her line of research.

Kerstin Fehre is Associate Professor and Director of the Masters in International Management and Strategy at Vlerick Business School. Her research focuses on understanding strategic decision-making – and she has an interest in CEO cognition, top management teams, mergers & acquisitions and sustainability.

Jana Oehmichen is Honorary Professor of Leadership and Governance at the Faculty of Economics and Business (FEB) of the University of Groningen and Professor of Organization, Human Resources, and Management at Johannes Gutenberg University Mainz. Her research focusses on Leadership and Corporate Governance, Strategic Sustainability and Purpose, and Digital Strategy.