Determinants of environmental investment : evidence from Europe

Abstract

This study investigates the corporate governance determinants of environmental investment in European firms. Using a sample of firms listed on the Bloomberg European Index 500 from 2001 to 2015, this study finds that firms with more independent directors, and female directors, are likely to invest more in the environment. It also finds that environmental investment is likely to be higher in firms with an environmental sub-committee of the board. Finally, this study documents that firms with CEO bonus plans linked to environmental compliance/performance are likely to incur higher environmental investment. The findings are robust to several alternative measures and methods. The findings of this study made a significant contribution to the environmental investment literature by adopting a quantifiable and non-biased monetary measure of environmental investment. Moreover, this study contributes to the literature by providing generalizable empirical evidence for a significantly positive association between a range of corporate governance characteristics and the level of environmental investment. Therefore, the findings of this study have practical implications to institutional investors.