Board interlocks and greenhouse gas emissions
Companies are pressured by regulators, investors and other stakeholders to disclose non-financial information for greater transparency. Reduction of greenhouse gas (GHG) emissions has become critical to mitigate risks related to financial performance, especially for resource extractive and manufacturing firms (e.g. chemical, forestry, mining, and oil/gas extraction) that have the greatest impact on the environment and therefore face significant challenges. One approach to achieve emissions reduction targets is for organizations to work cooperatively to share knowledge and resources. We argue that board interlocks provide an avenue for sharing information and resources to aid in knowledge transfer and capability development, which can be beneficial to a firm’s GHG emissions performance. A board interlock occurs when one director sits on the boards of two different firms. Board interlocks may provide opportunities to inspire non-traditional thinking and motivate the firm to keep up with its interlocking peer firms. Therefore, we analyze board interlocks and their effect on the firm’s strategic direction for GHG emissions.
We find that firms with a greater number of board interlocks achieve better GHG emissions intensity performance. This indicates that firms perform better if they have more channels for learning, specifically from both their industry peers and firms in different industries. In addition, interlocking with board members from leading firms (with the best GHG emissions intensity performance) is beneficial. To gain greater insight into the findings, we categorize firms into more environmentally impacting industries (e.g., mining and oil and gas extraction) and less environmentally impacting industries (e.g., wholesale trade and retail trade). We find that the relationship between board interlocks and GHG emissions intensity performance is stronger in more environmentally impacting industries.
Our research contributes to the literature by providing insight into if, and if so how, firms learn from other firms to gain capabilities to reach important GHG emissions reduction targets. It addresses earlier calls in the literature for studies on how board interlocks affect various aspects of performance and responds specifically to GHG emissions reduction challenges.
To learn more, see the full article:
Lu, J, Yu, D, Mahmoudian, F, Nazari, JA, Herremans, IM. (2021). Board interlocks
and greenhouse gas emissions. Business Strategy and the Environment, 30(1), 92-
108. DOI: 10.1002/bse.2611 (external link, opens in new window)
