The impact of corporate governance on carbon reduction performance : Australian experience

This study aims to investigate the effect of corporate governance mechanisms on carbon reduction performance in large listed Australian firms. We employed univariate and multivariate analysis for a sample of 205 firm - year observations over the 2009 - 2012 period. Our study considers all the important aspects of corporate governance: board size, board independence, board diversity, board meetings, environmental committee, audit committee independence, CEO stock option, CEO long term bonus, ownership concentration and managerial ownership. The empirical results show: first, generally speaking, the corporate government strength is not significantly related to carbon reduction performance. Second, superior carbon performance is only found in firms that take an environmental orientation and proactive carbon strategy. Third, carbon performance is higher in carbon intensity sectors than carbon none intensity sectors. Finally, the results also indicate carbon performance is sensitive to some financial indicators such as leverage, Tobin’s Q, and capital intensity. The results of this study contributes to a growing literature on corporate governance and climate change association and presents new evidence of how carbon performance is impacted by corporate governance. Our findings suggest current version of corporate governance mechanism in Australia appears to be structured to focus primarily on maximisation of financial performance. As a consequence, board of directors of our sample firms seem to ignore other aspects of performance such as carbon reduction. Our empirical evidence is also consistent with many previous studies that also documented inconclusive or mixed findings on this issue.