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Exploring the association between financial and nonfinancial carbon-related incentives and carbon performance

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  • Christian Ott
  • Jan Endrikat

Abstract

Firms increasingly respond to pressures to reduce their carbon emissions by providing financial and nonfinancial carbon-related incentives that should align and extrinsically motivate individuals’ behaviour towards improved carbon performance. We explore whether and how the provision of carbon-related incentives is associated with carbon performance. We employ data on carbon-related incentives and carbon emissions that S&P 500 firms voluntarily disclose to the CDP. Correcting for sample-induced endogeneity and time-series dependencies, we find that financial carbon-related incentives are associated with superior carbon performance, while nonfinancial carbon-related incentives are not associated with carbon performance. Financial carbon-related incentives appear to extrinsically motivate managers and employees and channel their efforts towards improving carbon performance. However, nonfinancial carbon-related incentives do not appear to be effective. These differences may be explained by the fact that financial carbon-related incentives trigger different cognitive and motivational mechanisms (e.g. utility, expectancies) in individuals than nonfinancial carbon-related incentives.

Suggested Citation

  • Christian Ott & Jan Endrikat, 2023. "Exploring the association between financial and nonfinancial carbon-related incentives and carbon performance," Accounting and Business Research, Taylor & Francis Journals, vol. 53(3), pages 271-304, April.
    • Handle: RePEc:taf:acctbr:v:53:y:2023:i:3:p:271-304
    DOI: 10.1080/00014788.2021.1993777
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