The role of corporate governance in shaping environmental performance: Exploring industry differences

This paper investigates the critical role of corporate governance in shaping environmental performance, as reflected in the Environmental pillar of ESG scores. Using the two-step system generalized method of moments (GMM-SYS) estimator, the analysis includes companies listed on the STOXX Europe 600 between 2014 and 2022. We show that selected corporate governance characteristics - board independence, gender diversity, establishing a CSR sustainability committee, and adopting specific sustainability-related policies - enhance corporate environmental performance. Furthermore, we explore variations in environmental commitment across different industries, finding a strong influence on environmental performance for firms operating in the consumer cyclical, non-cyclical, energy, utilities, and real estate sectors. This research contributes to the existing literature by enhancing the understanding of how corporate governance mechanisms can promote sustainability initiatives. It emphasizes the need to strengthen specific governance characteristics to boost environmental stewardship across various industrial contexts. Additionally, the study encourages policymakers and managers to prioritize effective governance as a strategy to foster responsible business practices, thereby improving environmental performance.