Board of Directors Compensation and Environmental Impact: A Study of Green and Brown MENA Firms

This chapter explores the role of board of directors (BoD) compensation in managing the environmental impact experienced by firms in the Middle East and North Africa (MENA) region. We document the differences in environmental impact between Green and Brown firms and the extent to which Green firms are associated with lower environmental damage through higher BoD compensation relative to Brown firms. We find that for a 10% increase in BoD compensation by a Green firm, energy use decreases between 3.3% and 6.3% relative to Brown firms. Consistent with previous findings, our results suggest that BoD compensation plays a critical role in sustainable development in the MENA region. More specifically, Green firms are more likely to integrate compensation incentives as part of their sustainable strategies compared to Brown firms. Nevertheless, ethical thoughtfulness and reasonableness must be considered when creating BoD remuneration packages. Managers of MENA Brown firms should aim to adopt innovative approaches to tackle environmental challenges using existing or emerging technologies and processes. Collaboration and collective investments from the industry, as well as the private and public sectors, can help support these sustainability innovations in bringing the United Nations Sustainable Development Goals to fruition.