The Impact of Independent Supervisory Boards on Transformations in the Energy Sector: Results of an International Longitudinal Study

Abstract

The paper aims at establishing an associative link between supervisory board members’ independence and the dynamics of environmental policy transformations in the energy sector. To that end, we apply static panel models and binary logistic regression analysis to an international sample of 358 energy companies observed over the period between 1990 and 2020. Our empirical results point to a lack of any persistent link between board independence and energy transition after controlling for country-specific effects and firm-level financials. Although firms with a higher percentage of independent directors on boards are more likely to set emission targets and implement resource reduction policies, they are simultaneously more likely to be involved in environmental controversies and increase coal output. They are also significantly less likely to enforce an energy efficiency policy. No significant link is found between board independence and environmental expenditures, CO2 equivalent emissions, and renewable energy use by energy companies. Overall, despite the widespread expectation that independent boards will accelerate energy transition, empirical evidence suggests that they are more likely to maintain the status quo. Delving into the problem of incentives in the energy sector, we find that executive compensations and corporate profitability exhibit a persistent positive link with CO2 emissions.

Keywords

• corporate governance
• board independence
• energy transition