Corporate governance and financial performance: Reframing their relationship in the context of climate change

Abstract

In addressing the challenges of climate change (CC), companies face the difficult task of reconciling long-term environmental goals and short-term financial interests. In this paper, we argue that that effective climate governance enables companies to balance both objectives, supporting a business case for CC action. For a sample of 832 multinationals for the period 2011–2020, the findings show that effective climate governance leads to higher corporate financial performance (FP) and this relationship is strengthen by better climate performance. Furthermore, effective climate governance is driven by the ownership of long-term institutional investors, whose positive influence is reinforced by homogeneous distribution of their ownership. We provide a broad analytical framework that considers the determinants and effects of climate governance, from which theoretical and practical implications can be derived.