Carbon emission regulation, green boards, and corporate environmental responsibility

Abstract

In this study, we examine various effects of carbon emission regulation enacted in South Korea. We provide empirical evidence of regulated firms strategically hedging against potential risks by increasing the number of directors with environment-related backgrounds. We also find that this relationship is clearly evidenced when the firm is owned by a lower proportion of foreign investors. Further analysis shows that these directors successfully change their firms to become environmentally friendly. Overall, we conclude that the role of governments in promoting green finance is crucial. The findings of this study may be used as a guideline for decision makers and environmental policymakers to create systems and policies to increase the firm’s awareness about the environment in relation to corporate environmental responsibility (CER) ratings of firms.