Incentive

Ecology

Biology

Microeconomics

Executive compensation

Economics

Business

Climate change

Endogeneity

Systematic risk

Political science

Monetary economics

Public economics

Econometrics

Valuation (finance)

Equity risk

Finance

Equity (law)

British Journal of Management

We document evidence that CEOs who lead firms that face higher climate change risk (CCR) receive higher equity‐based compensation. Our finding is consistent with the compensating wedge differential theory and survives numerous robustness and endogeneity tests. The result is more prominent for firms that are socially responsible, susceptible to higher environmental litigation and part of the non‐high‐tech industries. Furthermore, we find supportive evidence that firms offering higher equity incentives to their CEOs for managing higher CCR are usually better off in the long run via a lower cost of equity capital and higher firm valuation.

Firm‐Level Climate Change Risk and CEO Equity Incentives