Public economics

Finance

Climate change

Business

Valuation (finance)

Equity (law)

Biology

Equity risk

Executive compensation

Political science

Econometrics

Economics

Microeconomics

Ecology

Incentive

Monetary economics

Systematic risk

Endogeneity

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