Executive compensation and environmental performance: Evidence from CEO inside debt

In this paper, we explore the relationship between CEO inside debt and environmental performance in the US. We provide strong and robust evidence that CEO inside debt significantly improves firms' use of water, energy, and materials, and their commitment to and effectiveness in reducing environmental emissions. We also report that variations in inside debt significantly influence the evolution of environmental performance and incentivize the production of less pollution. Additional analyses reveal that the relationship between CEO inside debt and environmental performance is stronger in firms with high CEO power, low institutional ownership, and less socially responsible investors. Taken together, our results highlight the important role of CEO compensation in improving firms' engagement in favor of the climate.