This study aims to evaluate the effect of board compensation levels on sustainability disclosure and, conversely, the influence of sustainability reporting on the amount and structure of executive compensation. Therefore, the role of corporate governance mechanisms was examined in aligning managerial interests with corporate sustainability goals. This study employed a quantitative approach based on secondary data. Financial and non-financial data were collected from companies from 2013 to 2023. The dependent variable was the level of sustainability reporting, measured based on ESG indicators, while the independent variable was the amount of board compensation. The study examined the causal relationship from board compensation to sustainability reporting, as determined by Granger causality tests. By using simultaneous equation modeling (SEM), panel data approaches, and two-stage least squares (2SLS) multiple regression analysis, board compensation has a positive impact on the level of sustainability reporting. Companies that match executive incentives with environmental performance reveal more. Furthermore, improved sustainability reporting may lead to better compensation for CEOs, as businesses with superior sustainability performance reap more significant financial and reputational benefits, ultimately benefiting their managers.
Abbasi et al. (Tue,) studied this question.