Do sustainable institutional investors influence senior executive compensation structures according to their preferences? Empirical evidence from Europe

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This paper examines whether sustainable institutional investors promote corporate social responsibility (CSR)-contingent components (e.g., environmental or social aspects) in senior executive compensation in order to align top management interests in the promotion of sustainability with their own. Empirical analyses of a sample of 5979 firm-year observations from European firms over the 2010–2017 period showed that the presence of sustainable institutional investors positively predicts the likelihood of firms offering CSR-contingent compensation contracts. This paper significantly contributes to prior empirical research, which predominantly focuses on the effectiveness of CSR-contingent components within compensation structures. Sustainable institutional investors as a potential driver of CSR-contingent components have not yet been examined. We specifically investigate institutional investors that have either a substantial or a time-dependent belief in CSR. Our results indicate that sustainable institutional investors represent a central external corporate governance mechanism and tend to align top management preferences with their own via compensation structures.

Original languageEnglish
JournalCorporate Social Responsibility and Environmental Management
Issue number5
Pages (from-to)1109-1121
Number of pages13
Publication statusPublished - 01.09.2022

Bibliographical note

© 2022 The Author. Corporate Social Responsibility and Environmental Management published by ERP Environment and John Wiley & Sons Ltd.

    Research areas

  • corporate governance, corporate social responsibility, institutional investors, ownership structure, sustainable finance, sustainable management compensation
  • Management studies