Working Paper | HBS Working Paper Series | 2012

Pay for Environmental Performance: The Effect of Incentive Provision on Carbon Emissions

by Robert G. Eccles, Ioannis Ioannou, Shelley Xin Li and George Serafeim

Abstract

An increasing number of companies are striving to reduce their carbon emissions and, as a result, they provide incentives to their employees that are linked to the reduction of carbon emissions. Using both fixed effects models and matching samples, we find evidence that the use of monetary incentives is associated with higher carbon emissions. Moreover, we find that the use of nonmonetary incentives is associated with lower carbon emissions. Consistent with monetary incentives crowding out motivation for prosocial behavior, we find that the effect of monetary incentives on carbon emissions is fully eliminated when these incentives are provided to employees with formally assigned responsibility for environmental performance. Furthermore, by employing a two-stage multinomial logistic model, we provide insights into factors affecting companies' decisions on incentive provision, as well as documenting that the impact of monetary incentives on carbon emissions remains significant after controlling for potential selection bias.

Keywords: environment; environmental performance; carbon; climate change; sustainability; incentives; motivation; Motivation and Incentives; Motivation and Incentives; Environmental Sustainability;

Citation:

Eccles, Robert G., Ioannis Ioannou, Shelley Xin Li, and George Serafeim. "Pay for Environmental Performance: The Effect of Incentive Provision on Carbon Emissions." Harvard Business School Working Paper, No. 13-043, November 2012.