Board Risk Oversight and Environmental and Social Performance

The authors examine the relation between board risk oversight and environmental and social (E&S) performance. Their study is motivated by heightened awareness of E&S risks and growing calls for their inclusion in the purview of board risk oversight. Using a novel proprietary dataset on board risk oversight for an international sample, the authors find that firms with more extensive board risk oversight are more likely to institute E&S compensation, set environmental (but not social) targets, adopt policies that address E&S risks and opportunities, and issue an E&S report. The authors' exploratory evidence also shows that more extensive board risk oversight is associated with better environmental outcomes, specifically lower monetized environmental costs, but worse social outcomes, namely lower monetized employee benefits and a higher likelihood of social risk incidents. Collectively, the authors' results suggest that risk oversight is analogous to a constrained optimization problem whereby risk exposures are prioritized and receive different degrees of oversight consideration by the board.