Firm-Level Climate Change Risk and CEO Equity Incentives

We document evidence that the CEOs who lead the firms that face higher climate change risk (CCR) receive higher equity-based compensation. Our finding is consistent with the compensating-wedge-differential theory and survives numerous robustness and endogeneity tests. The result is more prominent for firms that are socially responsible, susceptible to higher environmental litigation, and are belonging to the non-high-tech industries. Furthermore, we find supportive evidence that firms offering higher equity incentives to their CEOs for managing the higher CCR are usually better off in the long run via a lower cost of equity capital and higher firm valuation