Can Executive Pay Accountability Drive ESG Improvement? Evidence from Compensation Clawback Provisions

Abstract

As sustainable development reshapes capital market expectations, aligning executive incentives with long-term ESG outcomes has become a pressing governance challenge. Using a sample of Chinese A-share listed firms from 2013 to 2023, we find that implementing compensation clawback provisions with explicit environmental and safety triggers significantly improves corporate ESG performance. Facing concrete pay-recovery threats, executives become more risk-averse, as reflected in higher cash holdings, lower investment volatility, and fewer environmental penalty events, proactively curbing compliance violations to avoid triggering provisions. This effect is amplified by broader analyst coverage and higher independent director attendance rates, confirming that internal and external oversight work in coordination. Further analyses reveal stronger effects among non-state-owned enterprises and pollution-intensive industries. These findings suggest that expanding clawback trigger scope beyond financial restatements and strengthening complementary disclosure practices offer actionable pathways to embed sustainability into executive accountability frameworks.