Sustainable corporate governance

Sustainable corporate governance is not restricted to the agency relationships between a company’s management, board of directors, and shareholders, as it involves the relationships with a company’s stakeholders, including employees and the natural environment. This chapter examines the main sustainable corporate governance mechanisms, aimed at assuring that a company is governed in a responsible way, considering the long-term social, environmental, and economic impact of its activities. More specifically, the chapter focuses on four important incentive, advisory and monitoring mechanisms: the integration of sustainability criteria into executive remuneration contracts, the adoption of a sustainability-related committee, the assurance of sustainability-related information by a third auditing party, the presence of sustainable owners in a company’s shareholding structure. The chapter illustrates the role, main antecedents and consequences of each mechanism, combining relevant evidence from prior academic empirical literature with current data on their development in practice and anecdotal case study evidence from real-life companies.