Prof. Dr. David Bendig (l.), Dr. Colin Schulz (m.l.), and Dr. Maximilian Möhwald from the University of Muenster (m.r.), and Dr. Patrick Pollok, RWTH Aachen University (r.)

How do top executives drive the green agenda of their firms?  This study, which was published in the Journal of Business Venturing – widely regarded as one of the most prestigious journals in the field of Entrepreneurship by the Financial Times 50 – demonstrates that the transition towards a green strategy is inextricably linked to the present and future financial prosperity of Chief Executive Officers (CEOs). The study emphasizes the manner in which financial incentives influence sustainability initiatives.

Clean technologies like solar and wind energy are crucial in fighting climate change, and large companies play a vital role by scaling green innovations. However, such investments carry significant risks. This study investigates how CEO stock options influence their willingness to invest in external cleantech ventures. Examining 540 U.S. publicly traded firms over 14 years, the research finds that CEOs with substantial current stock option wealth tend to avoid risky cleantech investments. Conversely, those focused on future gains from stock options are more likely to invest. Founder CEOs think long-term and evaluate these risks differently, prioritizing potential losses over gains.

The findings highlight the need to align CEO incentives with sustainability goals. Boards can encourage cleantech investments by tying bonuses to environmental outcomes or integrating sustainability metrics into stock option plans. This ensures leaders prioritize green innovation while managing financial risks effectively.

Read the full article in the Journal of Business Venturing by Prof. Dr. David Bendig, Colin Schulz, Dr. Maximilian Möhwald (University of Muenster), and Dr. Patrick Pollok (RWTH Aachen University) here (available for free).