EXAMINING THE LINK BETWEEN CORPORATE GOVERNANCE AND FINANCIAL PERFORMANCE IN THE ERA OF CLIMATE CHANGE

Abstract

The growing concerns about climate change pose challenges for companies in aligning long-term environmental goals with short-term financial performance. This paper empirically investigates its relationship with financial performance. Using a balanced panel of 6,300 observations from 630 multinational firms across the Organization for Economic Co-operation and Development (OECD) 10 countries over 10 years (2015–2024). The analysis is comprehensive with regards to the practical and theoretical components and implications of climate governance. Results indicate that companies that have better climate governance are likely to perform better financially while higher levels of climate performance enhance the strength of this relationship. When investor ownership is long term as well as homogeneously distributed, such governance is more effective still. The results have supported the findings that proper resource utilization for robust climate governance mechanisms contributes to financial performance. It also reveals a moderate link between climate performance and the joint role of climate governance and financial performance. It shows how long term institutional  investors have affected the adoption of climate governance principles. Based on the Resource Based View (RBV) and agency theories, the research illustrates the necessity for finding the best way to use resources and developing investor relationships in order to secure better financial results. Finally, the study offers important insights to help incorporate sustainability practices within the corporate governance frameworks as well as theoretical and practical contributions to the field.