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Ms. Minjia Li
Ph.D. Candidate in Accounting
UBC Sauder School of Business
University of British Columbia

This study documents a positive and significant association between a firm’s use of climatelinked metrics in executive pay and its outsourced emissions to the supply chain. Using a sample of 870 listed U.S. firms, I find that firms with better internal corporate governance, better financial performance, and lower growth opportunities are more likely to use climatelinked pay. Such pay schemes are followed by an increase in upstream suppliers’ emissions, and a decrease in firms’ direct emissions. This effect is more pronounced among firms with greater climate pressure, greater bargaining power over suppliers, and lower external monitoring. To explore potential mechanisms, I show that firms with climate-linked pay facilitate emissions outsourcing by initiating (terminating) fewer (more) contracts with suppliers from regions with higher emissions costs. Overall, my findings highlight the potential impact of climate-linked metrics in executive compensation on the supply chain.