Abstract

This study examines the impact of non-executive employee stock ownership plans (ESOP) on corporate environmental engagement. We show that granting ESOPs to non-executive employees promotes greater corporate ecological engagement from the perspectives of environmental protection expenditures, environmental information disclosure quality, and environmental, social, and governance (ESG) ratings. ESOPs unite members in a common interest, empowering them to put pressure on management to reduce carbon emissions, which benefits their physical wellbeing and increases their residual interest in long-term corporate wealth. Further, our analysis reveals that companies investing in environmental protection forgo short-term profit as a consequence of high initial costs, while increasing long-term firm value. These positive effects are attributable to ESOP schemes with higher employee subscription rates, those granted to a larger number of non-executive employees, and those with longer validity periods of ownership, whose incentive effect is sufficiently powerful to offset the free-rider problem. In addition, the impact of ESOPs is more pronounced in companies with greater media exposure, those confronting intense labor market competition, and those in heavily polluting industries. Fundamentally, our study provides novel evidence of the incentive effect of ESOPs on corporate environmental engagement and of stakeholder dynamics driving the implementation of carbon reduction strategies.