Does Gender Diversity Affect Renewable Energy Consumption?

Does Gender Diversity Affect Renewable Energy Consumption?

Muhammad Atif and Mohammed HossainGriffith Business School

Md. Samsul AlamDe Montfort University

Marc GoergenIE Business School and European Corporate Governance Institute

EC Conference on “Promoting Sustainable Finance” – 8-9 January 2019, Brussels

Structure

• Motivation• Contributions• Theory and Hypotheses• Research Design• Results and Discussion• Robustness Checks and Further Analysis• Conclusions and Policy Implications

Motivation• We examine the effect of boardroom gender diversity on renewable energy

consumption by US firms• Business and other human activities, particularly the consumption of energy from

fossil fuels, have been considered among the main factors contributing to climate change (IPCC, 2007)– The consumption of fossil energy accounted for 60% of global CO2 emissions in 2013– Since the industrial revolution, total CO2 emissions from fuel combustion have increased from

almost zero to 32 Giga tons (Gt) in 2013 (IEA, 2016a, b)• Businesses play an important role as they consume significant amounts of energy• Renewable energy consumption depends on the board of directors since board is

responsible for safeguarding stakeholder interests (e.g., Prado-Lorenzo and Garcia-Sanchez, 2010)

Motivation

• Female leadership has been shown to bring new perspectives to businesses and encourage the implementation of energy efficiency, green building and climate change policies– Firms with more female directors put more emphasis on CSR (Shaukat et al., 2016)– Women are more likely to express environmental concerns, to support environmental protection,

and to adopt pro-environmental behaviours (Kennedy and Dzialo, 2015)– They also disclose more information on environmental aspects (Jizi, 2017; Williams, 2003)– They are more likely to invest proactively in renewable energy and to reduce carbon emissions

throughout their value chain (CRB, 2012)

• We expect that women play an important role on the board in supporting renewable energy consumption

• To the best of our knowledge there is as yet no study on the impact of board gender diversity on firms’ renewable energy consumption

Motivation• This study investigates this issue by attempting to answer an important and timely

question• Do women on the board affect the firm’s renewable energy consumption?• We answer this question by studying firm-level data for a sample of 1491 firms for

2008–2016 (11,677 firm-year observations) for the USA• We find that:

– Renewable energy consumption is positively related to the percentage of women on the board– There need to be two or more women on the board for there to be an impact of female board

representation on the use of renewable energy, supporting critical mass theory (Kristie, 2011, p.22)

– The effect of female independent directors is more pronounced than that of female executive(inside) directors

– There is a positive effect of board gender diversity and renewable energy consumption on firm value

Structure


Contributions1. To the best of our knowledge this is the first study on the link between

board gender diversity and renewable energy consumption2. We test the validity of the critical mass theory from a novel perspective. If

this theory is valid, then we should observe the positive effect of women directors on renewable energy consumption only for boards with two or more women. We find such evidence

3. We examine the channel through which women directors influence the firm’s renewable energy consumption. We analyze the separate effects of female executives and female independent directors on the firm’s renewable energy consumption. We find that this effect is stronger for female independent directors

Structure


Theory and Hypotheses

• Business case for board gender diversity • Gender socialization and ethicality theories, and diversity theory• Board gender diversity and environmental CSR• Our three research hypotheses

Business Case for Board Gender Diversity• Diverse groups tend to consider a wider range of perspectives and hence improve

the quality of decision making (e.g., Forbes and Milliken, 1999)• If director gender differences in preferences are the same as “typical” gender

differences, increasing board gender diversity may lead to better board decision making (Croson and Gneezy, 2009; Adams, 2016)

• There is empirical support for the above theoretical benefits 1. Female directors reduce corporate misconduct (Cumming et al., 2015)2. They enhance corporate governance practices (Goergen and Renneboog, 2014)3. They improve decision-making, such as decisions on mergers and acquisitions (Levi et

al., 2014)4. Although there is still some disagreement as to the effect of board gender diversity on

firm value and performance, a consensus is emerging that female directors add value5. They have a stronger stakeholder (e.g., Adams et al., 2011) and environmental CSR

orientation (e.g., Hafsi and Turgut, 2013)

Gender Socialization and Ethicality Theories

• Why would women in general, and female directors in particular, be more inclined to use renewable energy?

• Gender socialization and ethicality theories suggest a couple of reasons why women may make more environmentally-friendly corporate decisions1. Women define morality and ethics in terms of responsibilities whereas for men they

are about rights. For women such responsibilities include a duty to alleviate the “‘real and recognizable trouble’ of this world” (Gilligan, 1977, p.511)

2. The helping behavior of women differs from that of men. While men’s helping behaviortends to focus on heroic and more short-term actions, the helping behavior of women is typically of a caring and nurturing nature and for the long term (Eagly and Crowley, 1986)

Board Gender Diversity and Environmental CSR• Female directors have been shown to be more concerned about ethical practices

and socially responsible behavior (e.g., Johnson and Greening, 1999)• They tend to reduce negative business practices, i.e., business practices that the CSR

rating agency KLD considers to be areas of concern (Boulouta, 2013)• Importantly, they are concerned about firms’ environmental impact (e.g., Bear et al.,

2010; Pearl-Martinez and Stephens, 2016; Nekhili et al., 2017)– Firms with female directors are less likely to be subject to environmental law suits (Liu, 2018)– Firms with three or more female directors have higher KLD scores for environmental CSR (Post et

al., 2011), which confirms critical mass theory • Kristie (2011) summarizes the critical mass theory as follows:

– One female director is a token, while two is a presence but three helps to raise voice – The real change occurs when there is a sufficient number of women on the board (e.g., Konrad et

al., 2008) since women feel more comfortable, and less constrained (Terjesen et al., 2009)

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Research Hypotheses

• H1: Having women on the board increases the firm’s renewable energy consumption• H2: Two or more women on the board have a significant effect on renewable energy

consumption whereas a single woman on the board does not result in significantly more renewable energy consumption

• H3: The presence of female independent directors rather than female executive directors increases renewable energy consumption

Structure


Research Design

• Our sample consists of an unbalanced panel of data of US firms in the S&P 1500 index for the period of 2008–2016

• Data on firm energy consumption (MW), including renewable energy consumption, are from Bloomberg

• Board and firm characteristics are also from Bloomberg• Our final sample consists of 1491 firms or 11,677 firm-year observations• We estimate the following baseline model

𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟_𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑟𝑒𝑒_𝑐𝑐𝑐𝑐𝑟𝑟𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑟𝑟𝑐𝑐 ,𝑐𝑐= 𝛼𝛼 + 𝛽𝛽1(𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑏𝑏_ 𝑔𝑔𝑟𝑟𝑟𝑟𝑏𝑏𝑟𝑟𝑟𝑟_𝑏𝑏𝑐𝑐𝑑𝑑𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑐𝑐𝑒𝑒)𝑐𝑐 ,𝑐𝑐 + 𝛽𝛽2(𝑟𝑟𝑐𝑐𝑟𝑟𝑟𝑟𝑏𝑏_𝑐𝑐ℎ𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)𝑐𝑐,𝑐𝑐

+ 𝛽𝛽3(𝑓𝑓𝑐𝑐𝑟𝑟𝑐𝑐_𝑐𝑐ℎ𝑟𝑟𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑟𝑟𝑟𝑟𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐)𝑐𝑐 ,𝑐𝑐 + 𝛽𝛽4∑(𝑐𝑐𝑟𝑟𝑏𝑏𝑐𝑐𝑐𝑐𝑐𝑐𝑟𝑟𝑒𝑒 𝑏𝑏𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑟𝑟𝑐𝑐)𝑐𝑐+ 𝛽𝛽5∑(𝑒𝑒𝑟𝑟𝑟𝑟𝑟𝑟 𝑏𝑏𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑟𝑟𝑐𝑐)𝑐𝑐 + 𝜀𝜀𝑐𝑐𝑐𝑐

Research Design• Renewable energy consumption = percentage of renewable energy in total energy consumption in t• Board gender diversity = percentage of women directors on the board

= the number of women directors on the board= dummy variables W1, W2 and W3

• Board characteristics:– Female CEO (WCEO)– Board size– CEO duality– Board independence– Board meetings

• Firm characteristics:– Tobin’s q– ROA– Cash/net assets– Leverage– Insider ownership– Firm size

Research Design

• We use ordinary least squares (OLS) as the baseline method• Standard errors are corrected for clustering at the firm level• We also use one-year lagged (t-1) independent variables • In robustness tests, we use Tobit, firm-fixed effects, dynamic panel data regressions

and the instrumental variable approach

Structure


Structure


Robustness Checks and Further Analysis

• Robustness checks– Different measures of renewable energy consumption– Alternative estimation techniques– Excluding firm-year observations with female CEOs– Controlling for director tenure and age

• Identification– Instrumental variable (IV) approach– Dynamic panel data estimation– Propensity score matching– Differences-in-differences matching estimator

• Renewable energy and firm value

Structure


Conclusions and Policy Implications

• First empirical evidence that the number of women on the board has a significantly positive impact on the use of renewable energy– The positive impact of board gender diversity on renewable energy consumption is only observed

if the number of female directors is two or more– The positive impact is mainly attributable to female independent directors

• Gender-diverse boards are beneficial in terms of greater renewable energy consumption

Thank You!

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Does Gender Diversity Affect Renewable Energy Consumption?