ESG DISCLOSURE AND EXECUTIVE PAY IN THAILAND: INCENTIVISING SUSTAINABLE PERFORMANCE IN EMERGING MARKETS

Abstract

This study investigates the empirical association between Environmental, Social, and Governance (ESG) disclosure and the structure of executive remuneration within publicly listed firms in Thailand. The research aims to address a gap in the literature concerning the implementation of ESG-linked incentive schemes in emerging economies, where regulatory frameworks and Corporate Governance Mechanisms (CGMs) often differ significantly from those in developed contexts. The analysis draws upon panel data extracted from the “One Report” disclosures of 609 firms, spanning seven industrial sectors over the period 2020 to 2022, yielding 1,343 firm-year observations. Executive remuneration is assessed in two distinct forms: Monetary Executive Compensation (MEXC) and Non-Monetary Executive Compensation (NMEXC). The study employs both multiple linear regression and multiple logistic regression techniques, while incorporating control variables such as FirmSize, FirmAge, Growth, Return on Assets (ROA), and Return on Equity (ROE). The results identify multifaceted associations between various ESG disclosure dimensions and the types of executive compensation. In particular, the Governance and Environment components are found to exhibit a statistically significant positive relationship with MEXC. Conversely, disclosure across all three ESG dimensions—Environmental, Social, and Governance—demonstrates a statistically significant positive linkage with NMEXC. These positive associations imply that firms strategically utilise their compensation schemes as reliable indicators of their dedication to sustainability, thereby mitigating information asymmetry between firms and stakeholders, in line with Signaling Theory. Moreover, these mechanisms help align managerial incentives with the long-term interests of shareholders and stakeholders, consistent with the principles of Agency Theory. The empirical findings further highlight the utility of ESG-linked compensation as a mechanism to encourage managerial actions that are congruent with sustainable development objectives. Within the context of emerging markets, the study contributes to reducing apprehensions surrounding “greenwashing” and underscores the role of state-led initiatives in promoting harmonised ESG reporting via the “One Report” system. Ultimately, the results suggest that executive compensation structures may serve as credible indicators of a firm’s authentic commitment to the ESG agenda, reinforcing the incorporation of sustainability into CGMs in emerging economies.