Aware of the future? Corporate Sustainability in Europe: An analysis of the influence of CEOs’ linguistic future awareness on European firms’ ESG performance
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Abstract
Previous research in linguistics has revealed that languages are heterogeneous in how they encode time and separate the future from the present. Recent economics research shows that speakers of languages which require grammatical separation of the future from the present perceive the future as further away, and consequently demonstrate lower levels of pro-environmental behavior. However, the influence of grammatical time separation on the performance of firms’ sustainability efforts and performance is still relatively unknown. With the aim of understanding this complex relationship, this thesis conducts a novel analysis of how the mother tongue of CEOs influences the ESG performance of European firms.Classifying CEO language by birthplace, we conduct an analysis of the ESG performance of 679 firms headquartered in 20 different European countries over the 2013-2022 period. Additionally, we examine the impact of foreign-born CEOs on ESG performance and how a country’s environmental policy performance affects a firm’s sustainability. We also employ a regression discontinuity design to analyze the effects of CEO changes on ESG scores.Our study provides novel evidence that speakers of languages that grammatically require separation of the future have a positive effect on ESG scores. These findings are supported by our CEO-level regressions using birthplace language and our firm-level regressions using the language of firm headquarters. This relationship remains robust when time-, firm-, country-, and CEO-level control variables effects are included. However, we observe that the positive effect of having a foreign CEO on ESG scores is mediated when the CEO speaks a language requiring grammatical separation of the future. To the best of our knowledge, our study is the first to investigate the relationship between required grammatical marking in a CEO’s language and a firm’s ESG performance.