Managerial forward-looking and firm environmental risk: Evidence from a machine learning approach

Abstract: We adopt a machine learning approach to create a forward-looking orientation (FLO) index for identifying corporate managers with better sustainable development strategies. We find that more forward-looking managers are associated with subsequent lower corporate environmental risk. The results are stronger when firms are confronted with higher exposure and risk to climate change, more attention from stakeholders, higher holdings from socially responsible investors, and fewer financial constraints. Firms with forward-looking managers reduce more Greenhouse Gas (GHG) emissions when mitigating environmental risk. Our results are robust to various specifications for index construction and remain after controlling for traditional proxies for managerial myopia.