Public governance versus corporate governance: Evidence from oil drilling in forests

Abstract

Petroleum companies look for oil and gas in some of the most remote and biodiverse forested areas on the planet. To study how local environmental footprints vary across countries and companies, we combine global company-level geo-coded data on oil drilling with high resolution data on forest loss. We find that oil wells drilled in countries with better public governance, measured by democracy scores, are associated with substantially lower forest loss in the period after drilling. In contrast, we do not find evidence of less forest clearance among companies with presumptively ‘better’ corporate governance practices, such as major international companies, publicly listed companies, or members of an industry association committed to high environmental standards. These results do not support a “pollution halo” effect, whereby companies might bring better environmental practices with them, exceeding domestic environmental standards.