Board Diversity and Corporate Sustainability Practices: Evidence on Environmental, Social and Governance (ESG) Reporting

Aida Maria Ismail,Izrul Haida Mohd Latiff

doi:10.5430/ijfr.v10n3p31

Abstract

The emerging awareness on sustainability issues among Malaysian listed companies has increased the voluntary disclosure on environmental, social and governance (ESG) in the annual report. This study examines the relationship of board diversity on firm’s sustainability practices. Board diversity characteristics in terms of gender, age, board composition, board capabilities and board reputation are examined as to their influence towards firm’s sustainability practice. The data includes the ESG Scores of 38 listed companies in Malaysia for the period in 2010–2016 which was obtained from the Thomson Reuters Eikon™ Datastream. The result showed that board diversity traits such as age, board capabilities and board reputation are positively associated with firm’s sustainability practices. In contrast, women director and independent directors are negatively related with firm sustainability practice. Result of this study helps to provide another viewpoint on the roles played by board members, particularly their diversity representations as the determinant for corporate sustainability practice.

Highlights

The emerging concern among investor groups to integrate environmental, social and governance (ESG) factors in the investment decision-making have necessitate regulators to impose the requirement for sustainability disclosure in the annual report on public listed companies
In the case of British Petroleum (BP) for example, the company was hit by health and safety issues as a result of oil spill incident in the Gulf of Mexico
This study is designed to examine the relationship of board diversity on firm‟s sustainability practice from the perspective of Malaysian public listed companies

Summary

Introduction

The emerging concern among investor groups to integrate environmental, social and governance (ESG) factors in the investment decision-making have necessitate regulators to impose the requirement for sustainability disclosure in the annual report on public listed companies. (2010), the adverse result from corporate failures and scandals were causing financial losses to the investors but it caused systemic impact to the economy, environment and society at large. The over-exploitation of natural resources for commercial purpose had caused other sustainability problems. Irresponsible practices of large corporations which over-exploit the natural resources had damaged the environment and will eventually detriment their firm‟s value and reputation. In the case of British Petroleum (BP) for example, the company was hit by health and safety issues as a result of oil spill incident in the Gulf of Mexico. The catastrophe impact from the oil-spill incident had damaged the marine ecosystem and caused the local residents to lose their main source of income (British Petroleum., 2015).The aftermath effects from the unfortunate event were damaging the environment but had resulted to significant devaluation of its share price. The firm had to face major lawsuits and legal actions from the authority as a result of safety breaches (Cruden et al, 2016)

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Conclusion