Environmental, Social and Governance (ESG) Activity and Corporate Controversies in South Africa: The Interacting Role of a Skillful Board

Abstract

AbstractCorporations have been involving in controversies through violation, unhealthy competitions, negligent behaviors, and scandals which result in huge financial and non-financial losses. Therefore, this paper investigates the nexus between ESG performance and corporate controversies and the moderating effects of the skillful board on this nexus with respect to public firms in South Africa. Using a sample of 958 firm-years observations with available ESG data from the Thomson Reuters Eikon database as listed in the Johannesburg Stock Exchange (JSE) during the period 2010–2019, we find that ESG performance practices are positively and significantly related to corporate controversies, indicating the likelihood of using ESG practices as ‘greenwashing mechanism’ by managers which eventually fuels corporate controversies instead of mitigating them. Much more interesting, the result revealed that the existence of board members with specific skills relating to ESG in the corporate boards would likely weaken attempts of managers in the opportunistic implementation of ESG practices, thereby reducing the corporate controversies. Our results have interesting implications for stakeholders, regulators, and scholars who may consider ESG as a shield used opportunistically by managers to cover up irresponsible ESG activities. In addition, the empirical findings highlight the importance of the skillful board members in moderating the ESG—corporate controversies nexus.KeywordsESG practicesCorporate controversiesBoard specific skills