The impact of corporate governance on sustainability performance

Abstract

We examine the relationship between corporate governance and sustainability, using the extensive Bloomberg Environmental, Social and Governance (ESG) data universe. Eccles, Ioannou, and Serafeim [2012. The Impact of a Corporate Culture of Sustainability on Corporate Behavior and Performance. National Bureau of Economic Research, Inc., NBER Working Papers: 17950] argued that a corporate culture of sustainability plays an important role in various facets of a firm's corporate behaviour and performance. We argue that quality corporate governance itself can engender high sustainability performance. We also build on the work of Aras and Crowther [2008. “Governance and Sustainability: An Investigation into the Relationship Between Corporate Governance and Corporate Sustainability.” Management Decision 46 (3): 433–448] by investigating the relationship between specific corporate governance and sustainability characteristics of S&P 100 companies in the USA. Our initial exploratory findings suggest that environmental disclosure scores and ESG disclosure scores are strongly influenced by governance disclosure scores. Board meeting attendance is an important predictor of both scores, suggesting that more disciplined boards result in better sustainability performance. Boards with a higher percentage of independent directors also have higher disclosure scores and are more likely to have climate change and an environmental supply chain management policy in place. They are also more likely to be Global Reporting Initiative compliant, to have a green building policy and social supply chain management. A disturbing pattern emerges, however, when assessing firms' follow-through on declared commitments. It turns out that few firms that purport to have climate change policies in place have actually discussed climate change risks or opportunities. We discuss some implications of these preliminary findings.

Keywords:

• corporate governance
• sustainability
• ESG

Notes

^†This paper was presented at the University of Waterloo's October 2012 workshop: The Financial Sector's Impact on Sustainable Development.

1. The proportion of managers who say they think that “sustainability” is a key to competitive success rose from 55% in 2010 to 67% in 2011 according to an annual survey by the MIT Sloan Management Review and the Boston Consulting Group.

2. http://www.ifc.org/ifcext/economics.nsf/content/csr-intropage.

3. http://www.bitc.org.uk/our-services/benchmarking/cr-index.

4. Note that 2011 data are incomplete. As of 1 November 2012, only 423 members of the S&P 500 had reported to Bloomberg whether they had climate change policies in 2011. That compares with 492 companies in 2010. Unless otherwise stated, we refer to 2010 data in our analysis below.