Sustainable development: The role of sustainability committees in achieving ESG targets

Abstract

This study investigating the impact of sustainability committee characteristics (SCCs) on corporate sustainability performance (CSP) utilised environmental, social and governance (ESG) scoring. Based on secondary data obtained from Refinitiv, Fame and FTSE 150 databases, the sample consists of 112 non‐financial companies from 2010 to 2018, thus 926 firm‐year observations. The results reveal a positive and significant relationship between organisational factors including firm size, profitability and firm age across combined ESG and environmental scores. As for the sustainability committee characteristics, there is a positive association between frequency of committee meeting and age diversity with governance scores and a negative relationship between frequency of committee meeting and environmental performance. The empirical finding shows positive and negative relationships under the presence of focussed and non‐focussed committees equally. Furthermore, the presence of focussed or non‐focussed sustainability committees (SCs) do appear to have an association with the overall CSP. Furthermore, this paper provides empirical evidence of the insignificant relationship of SCC with the sub‐dimension of social performance, which contradicts our hypothesis and existing studies. Together with SCC's weak associations with environment and governance dimensions, this finding supports the argument that firms are actively using sustainability committees to create positive public image and reputation to protect legitimacy.

Exploring the Impact of Board Attributes on ESG Scores of Indonesian Companies

“…In addition, the results of this study differ from the findings conducted by (A. Abdullah et al, 2024), who concluded that no significant relationship was revealed between the presence of a Sustainability Committee and ESG scores. This statement pertains to greenwashing, a phenomenon where companies may falsely portray themselves as environmentally friendly or sustainable to deceive consumers, investors, or other stakeholders.…”

“…This correlation between sustainability committees and ESG Scores aligns with the principles of legitimacy theory, which posits that organizations strive to maintain their legitimacy by adhering to societal norms and expectations (A. Abdullah et al, 2024;Li et al, 2021). In the context of sustainability, companies with a dedicated sustainability committee demonstrate a proactive commitment to addressing environmental and social concerns, thereby enhancing their perceived legitimacy in the eyes of stakeholders.…”

“…Moreover, A. Abdullah et al (2024) concluded that the frequency of committee meetings has a positive and significant influence on the governance dimension of sustainability performance. However, the results of other studies are not in line with this research.…”