The Influence of Board Factors and Gender Diversity on the ESG Disclosure Score: A Study on Indian Companies

Abstract

The focus of stakeholders is shifting from the growth of profits and maximizing shareholders’ wealth towards more sustainable growth. The stakeholders are carefully emphasizing various environmental, social and governance issues, such as low carbon economy, climate change adaptation, social impact, transparency in governance etc. This, in turn, is increasing investors’ attention and interest in environment, social and governance (ESG) factors. Many investors are integrating ESG considerations into their mainstream portfolios. This article aims to study the impact of board factors on the ESG disclosure score of Indian listed companies. Using panel data for 327 firms listed on NSE and BSE over 7 years, this study examines the impact of board characteristics on the ESG disclosure score of a firm. We apply two-way fixed effect panel regression for analysis and find that board size and board gender diversity are the two significant factors playing a positive influence on the ESG disclosure score for the sample companies. CEO duality is a consistent factor across all the tested models impacting the ESG disclosure score.

Keywords

ESG disclosure score board independence board size board gender diversity CEO duality female executive participation

Introduction

Environment, social and governance (ESG) investment strategy is increasingly becoming a popular and paying strategy for investment (Auer & Schuhmacher, 2016; Bofinger et al., 2022; Cao et al., 2022). Globally about US$2.7 trillion in assets were under management with funds focused on ESG strategy as on December 2021 (Bhagat, 2022). Concerns about climate change and sustainability are also leading to an increased focus on these issues from all stakeholders. The investors across the globe are giving considerable focus to companies that are socially committed, environmentally friendly and practice good governance (Jizi, 2017; Pimple, 2012). These investors are also seeking greater disclosures and transparency from companies (Arvidsson, 2010). This creates demand for companies to report more about their ESG activities which puts pressure on firms to demonstrate good citizenship behaviour (Arayssi et al., 2020; Yadav et al., 2016). Such activities require a strategic direction from the board and bring under lens the corporate governance mechanism of an organization (Akisik & Gal, 2017).

Companies and business leaders are also considering effectively recognizing the sustainability issues to generate long-term positive impact and are thus increasing the quantity and quality of information being reported on these issues. The ESG reporting practices are driven not only by the laws, rules and regulations but also by an understanding of the importance of focusing on ESG issues which influence financial performance and corporate value (Al-Hiyari & Kolsi, 2021; Shackleton et al., 2022). Demand for better disclosure also stems from various agencies that calculate and report ESG metrics. ESG investing relies on independent ratings that focus on analysing a company’s behaviour and policies concerning environmental impact, social impact and governance issues (CFA Institute). ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or standalone sustainability report. It is imperative to check what factors may lead a firm to be more ESG focused and have a better disclosure score.

There are various screening strategies for ESG investing which have emerged over time. It is based on four screening criteria. The first is ‘negative screening’ which aims to avoid investments in ‘sin’ sectors or sectors considered bad according to social acceptance and values. The second criterion is ‘positive screening’ which focuses on the inclusion of socially good, ethically sound and corporate social responsibility-focused stocks or investment funds in the portfolio. The third criterion is ‘best in class’ which can be used to select companies focusing on environmental and/or CSR issues. The fourth criterion is ‘investor engagement’ in which stocks or funds are selected based on the focus on building long-term and lasting personal relationships and trusts (Sciarelli et al., 2021).

Various institutions have established their ESG metrics for scoring companies. The Global Reporting Initiative (GRI) framework is widely accepted and was established in 1997. The Task Force on Climate-related Financial Disclosures (TCFD) is a framework developed by G20 Financial Stability Board to enable entities to assess climate risk and take necessary action to counter it. Morgan Stanley Capital International (MSCI) is a privately created ESG framework specifically aimed at identifying ESG risks. United Nations Sustainable Development Goals (SDGs) aim more toward sustainability issues and have less impact on industry factors. The Sustainability Accounting Standards Board (SASB) published its framework in 2018 and best explains underlying financial metrics and their implementation of ESG practices.

Though the concept of ESG is quite nascent, but remarkably 85% of retail investors are interested in sustainable investing (Morgan Stanley, 2019). In India, in addition to the demand by investors, the regulators are also forthcoming in demanding ESG-related information from the corporates. The Securities and Exchange Board of India (SEBI) has made it compulsory for the top one thousand listed companies by market capitalization to file a ‘Business Responsibility and Sustainability Report’ (BRSR) from the fiscal year 2022–2023. There are also voluntary guidelines in place for reporting on the social, environmental and economic responsibility of a business. This would result in greater transparency on ESG activities of companies and drive demand in the securities market.

The extant evidence indicates that better governance and social initiatives of the firm positively influence their voluntary disclosure levels (Arayssi et al., 2020; Arayssi & Jizi, 2018). Agency theory also explains that firms that engage more in CSR and positive ESG activities are inclined to disclose the same to all stakeholders (Arvidsson, 2010; Dhaliwal et al., 2011). For ESG disclosures, research evidence is focused on identifying firm-specific factors that affect ESG disclosures (Arayssi et al., 2020) while the role of the board in the relationship is not extensively studied. The role of the board of directors is important in understanding a firm’s level of transparency through its disclosures (Arayssi et al., 2020). A bigger board with more independent directors and greater women representation is expected to be more objective and transparent (Bear et al., 2010; Dah & Jizi, 2017; Donnelly & Mulcahy, 2008; Jizi, 2017; Jizi et al., 2014; Reeb & Zhao, 2013). The evidence of a positive role of board factors on ESG disclosures is available for western countries, however with different structures of capital markets, governance and investor awareness levels in emerging markets, it becomes vital to understand and study how board governance structure affects the ESG disclosure levels. Furthermore, female participation in the company’s board and workforce is a critical issue to be examined. Many businesses have been pushed by the United Nations Sustainable Development Goals (SDGs) to embrace ethical and sustainable practices, ensuring the equal participation of women in firm management to promote gender equality and female empowerment. Gender inequalities, according to the 2030 Agenda hinder sustainable development and economic growth. Therefore, full and effective women’s participation in decision-making processes at all levels plays a critical role in the value creation process of businesses.

The objective of this study is to understand whether board characteristics influence the ESG disclosure score of the company. The study seeks to answer the following research questions:

RQ1: Does ESG disclosure of a firm gets influenced by board factors, such as board size, board independence and CEO duality?

RQ2: Does ESG disclosure of a firm gets influenced by gender diversity?

The remainder of this article is organized as follows: The second section reviews the related literature and aims at developing the hypotheses. The third section describes the data and research methodology. The fourth section presents the empirical results and findings. The fifth section provides a discussion and conclusion.

Literature Review and Hypothesis Formulation

As per information asymmetry theory, there is a wide gap between the information available to insiders and outsiders of the firm. Improved voluntary disclosures increase transparency, reduce information asymmetry and improve investors’ confidence in the company which further reduces estimation risk (Cui et al., 2018; Healy et al., 1999; Leuz & Verrecchia, 2000). Voluntary disclosures by firms regarding their corporate social responsibility, environment, sustainability, governance and ESG practices allow investors to gauge firms’ focus and commitment on these issues.

ESG consideration for important stakeholders has increased multifold in the past many years (Cao et al., 2022). A metric for ESG was first launched in the form of a socially responsible index (SRI) by KLD Research & Analytics in the year 1990 which was followed by the creation of the Dow Jones Sustainability Index in 1999. SRI can be defined as an investment process that integrates ethical values, environmental protection, improved social conditions and good governance into traditional investment decision-making (Michelson et al., 2004; Revelli, 2017). With increased focus on governance issues, SRI transformed into the more inclusive concept of ESG, which represents the cornerstone of sustainable and responsible investing.

It has been documented that firms that have greater concern for social issues and practice good governance tend to have more transparency in reporting and disclose more voluntarily (Arayssi & Jizi, 2018; Arayssi et al., 2020; Cui et al., 2018). Agency theory also provides a plausible explanation for higher disclosure levels of firms that engage more in CSR and positive ESG activities (Arvidsson, 2010; Dhaliwal et al., 2011). There are many economic and non-economic long-term benefits of such transparency in reporting practices by firms. The firms that are more transparent and provide detailed voluntary disclosures on ESG can improve the firm’s reputation and brand value, enhance brand loyalty, improve investor’s perception and reduce perceived risk thereby bringing down the cost of capital and favourably influencing the economic performance (Alareeni & Hamdan, 2020; Al-Hiyari & Kolsi, 2021; Camilleri, 2015; Jizi et al., 2014). This may also positively influence the firm’s stock market performance and thus create wealth for the shareholders (Alareeni & Hamdan, 2020).

ESG disclosures allow the stakeholders to examine the contributions of a firm to the society and environment and are emerging as a reliable metric for measuring firms’ good citizenship behaviour (Beurden & Gossling, 2008). Investors who base their investment decisions on ESG have been found to give greater stress on various non-financial ESG parameters and are also willing to accept lower financial performance (Bollen, 2007; Ghoul & Karoui, 2017; Gutsche & Ziegler, 2019; Riedl & Smeets, 2017).

There is significant work done to understand the relationship between ESG disclosure scores and firm characteristics (Arayssi et al., 2020). However, the influence of board characteristics and gender diversity on ESG disclosure scores especially for developing countries like India is less evidenced (Arayssi et al., 2020). The larger board size enhances ESG disclosures by highlighting more environmentally and socially conscious factors as a greater number belong to diverse backgrounds with wider networks (Jizi, 2017). Board size positively influences the voluntary disclosure adopted by the company due to the presence of a variety of expertize, diversity, knowledge, experience, etc. (Naseem et al., 2017). Based on past evidence, it may be hypothesized that a bigger board would positively influence the ESG disclosure score.

It is believed that a greater proportion of independent directors can positively influence the disclosures and lead to more objective and effective decision-making (Holtz & Sarlo Neto, 2014). Independent directors enhance firm value and take decisions that promote sustainable business and create a sustainable future (Dah & Jizi, 2017; Donnelly & Mulcahy, 2008; Reeb & Zhao, 2013). Independent directors also tend to focus on social welfare rather than financial performance. They promote detailed disclosures to signal the company’s welfare focus and to attract ESG-conscious local and international investors (Arora & Dharwadkar, 2011; Jizi, 2017). It is contextualized that greater board independence would positively influence the ESG disclosure score.

If the chairperson or chairman of the company is also its CEO, there may be reduced corporate governance and compromised board independence. Separating the CEO and chairperson helps to improve the reporting quality, improves transparency and reduces the vagueness in the disclosures (Sundarasen et al., 2016; Tsui & Gul, 2000). CEO duality can reduce focus on the greater good from all stakeholders’ perspectives to a more personal profit focus leading to a decision-making focus concerning the CEO or chairperson instead of all stakeholders or all investors (Rhoades et al., 2000; Srivastava & Bhatia, 2022). Another strand of literature contradictorily finds that the CEO-chair dual role might benefit ESG disclosures as it might promote firm’s good citizenship through ESG disclosures which may help to legitimize their position and increase their tenure or pay (Jizi et al., 2014). So, based on the discussed research, it is expected that CEO duality influences the ESG disclosure score.

Participation of women in the workforce is increasing and research suggests female counterparts are different from males and tend to bring different viewpoints to the board. Where men focus more on f inancial decisions, females tend to adopt a holistic approach in focusing on welfare, community and humanitarian activities (Glass et al., 2016, Hillman et al., 2002; Singh et al., 2008). Women tend to work more towards innovative style and thus are expected to promote and adopt ESG disclosure (Bear et al., 2010). Companies with more females on the board are expected to engage more in ESG-related activities (Arayssi et al., 2020; Bear et al., 2010). Based on the extant literature, it is expected that board gender diversity and female participation in workforce would favourably influence the ESG disclosure score.

Data and Methodology

Sample

The data has been collected for 327 companies listed on National Stock Exchange and Bombay Stock Exchange that have ESG disclosure scores. The sample excludes financial firms and firms with missing data. The financial firms have been excluded as they have a different capital structure as compared to the non-financial firms. The data for ESG disclosure score, board factors and various control variables studied have been taken from the Bloomberg database. The data for all variables is taken for 7 years starting from 2015 to 2021. The dataset is a balanced panel and panel regression is used as a technique to drive results.

Variables

Dependent variable

ESG disclosure score is the dependent variable in this study. This score has been taken from the Bloomberg database that uses over 600 company-reported and derived performance indicators across ESG parameters. The score ranges from 0 to 100 with a higher score implying greater disclosure by the company on ESG parameters. The ESG score is a multidimensional index based on scores for environmental dimension, social dimension and governance dimension. ESG score is a score for disclosure and not for performance on these dimensions. The score is derived from the data reported by the company and derived key performance indicators across different ESG topics such as climate change, water, health and safety and governance (Bloomberg, 2022).

Independent variables

Board factors constitute the independent variables of the study. These include board size (BS), board independence (BI), board gender diversity (BGD), CEO duality (CEO_D), and female executives in the firm (FEM). The description and hypothesized signs of all variables are presented in Table 1.

Table 1.

Variables under Study

Dependent Variable		Hypothesized Sign
ESG_Score	ESG Disclosure Score
Independent Variables
BS	Board size—Number of board members	+
BI	Board independence—Number of independent directors to total number of board members	+
BGD	Board gender diversity—% women directors on board	+
CEO_D	CEO duality is a dummy variable giving a value of one if the CEO is chairing the board of directors and zero otherwise	+/−
FEM	Female executives—% of female executives in firm	+
Control Variables
ROA	Return on assets—Net income divided by total assets	+
SIZE	Natural log of total assets	+
LEV	Total debt to total equity	−
GROWTH	Market to book value of equity	+
AGE	Natural log of total years from incorporations	+

Source: Authors’ estimates/calculations.

Control variables

We include various control variables that may influence the ESG disclosure score for a firm. Based on the literature we have included return on assets (ROA), firm size (SIZE), leverage (LEV), growth opportunities (GROWTH) and firm age (AGE) as control variables.

Methodology

We used three models to test the relationships and conducted pooled OLS regression and panel regressions for the estimation of the results. In the first model, the effect of all control variables is tested on the ESG disclosure score.

{ESG Score}_{i t} = α + β_{1} {ROA}_{i t} + β_{2} {SIZE}_{i t} + β_{3} {LEV}_{i t} + β_{4} {GROWTH}_{i t} + β_{5} {AGE}_{i t} + ε

The second model includes all board factors except board independence as independent variables along with various control variables

{ESG_Score}_{i t} = α + β_{1} {BS}_{i t} + β_{2} {BGD}_{i t} + β_{3} {CEO}_{-} D_{i t} + β_{4} {FEM}_{i t} + β_{5} {ROA}_{i t} + β_{6} {SIZE}_{i t} + β_{7} {LEV}_{i t} + β_{8} {GROWTH}_{i t} + β_{9} {AGE}_{i t} + ε

The third model includes all board factors except board gender diversity as independent variables along with various control variables

{ESG Score}_{i t} = α + β_{1} {BS}_{i t} + β_{2} {BI}_{i t} + β_{3} {BGD}_{i t} + β_{4} {CEO}_{-} D_{i t} + β_{5} {FEM}_{i t} + β_{6} {ROA}_{i t} + β_{7} {SIZE}_{i t} + β_{8} {LEV}_{i t} + β_{9} {GROWTH}_{i t} + β_{10} {AGE}_{i t} + ε

where α is the intercept, βs are the regression coefficients, i the individual firm, t the period, and ε the error term.

We conducted the Hausman test to choose between the fixed effect model and the random effect model. The results indicated that we need to carry a fixed effect model. We conducted a fixed effect two-way panel regression to conduct our analysis. We also checked for time and cross-section variation and found both to be significant and thus conducted two-way panel regression for analysis. To control for endogeneity, we created three models for analysis. To cater to the problem of reverse causality we also did a robustness check with lagged values of ROA, size, growth and leverage.

Results and Discussion

Descriptive Statistics

Table 2 below exhibits the descriptive statistics for all variables employed in the study. The average ESG disclosure is 23.998 for the sample period while the average at the beginning of sample period was 18.73 which has increased to 28.746 in the latest year. Though there has been an improvement in ESG scores across the sample companies during the period under study, but the average is lower in comparison to other important APAC region companies (Takamatsu, 2021). This implies that companies in emerging markets like India need to disclose more on various ESG factors. The maximum value is 66.940 while the lowest is only 6.610 and the standard deviation is 10.393 implying that there is a wide divergence in ESG disclosure across sample companies. Ambuja Cements Limited closely followed by Hindustan Zinc Limited and Tech Mahindra are the companies with leading ESG scores.

Board independence ranges between 20% and 80% in the sample firms with a mean value of 51.8%. Board size ranges from 5 to 26 with an average of 9.51. As for gender diversity, board gender diversity has a minimum of zero and a maximum of 60% while female representation in the workforce ranges between 0% and 80%. CEO duality is a binary variable with values of 0 and 1 with an average of 24% of firms reporting CEO duality. In the year 2021, CEO duality was found in 20.49% of companies. All control variables also show a wide variance in values as reported in Table 2.

Table 2.

Descriptive Statistics

	Minimum	Maximum	Mean	Std. Deviation	Skewness	Kurtosis
ESG_Score	6.610	66.940	23.998	10.393	1.451	2.335
BI	0.2	0.8	0.518	0.128	−0.126	3.127
BGD	0	60	14.501	7.677	1.288	2.899
BS	5	26	9.51	2.588	1.011	2.681
CEO_D	0	1	0.24	0.428	1.208	−0.541
FEM	0	80	5.265	12.094	3.386	15.410
ROA	−116.330	107.828	6.621	8.366	0.682	35.741
SIZE	6.530	18.312	10.877	1.711	0.779	0.556
LEV	0	2.693	1.178	69.384	30.880	10.962
GROWTH	−48.207	566.624	3.863	13.118	35.076	1,484.373
AGE	14	122	48.56	23.805	1.093	.607

Source: Authors’ estimates/calculations.

Note: For descriptive statistics, size and age are shown at original value while in analysis their natural logarithmic values have been included.

To reduce the influence of high skewness and extreme values age and size variables are taken in natural logarithm form. ROA, LEV and GROWTH are scale-based variables, so are taken directly. The presence of outliers may distort the results, so for the further tests all the variables have been winsorized at the 1% and at 99% levels. To correct possible heteroscedasticity in the model, robust standard errors have been calculated using White (1980).

Correlation

The correlation matrix exhibited in Table 3 displays that the correlation between ESG scores is significant for all board-related variables except board independence. The low coefficient of correlation for all variables suggests that the estimates and models employed are not affected by problems of multicollinearity.

Table 3.

Correlation Matrix

	ESG_Score	BI	BGD	BS	CEO_D	FEM	AGE	ROA	SIZE	LEV	GROWTH
ESG_Score	1.000
BI	−0.020	1.000
BGD	0.138^**	0.007	1.000
BS	0.160^**	−0.222^**	−0.338^**	1.000
CEO_D	−0.049^*	−0.021	−0.033	−0.005	1.000
FEM	0.088^**	0.016	0.244^**	0.025	−0.003	1.000
AGE	−0.013	0.009	−0.038	0.022	0.056^**	0.004	1.000
ROA	0.090^**	−0.029	0.030	0.015	−0.021	0.098^**	0.018	1.000
SIZE	0.418^**	−0.064^**	−0.018	0.286^**	0.020	−0.002	−0.095^**	−0.332^**	1.000
LEV	−0.025	0.025	−0.085^**	0.123^**	0.051^*	−0.039	−0.121^**	−0.612^**	0.449^**	1.000
GROWTH	0.124^**	0.012	0.065^**	0.022	−0.040	0.078^**	−0.025	0.546^**	−0.195^**	−0.323^**	1.000

Source: Authors’ estimates/calculations.

Note: **, * significance at 0.01 and 0.05 level, respectively.

Panel Data Results

The results of pooled OLS panel regression are shown in Table 4. The results are presented for three models. In Model 1, all the control variables are included as independent variables and all the variables except firm age are significant. As hypothesized, firm size, ROA and growth have a positive impact on disclosure scores while leverage has a negative influence. In Model 2, a set of board factors along with the control variables are included and board gender diversity and board size are statistically significant variables influencing the ESG disclosure score of the companies. Board size and board gender diversity positively affect the disclosure score implying that more members on the board and a greater female presence on the board have a positive influence on the disclosure score. Like Model 1, firm size, ROA and growth have a positive impact while leverage has a negative relationship with disclosure score. This result supports H4 and H2. In Model 3 we consider board independence in place of board gender diversity and find that board size, CEO duality and female executive participation in the workforce are statistically significant. Board size and female workforce participation have positive signs while CEO duality has a negative relationship with disclosure score. The control variables have similar relationships to the first two models. The results support H2, H3 and H5.

Table 4.

Panel Regression Results (Pooled OLS)

Variable	Model 1	Model 2	Model 3
BGD		0.201 (0.000)***
BI			3.191 (0.000)***
BS		0.268 (0.000)***	0.162 (0.000)***
CEO_D		−0.470 (0.183)	−0.639 (0.114)
FEM		−0.005 (0.578)	0.034 (0.000)***
AGE	0.979 (0.000)***	1.305 (0.000)***	0.969 (0.000)***
GROWTH	0.218 (0.000)***	0.185 (0.026)**	0.208 (0.023)**
LEV	−1.407 (0.000)***	−1.345 (0.000)***	−1.417 (0.000)***
ROA	0.171 (0.000)***	0.166 (0.000)***	0.164 (0.000)***
SIZE	3.544 (0.000)***	3.389 (0.000)***	3.502 (0.000)***
C	−18.776 (0.000)***	−22.506 (0.000)***	-21.406 (0.000)***

Source: Authors’ estimates/calculations.

Note: ***, **, * significance at 1%, 5% and 10% level, respectively.

There are both time and cross-section effects and therefore, we controlled them by running fixed effect two-way panel regression. The results are presented in Table 5. In Model 1, all control variables except growth are significant. Age, leverage and ROA are negatively related with the disclosure score while size is positively related with it. In Model 2, board gender diversity and CEO duality are statistically significant while board size and female workforce participation are not significant. The control variables exhibit similar relationships like Model 1. This result highlights the positive influence of women on the board of directors. The female directors have been found to bring greater commitment and give significant importance to qualitative issues (Arayssi et al., 2016). In Model 3, board independence is positive and significant at a 10% level. Greater board independence implies more democratic decision making and it is believed that independent directors bring about effective and efficient reporting and disclosures (Dah & Jizi, 2017). Furthermore, CEO duality is positive and significant in both models 2 and 3 pointing to a positive influence of the dual role of chairperson and CEO in improving ESG disclosure scores. This result provides support to the literature that documents that CEO duality facilitates the preparation of reports to appease the stakeholders and to increase the remuneration and chance of a longer stay in the organization (Jizi, 2017).

Table 5.

Panel Regression Results (FEM Two Way)

Variable	Model 1	Model 2	Model 3
BGD		0.037 (0.000)**
BI			1.713 (0.061)*
BS		−0.012 (0.860)	0.04 (0.485)
CEO_D		0.899 (0.000)***	0.945 (0.006)***
FEM		−0.009 (0.139)	−0.001 (0.865)
AGE	−4.129 (0.016)**	−3.951 (0.014)**	−3.466 (0.046)**
GROWTH	0.070 (0.184)	0.071 (0.182)	0.066 (0.232)
LEV	−0.329 (0.000)***	−0.321 (0.000)***	−0.319 (0.000)***
ROA	−0.051 (0.001)***	−0.053 (0.001)***	−0.052 (0.002)***
SIZE	0.707 (0.001)***	0.785 (0.000)***	0.697 (0.001)***
C	31.908 (0.000)***	29.802 (0.000)***	28.183 (0.000)***

Source: Authors’ estimates/calculations.

Note: ***, **, * significance at 1%, 5% and 10% level, respectively.

The results corroborate the literature indicating that high board independence and the ones with greater gender diversity have a positive influence on ESG disclosure score. More independent directors bring with them varied backgrounds, expertise and knowledge and thus positively influence transparency and disclosure (Jizi, 2017; Naseem et al., 2017). Female directors have been found to favourably impact the ESG disclosure score as they bring higher ethical standards and a greater focus on environmental and social issues (Ben-Amar & McIlkenny, 2015; Glass et al., 2016; Hillman et al., 2002; Singh et al., 2008).

Robustness Check

We conducted robustness check for our model by checking for reverse causality and endogeneity. To check for reverse causality, estimation is done with 1-year lagged values of ROA, leverage, growth and size. These results are shown in Table 6. This allows to test whether firm’s past performance and risk measures influence the ESG disclosure scores of the current year however a reverse relationship does not hold as the ESG disclosure scores cannot influence past performance of a firm (Arayassi et al., 2020). The results of the robustness test are identical to our main regression. To control for endogeneity, we conducted 2SLS panel regression by creating lagged variables for board independence and board gender diversity. These results are presented in Table 7. Board gender diversity, board independence and CEO duality have positive and significant relationship with disclosure score in the robust models with lagged control variables and the 2SLS model.

Table 6.

Panel Regression Results (Panel FEM with Lagged Control Variables)

Variable	Model 1	Model 2	Model 3
BGD		0.049 (0.000)***
BI			1.490 (0.000)***
BS		−0.140 (0.001)***	−0.098 (0.059)*
CEO_D		1.547 (0.000)***	1.536 (0.000)***
FEM		−0.012 (0.102)	−0.009 (0.246)
AGE	−7.578 (0.000)***	−7.082 (0.000)***	−6.290 (0.000)***
GROWTH	−0.061 (0.176)	−0.064 (0.114)	−0.058 (0.182)
LEV	−0.142 (0.198)	−0.121 (0.165)	−0.128 (0.166)
ROA	−0.032 (0.047)**	−0.026 (0.110)	−0.028 (0.084)*
SIZE	0.384 (0.088)*	0.535 (0.021)**	0.466 (0.054)*
C	49.295 (0.000)***	46.077 (0.000)***	45.767 (0.000)***

Source: Authors’ estimates/calculations.

Note: ***, **, * significance at 1%, 5% and 10% level respectively.

Table 7.

Panel Regression Results (2SLS Panel FEM)

Variable	Model 1	Model 2	Model 3
BGD		0.048 (0.001)***
BI			1.458 (0.000)***
BS		−0.149 (0.007)***	−0.108 (0.117)
CEO_D		1.539 (0.000)***	1.528 (0.000)***
FEM		−0.012 (0.177)	−0.008 (0.341)
AGE	−6.459 (0.000)***	−6.355 (0.001)***	−6.193 (0.000)
GROWTH	0.456 (0.003)***	0.104 (0.078)*	0.106 (0.069)*
LEV	−1.028 (0.000)***	−0.265 (0.002)***	−0.265 (0.003)***
ROA	−0.175 (0.000)***	−0.031 (0.128)	−0.030 (0.139)
SIZE	1.167 (0.003)***	0.650 (0.046)**	0.569 (0,109)
C	36.659 (0.000)***	41.764 (0.000)***	41.601 (0.000)***

Source: Authors’ estimates/calculations.

Note: ***, **, * significance at 1%, 5% and 10% level respectively.

Conclusion and Implications

This article contributes to the literature on ESG disclosure and highlights the importance of board factors including board independence, board size, board gender diversity and CEO duality that may influence the ESG disclosure scores of companies in an emerging market. The analysis highlights the factors that significantly contribute to the ESG disclosure of Indian firms. The results indicate that board gender diversity, board independence and CEO duality are the most crucial factors that positively influence the ESG disclosure of the firms. Female representation on board brings diversity and contributes to variety in opinions with an added focus on sensitive and sustainable issues. It has been evidenced that gender diversity creates a greater focus for companies to report on issues related to sustainability, climate and governance. Moreover, women bring a sense of focus to companies by looking at communal, social and political issues as well (Glass et al., 2016, Hillman et al., 2002; Singh et al., 2008). The presence of females also brings around innovative approaches to work and may promote the organization’s focus on sustainability disclosures (Bear et al., 2010).

A higher number of independent directors positively influence ESG disclosure of Indian companies. The independent directors hail from diverse backgrounds and carry varied experiences and expertise from their field of work which allows for more objective and effective decision-making (Holtz & Sarlo Neto, 2014). Boards with a greater proportion of independent directors tend to take socially conscious and sustainable decisions (Dah & Jizi, 2017; Donnelly & Mulcahy, 2008; Reeb & Zhao, 2013) and focus on the dissemination of sustainability-related information to all stakeholders (Arora & Dharwadkar, 2011; Jizi, 2017).

The results also indicate that CEO duality positively influences ESG disclosure score which is contrary to the belief that when both CEO and Chairperson positions are held by the same person, they tend to withhold more and disclose less. The positive relationship might be attributed to the fact that the CEO wants to please all the stakeholders and improve the firm’s image as a sustainable and socially conscious enterprise which may help in cementing his/her position and getting a longer tenure and/or remuneration (Jizi et al., 2014).

The results of the article have important managerial implications. The companies that want to enhance their ESG disclosure score and thereby carve out a sustainable and conscious image among stakeholders need to keep board factors at the forefront of their strategies. The results provide evidence to the companies that they must strive for ensuring that the board has more members and specifically a greater percentage of independent directors. The companies must ensure gender diversity and focus on increasing female participation at the board level effectively. The limitation of the article is that the focus is only limited to Indian companies, a cross-country comparative analysis on ESG disclosures could offer greater insights. Furthermore, testing the relationship across different industries may generate more actionable insights.

Footnotes

Declaration of Conflicting Interests

The authors declared no potential conflicts of interest with respect to the research, authorship and/or publication of this article.

Funding

The authors received no financial support for the research, authorship and/or publication of this article.

ORCID iDs

Shikha Bhatia

Divya Marwaha

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