Board Characteristics and Environmental, Social and Governance Performance in Financial Sector : Evidence from Gulf Cooperation Council Countries

Abstract

Abstract : Environmental, social, and governance (ESG) practices receive broad consideration from various stakeholders. This is driven by increasing pressure from various stakeholders, including regulatory bodies, investors, and society, on business administration to report on sustainability. Therefore, companies are expected to be more transparent in their financial, social, and environmental performance disclosures for the benefit of various stakeholders. However, despite previous research that investigates the association between corporate governance mechanisms, ownership structure, or company characteristics on one side and ESG practices and reporting on the other, little is explored, especially in countries with emerging stock markets, including the Gulf Cooperation Council (GCC) countries. This study aims to fill this gap by investigating the effect of board characteristics (board independence, board size, board gender diversity, board culture diversity, and the existence of a CSR/sustainability committee formed by the board) on the ESG Score of 166 companies listed in six GCC countries for three years, from 2021 to 2023. Data of board characteristics (independent variables) is collected from annual reports and/or corporate governance reports prepared by the sampled companies, while data of ESG scores is extracted from the London Stock Exchange Group (LSEG) database. The effect of board characteristics on ESG scores is explored using Hierarchical Multiple Regression (HMR) analysis, with two HMR models designed (Models 1 and 2), both of which are significant. The results indicate that board size, gender diversity, and the existence of a committee for CSR/sustainability positively impact the ESG scores of the sampled companies. In contrast, an insignificant association between board independence and cultural diversity with ESG scores is found. Based on this research findings, policymakers and shareholders might have a deeper understanding of the important roles that board characteristics play in improving ESG scores. Furthermore, this study may contribute significantly to the accounting literature in this area of ​​research by expanding the existing body of research on ESG practices and reporting in the GCC area. The study is also valuable for practitioners who seek to enhance the quality of ESG practices.