ESG in the boardroom: evidence from the Malaysian market

Abstract

This study examines the influence of boards’ characteristics with respect to independence, diversity, and diligence on the environment, social, governance (ESG) disclosure among Bursa Malaysia companies. The board characteristics are proxied by the percentage of independent directors, women on the board, and the number of board meetings, respectively. We collected data from all 785 companies listed on the Kuala Lumpur Stock Exchange. Our final sample consisted of 91 companies that have an ESG disclosure score. Using GLS panel regression analysis, our findings overall indicate that board independence and diversity enhance ESG disclosure practice significantly for companies in all sectors. However, board diligence is related negatively to ESG disclosure. As expected, the significance of the relations among the board characteristics and the ESG disclosures are more profound from 2014 onward, largely because of changes in regulatory requirements. Our study provides new understanding and insights pertaining to the importance of board independence and board diversity on ESG initiatives and disclosures in the Malaysian context. This research complements studies in the areas of sustainability and strategy, and contributes to business practices with respect to the composition of boards of directors.

Board gender diversity and environmental, social and governance (ESG) disclosure: Is it different for developed and developing nations?

“…ESG disclosure, which focuses on CSR and sustainability reporting, has become of utmost importance to firms' stakeholders (Kamaludin et al, 2022; Tsang et al, 2022) as the overall performance of a firm is stipulated in both the financial (for example, sales trend and business growth) and non‐financial aspects (such as ESG reporting disclosure) of reporting. ESG reporting is important in protecting the interests of its stakeholders and is utilized as an effective corporate communication tool to disclose a firm's environmental responsibilities (De Masi et al, 2021), thus, ESG disclosures have become essential decision‐making tools for stakeholders (Gulzar et al, 2019).…”

“…Prior studies have examined ESG disclosure patterns and the relationship of ESG disclosure with various firm‐specific variables (Ellili, 2022; Kamaludin et al, 2022; Yu & Luu, 2021). Among them are those related to corporate governance variables such as board composition, board size, choice, motives and values of the decision‐makers (directors and top management), board independence, gender diversity and tenure of the board.…”

Environmental, social, and governance adoption in the Malaysian wood products and furniture industries: Awareness, adoption, and challenges

“…Figure 6 shows that all respondents who were aware of the ESG compliance requirements paid greater attention to environmental, followed by governance, and finally the social requirements. According to several previous reports (Kweh et al 2017;Mohamad 2020;Natkuncaran and Ratnasingam 2021;Kamaludin et al 2022), this may be attributed to the fact that the various factor requirements under the environmental category were more adoptive, as it was supported and enforced through regulatory and legislative measures that came into force some time back. On the other hand, the social factor requirements appear to be a challenge for many manufacturers, as the relevant legislation only came into effect very recently.…”

Diverse boards and firm performance: The role of environmental, social and governance disclosure

“…The empirical literature provides mixed relationship results for structural board diversity and sustainable disclosures for firms, for example, positive (Hussain et al, 2018; Kamaludin et al, 2022; Martín & Herrero, 2020), negative (Eng & Mak, 2003) and insignificant (Michelon & Parbonetti, 2012). Likewise, the diverse structural board diverse demographic board also help to boost the strategic decision‐making involving the firm's social issues.…”

“…Therefore, we consider both diverse board forms and postulate the following hypothesis to arrive at a consensus regarding the positive relationship between board diversity and firm performance and to reconcile the mixed empirical evidence. The empirical literature provides mixed relationship results for structural board diversity and sustainable disclosures for firms, for example, positive (Hussain et al, 2018;Kamaludin et al, 2022;Martín & Herrero, 2020), negative (Eng & Mak, 2003) and insignificant (Michelon & Parbonetti, 2012). Likewise, the diverse structural board diverse demographic board also help to boost the strategic decisionmaking involving the firm's social issues.…”