Sustainability committee and environmental decoupling: International evidence
This study investigates the impact of sustainability committee on environmental decoupling (i.e., higher Environmental disclosure than performance) of the firms operating in 37 countries. The study then explores the impact of the components of the environmental committee on environmental decoupling. We use different regression techniques (GMM, PSM) to examine 11,801 firm-year observations during 2002–2019.
Decoupling is defined as the gap between what organizations communicate in terms of social and environmental performance and what they do actually. Such an information gap misleads stakeholders as it projects a one-sided social and environmental performance image of the firm. Concerning what factors account for sustainability decoupling practices, the research has focused on the decoupling factors originating from external governance with exceptions on internal governance. However, the presence of the board’s internal governance committee (i.e., sustainability or CSR committee) which is mandated to oversee sustainability reporting practices (i.e., performance and disclosure) has been recently studied. Considering the significant influence of sustainability committee on social and environmental disclosures and performance, we examine how it affects environmental decoupling. We consider environmental decoupling, because the environmental strategy has a significant positive effect on shareholders’ wealth, therefore, it naturally follows that firms must address environmental concerns. Exploring the issue of environmental decoupling is also important because decoupling behavior has significant costs, particularly when external stakeholders monitor such firms.
Purpose of sustainibility committees
We posit that the sustainability committees help firms to better align their actual environmental performance with disclosures (i.e., less engagement in decoupling practices), as forming such board subcommittees tends to improve corporate governance. However, some companies may have sustainability committees for the purpose of window dressing or to show-off. We therefore not only consider the sustainability committee presence but also determine the effect of sustainability committee composition on the level of environmental decoupling. By investigating a global sample of listed firms in 37 countries, we observe that the presence of sustainability committee decreases environmental decoupling. With regard to the composition, we observe that higher size, and tenure (independence and gender diversity) of sustainability committee increases (reduces) the level of environmental decoupling.
The presence of sustainability committee decreases environmental decoupling.
The results of additional analysis confirm that sustainability committee presence and environmental decoupling relationship is neither subject to firm-level governance quality nor industry nature. Finally, we show that a lower level of environmental decoupling for firms with CSR committee results in superior financial performance.
Purpose of the study
The paper makes the following contributions. We contribute to the thin but burgeoning literature examining the impact of external and internal corporate governance mechanisms on decoupling practices. To the best of our knowledge, this is the pioneer study exploring the nexus of sustainability committee, its composition, and the level of environmental decoupling. Moreover, the sustainability committees have faced greater pressure regarding their environmental performance oversight, and the environmental performance and disclosure is of great concern to the multitude of stakeholders, including customers, investors, suppliers, and regulators. Therefore, this study addresses the research gap by examining the influence of the presence and composition of sustainability committee on the level of environment decoupling.
Executives tend to be reluctant to improve environmental performance as it requires an enormous investment in new equipment, production redesign, and employee training, implying that financial benefit from investment in environmental strategy will not be realized in the short run. Thus, managers interested in short-run wealth maximization are less likely to pursue investments that may provide financial benefits in the long-run and might engage in greenwashing practices due to increasing pressure from various stakeholders.
Managers interested in short-run wealth maximisation are less likely to pursue investments that may provide financial benefits in the long-run and might engage in greenwashing practices due to stakeholders pressure
We argue that given the growing importance of firms’ environmental practices for stakeholders, it may be worthwhile to know whether firms pursue environmental agenda in true essence or engage in environmental decoupling practices. We therefore solely focus on environmental decoupling which is an important and most relevant sub-dimension of CSR performance given the growing concerns of stakeholders regarding climate change.
Furthermore, environmental sustainability is a global issue that requires global evidence to understand the phenomena of environmental decoupling comprehensively. We therefore contribute to the cross-country environmental sustainability literature, by investigating the sustainability committee and environmental decoupling relationship in a global context. Finally, we contribute to emerging sustainability accounting literature by documenting a positive effect of less involvement of firms with sustainability committee in decoupling practices on financial performance.
Methodology
Panel data regression techniques.
Applications and beneficiaries
Our findings document that the sustainability committee lowers the level of environmental decoupling which improves firm value. Given the growing decoupling and greenwashing concerns, our results provide input to policymakers, which can inform their decision-making on promoting transparency in environmental performance and disclosures by the formation of specialized sustainability committees. Giving such committees a voice in corporate governance may lower sustainability practices related to information asymmetry.
Reference to the research
Gull, A. A., Sarang, A. A. A., Mushtaq, R., & Ahsan, T. (2024). Sustainability committee and environmental decoupling: International evidence. Corporate Social Responsibility and Environmental Management, 31(2), 1268–1287.
