The corporate sustainability committee and its relation to corporate environmental performance

Abstract

PurposeThis study aims to examine whether the sustainability committee, a specialized governance mechanism for environmental and social issues, is related to environmental performance. Specifically, the authors consider the presence and effectiveness of the sustainability committee.Design/methodology/approachUsing a sample of Australian firms (2002–2016), the presence of a sustainability committee and sustainability committee effectiveness (consisting of 12 sustainability committee characteristics) are examined. Firms’ environmental performance is measured by Thomson Reuters Asset4 ratings.FindingsThe authors confirm prior findings of a positive relationship between the presence of a sustainability committee and the firm’s environmental performance. More importantly, sustainability committee effectiveness is found to be positively associated with environmental performance, indicating the active role that the composition and function of the sustainability committee plays in enhancing environmental performance.Practical implicationsThe findings are of interest to directors and managers who are interested in improving firms’ environmental performance, in addition to investors and regulators who are concerned about environmental performance.Originality/valueThis study meaningfully expands the extant literature that studies the sustainability committee in at least three ways. First, the authors evidence the effect of an unexplored dimension of committee heterogeneity (sustainability committee effectiveness) by hand-collecting detailed information of sustainability committee members. Second, the authors distinguish from prior studies, in that the authors test the direct relationship between sustainability committee effectiveness and environmental performance. Third, by adopting different robustness tests of endogeneity along with sampling firms in various industries over 15 years, the authors offer more compelling and more comprehensive evidence in this regard. Broadly, the authors enrich the literature on corporate governance and environmental performance.