Corporate governance and extent of corporate sustainability practice: the role of investor activism

Abstract

Purpose Following the unceasing pressure on companies to adopt sustainable business practices to mitigate climate effect, this study aims to examine corporate governance (CG) attributes and role of activist investors in influencing extensive sustainability practice for firms in the developed and emerging climes. Design/methodology/approach Using a panel ordered probit regression analysis for 368 companies over 2016 to 2019, the study examined CG attributes that drive extensive corporate sustainability practice. The study addressed endogeneity bias using STATA Extended panel ordered probit regression model with endogenous covariates. Findings The result showed CG attributes is critical for firms, and activist investors play a critical role in driving extensive sustainability practice. Findings further reveal the extent of adoption is relatively low in the emerging climes but showed sign of improvement over the years examined. Research limitations/implications The study focused mainly on larger firms operating in different sectors globally. Hence, findings cannot be generalized for small sized entities. Practical implications The study provides an insightful explanation regarding the extensive sustainability practices and the vital role assumed by activist investors. Social implications The increasing number of companies responding to Carbon Disclosure Project and consequent improvement in scores indicates a corporate commitment to ensuring a sustainable future. Originality/value This research offers significant insights to the extent discussion on attributes of CG critical for sustainability practice. The findings ascertain useful tools to aid the continued adoption of sound sustainability practices around the globe.