Want your company to be more sustainable? Don't rely on the Board, new research finds

Companies who set up dedicated sustainability committees are more likely to achieve environmental goals than those which rely on a CEO and board members, according to new research.

Academics analysed data from 44,996 firms across 61 countries to see how much they were investing in their companies and how many of them reported publicly on their Corporate Social Responsibility (CSR) work.

They found that the more firms invested in running the company, the less likely they were to publicly report on CSR social and environmental activities.

However, those with a dedicated CSR committee were more effective than those whose CSR activities – which can include its equality and diversity work, environmental and public engagement – were governed by a CEO and board.

Dr Ali Meftah Gerged, senior lecturer in accounting and finance at DMU, said the research team’s interest was sparked by the huge rise in different types of socially responsible investing, and the apparent switch from corporations talking about revenues to stressing their environmental credentials.

“Our findings suggest that board monitoring mechanisms may focus more on financial performance than non-financial initiatives, as directors may feel shareholder pressure more than stakeholder pressure,” he said.

“Board structure has a limited effect on encouraging investing firms to engage with CSR transparency practices. CSR committees appear to convince investing firms of the benefits of issuing a CSR report and the credibility of the disclosed CSR report with third-party assurance.

“These committees might shape the CSR agenda of their firm and help the board maintain a more balanced decision-making process by aligning the interests of both shareholders and stakeholders.

“Our empirical evidence suggests that if investing firms consider CSR initiatives and reporting as solely costly and ignore their benefits, the presence of a CSR committee could both represent and present a more expert and experienced view that may highlight the advantages of these CSR initiatives.”

The team used publicly available company data to measure key investments firms made - sales growth, R&D intensity and sum of the growth of both tangible assets (like buildings and inventory) and intangible assets, such as customer lists and brand awareness. They then looked at the firms’ CSR reporting and structure.

The report adds that too many companies are still seeing corporate social responsibility (CSR) as a cost to the firm rather than promoting other benefits. However, anecdotal evidence from consumers shows that people want to buy from companies who they perceive as transparent and accountable.