Establishing a causal relationship between audit committee characteristics and environmental social and governance reporting for the top 100 Johannesburg listed corporations.

Abstract

This study investigated whether a causal relationship exists between audit committee characteristics and the quality of Environmental, Social, and Governance (ESG) reporting among the top 100 Johannesburg Stock Exchange (JSE) listed corporations. Against the backdrop of increasing stakeholder demand for credible ESG reporting, the study employed the agency and legitimacy theories to analyse how corporate governance practices, particularly audit committees, influence the quality of ESG reporting. Three audit committee characteristics were examined: independence, meeting frequency and average age. The research adopted a positivist research paradigm, which supports a scientific approach to research, thereby allowing for hypothesis testing and empirical validation. A quantitative research methodology was therefore employed. Data was drawn from Ernst & Young’s Excellence in Integrated Reporting Awards and the Bloomberg database and analysed using panel data regression models. The study found a significant positive relationship between ESG reporting quality and audit committee independence, suggesting that independent members are better able to oversee ESG reporting. However, no significant correlation was established between ESG reporting quality and the frequency of audit committee meetings which suggests a need for companies to focus more on the qualitative metrics of such meetings. The average age of audit committee members also did not have a significant impact on ESG reporting quality. The study contributes to the existing literature by highlighting the role of internal assurance, particularly audit committees, in enhancing ESG reporting, a critical aspect given stakeholder apprehension regarding sustainability and corporate responsibility. The findings from this study highlight the need for policymakers and regulators to implement policies that enhance the quality of ESG reporting. Recommendations are made based on the findings and suggestions are offered for further research, particularly on the broader governance factors that influence the quality of ESG reporting.