Corporate governance, sustainability reporting, and mandatory regulation: a systematic review & evidence from a quasi-natural experiment

Sustainability, or Corporate Responsibility, reporting is the key platform for communicating to society and stakeholders that companies are doing their part to help in solving society's social problems. This research proposes that the structure of the board of directors, as an internal corporate governance mechanism, drives sustainable development disclosures. Board characteristics as determinants of sustainability reporting has become an increasingly relevant topic in business and academia. However, no major reviews of the latest developments have thus far been presented. Accordingly, this research systematically reviews existent literature to better understand the board characteristics driving sustainability reporting and reconcile the inconsistent findings of prior studies, highlighting avenues for further research. This research also uses changes in environmental, social, and governance (ESG) disclosure associated with the implementation of European Union (EU) 2014/95 Directive in Germany on 1 January 2017 — among German firms vis-a-vis Australian firms — as a quasi-experimental method to assess the effect of board size and board gender diversity on extent of disclosure, as well as on the effectiveness of the mandatory disclosure regulation in improving the extent of the disclosure. Larger boards and more women on boards were found to be significantly associated with higher levels of sustainability reporting. Results also revealed a significant increase in the extent of sustainability disclosures following the mandatory disclosure regulation. However, this increase was found to be significantly lower in the presence of larger boards and more women on boards. The research has policy implications in relation to the regulation of sustainability reporting.