In recent years, the attention of various stakeholders (primarily shareholders, credit institutions and regulatory authorities) towards corporate social responsibility is constantly growing. In line with agency, institutional and legitimacy theories, companies carry out internal control activities to detect any social and environmental problems. The characteristics of the Audit Committee are commonly considered levers able to: make the supervision of company activities more efficient, balance the objectives of managers and stakeholders and, especially in recent years, improve ESG (Environmental, Social and Governance) performance. This study analyses the effects of some characteristics of the Audit Committee’members (independence, tenure and expertise) on non-financial performance (ESG performance). In this context, considering the Non-Financial Directive (Directive 2014/95/EU) the study has assessed through the ESG performance of the companies listed on the main European stock exchanges in the period 2017 – 2020. Both the ESG performance values and the Audit Committee characteristics are collected through the Refinitiv Workspace database and analysed by ordinary least squares (OLS) panel regression analysis. Our results support the hypotheses that AC independence and AC
expertise are positively and significantly related to ESG performance while the AC tenure represents an attribute that negatively affects ESG scores. The study offers both theoretical and practical implications capable of improving the approach to non-financial reporting and also helps to strengthen the debate on the relevance of the characteristics of the Audit Committee with respect to ESG performance. In particular, corporate decision makers can improve the legitimacy of their business operations by establishing independent, highly expertised ACs that promote disclosure of ESG information. Similarly, enhanced ESG disclosure can also mitigate agency conflict by reducing the information gap between corporate managers and shareholders. We finally provide relevant theoretical and practical implications to improve ESG reporting quality and quantity by using robust and self-regulating internal control systems. Specifically, our analysis has policy implications as well, as it adds to the ongoing debate on the impact of the AC’s monitoring activities on ESG engagement and ESG scores and their influence on the risk measurement and disclosure. In addition, this paper provides managers with better understanding of the complex relationships among the Audit Committee quality and non-financial performance. Consequently, they make better decisions on the proportion of independent and expert members in the Audit Committee, so that they can achieve more improved ESG performance.
KEYWORDS: ESG, Audit Committee, Non Financial Performance
Bifulco G.M., Savio R., Paolone F., Tiscini R. (2023). Gli effetti delle caratteristiche dell’Audit Committee sulla performance ESG, RIREA, 1, 23-47. DOI: 10.17408/RIREAGMBRSFPRT12342023