New research from the University of Portsmouth reveals that companies with female directors on their boards, regardless of their quantity, tend to enhance the quality of their sustainability reporting compared to those lacking such representation.
Legal requirements mandate companies to disclose how their business is affected by sustainability matters, such as climate change, and how their activities impact both people and the environment.
Female presence
The results indicate that the presence of female directors can shape boardroom decisions in a manner that favors stakeholders and opposes any unlawful or unethical actions by managers. This influence, in turn, positively impacts a company’s social and environmental performance and its reporting standards.
The study further uncovered that an increase in the proportion of female directors on both the board and the audit committee amplifies their constructive influence on reporting quality.
The researchers scrutinized data from 2012 to 2021, extracted from the annual and sustainability reports of 300 non-financial Pakistani listed companies.
Corporate sustainability
“Regardless of their position or status, female directors—whether independent or executive—play a significant positive role in improving the quality of corporate sustainability disclosures,” the researchers explain.
“The findings indicate that female board members are likely to be more vigilant, critical, and capable of raising their concerns regarding managers’ unethical policies and decisions which are implicitly or explicitly harmful to stakeholders’ interests.”
“The results also endorse many previous studies advocating that female directors have unique feminine attributes and strong analytical skills, which positively influence firms’ financial and non-financial performance and the quality of their reporting.”
Educational background
The research also delved into the influence of female directors’ educational qualifications on their impact on reporting. The findings revealed that female directors with a master’s degree or higher exert a notably positive influence on corporate sustainability reporting. Conversely, those holding a bachelor’s degree or lower did not demonstrate a significant effect.
Furthermore, the educational background of female directors also played a role. Those with a background in business-related fields contributed more positively, albeit marginally, compared to those with non-business backgrounds in enhancing a company’s sustainability disclosures.
“These findings support the hypothesis that highly educated female directors are more aware and serious about different social and ecological challenges, thereby, proactively push firms toward improving their sustainable performance and its reporting,” the researchers conclude.
“They also explain that it’s neither tokenism nor the numerical representation of female directors but rather their other attributes such as position and experience (independent and executive) and education (level and background) that matter.”
“Therefore, firms should prioritize the independence, higher level of relevant education, experience, and monitoring skills of female directors in increasing boardroom gender diversity rather than blindly following corporate governance codes, regulations and social norms and avoiding pressure from regulators, society, media, and other stakeholders.”
