ESG Reporting: Empirical Analysis of the Influence of Board Heterogeneity from an Emerging Market

Abstract

Firms are facing pressure to convincingly communicate to stakeholders their environment, society, and corporate governance (ESG) disclosure. In developing countries, where frictions among controlling and non-controlling shareholders are pervasive, the possible dissensus inside boards regarding ESG disclosure remains understudied. We investigate the ways in which boards’ heterogeneity between the interests of controlling groups and the interests of institutional investors influences ESG disclosure of firms in the Latin American context. Using social networks and logit panel data models, we analyze for 2015-17 the probability of ESG disclosure by 124 Chilean listed firms. Our evidence suggests that the influence of controlling shareholders through directorate interlocking has a negative relation with ESG disclosure. Additionally, we observe that the influence of institutional investors on ESG disclosure is not yet critical. Moreover, we find partial evidence of the presence of tension within the boards regarding ESG reporting between the directors that represent controlling shareholders and institutional investors. Considering the importance of institutional investors and the ubiquity directorate interlocking among Latin American’ firms, our results are relevant for regulators involved in advancing the rules of ESG disclosure practices, institutional investors focused on enhancing their ESG investment strategies, and firms engaged in improving the ESG decision-making within their boards.