Journal of Cleaner Production 371 (2022) 133411

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Journal of Cleaner Production

journal homepage: www.elsevier.com/locate/jclepro

The impact of audit committee characteristics on ESG performance in the

European Union member states: Empirical evidence before and during the
COVID-19 pandemic
Matteo Pozzoli a, Alessandra Pagani b, Francesco Paolone c, d, *
a
Parthenope University of Naples, Italy
b
University of Rome Tor Vergata, Italy
c
Universitas Mercatorum of Rome, Italy
d
LUISS University, Italy

A R T I C L E I N F O A B S T R A C T

Handling Editor: Jing Meng The purpose of this research is to investigate the impact of audit committee characteristics on environmental,
social and governance (ESG) performance for European listed companies. This paper aims to understand how
Keywords: audit committee characteristics, namely, independence, expertise and tenure, influence ESG scores. The reported
Audit committee ESG scores and audit committee characteristics are collected from a sample of companies included in the Refi­
Corporate governance
nitiv Eikon database and analysed using a panel data analysis at both the country and industry levels. The sample
ESG performance
is composed of 13 member states of the European Union and covers the period from 2018 to 2020. The results
COVID-19
show a significant positive effect of audit committee independence and expertise on ESG performance. Moreover,
audit committee tenure is found to be negatively associated with the ESG performance. These results are even
statistically stronger during the pandemic period. This paper partially validates the significance of audit com­
mittee characteristics in improving ESG performance. Our analysis has implications from different perspectives,
adding further information and considerations to the ongoing debate that tests the impact of the audit committee
quality on ESG performance before and during the COVID-19 pandemic.

1. Introduction According to Owolabi and Dada (2011), an effective AC enhances reli­

able, efficient and dependable corporate governance.
Corporate governance is one of the key issues in the business envi­ With reference to nonfinancial matters, ACs perform a complemen­
ronment, as good governance improves the success of corporations and tary role and their monitoring extends beyond financial reporting to
their performance (Akbar, 2015). According to Buallay and Al-Ajmi oversight of sustainability issues. Previous literature demonstrated that
(2020), one of the most important pillars of a good corporate gover­ boards of directors can affect sustainability reporting and performance
nance framework are audit committees (ACs), which are expected to (Al-Shaer and Zaman, 2016; Michelon and Parbonetti, 2012). In a period
improve the quality of financial reporting, enhance auditors’ perfor­ of scarce resources, a strong and well-developed corporate governance
mance, independence and objectivity and the risk-management func­ model is crucial to guarantee long-term business success (Waddock and
tion, and improve financial decision making. Furthermore, the presence Graves, 1997). Previous literature agrees that internal and external
of internal controls, namely, AC activities, contributes to mitigating the controls reduce the risk of false information being published by man­
information asymmetry between companies and market participants. In agers to shareholders and allow shareholders to make decisions by
general terms, ACs are expected to exercise greater oversight over both taking reliable information into account (Watts and Zimmerman, 1986).
financial and nonfinancial information in assessing the company’s per­ Following the perspective of agency theory, internal control mecha­
formance. AC supports the board of directors in fulfilling their re­ nisms help align the interests of shareholders with those of managers
sponsibilities. Previous literature has thoroughly investigated the (Fama and Jensen, 1983). According to Healy and Palepu (2001), the
corporate governance effects of AC (Turley and Zaman, 2004, 2007). credibility of management disclosures is enhanced by regulators,

* Corresponding author. Universitas Mercatorum of Rome, Italy.

E-mail addresses: matteo.pozzoli@uniparthenope.it (M. Pozzoli), alessandra.pagani@uniroma2.it (A. Pagani), francesco.paolone@unimercatorum.it (F. Paolone).

https://doi.org/10.1016/j.jclepro.2022.133411
Received 29 November 2021; Received in revised form 25 July 2022; Accepted 30 July 2022
Available online 12 August 2022
0959-6526/© 2022 Elsevier Ltd. All rights reserved.
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

standard setters, auditors and other capital market intermediaries. In environmentally responsible, as they become less exposed to systematic
more detail, Safari (2017) suggests that ACs play an important role in the risks and earn higher stock returns (Adams and Abhayawansa, 2022;
ability of corporations to achieve their monitoring goals. One of the Broadstock et al., 2021). As a consequence, the originality of our
principal roles of ACs is to provide effective oversight that protects and research is also justified by the scarcity of previous studies that have
guarantees investors and other stakeholders (DeZoort et al., 2002). Since addressed the relationship between AC characteristics and ESG perfor­
corporate governance codes and practices are the result of a long and mance, especially during the COVID-19 pandemic.
complex process, they remained substantially unchanged throughout This research concentrates on listed companies in the context of the
2020 (the outbreak of COVID-19). However, the implications of the European principles on corporate governance and nonfinancial disclo­
pandemic have enabled companies to make drastic adjustments, which sure (EU, 2014), shedding light on how AC characteristics may affect
include the control of the complexities of the financial reporting pro­ ESG performance, with a special focus on a unique crisis scenario, such
cesses and increased risk and uncertainties, thereby resulting in deliv­ as the COVID-19 pandemic. European ACs play a monitoring role, that is
ering internal control operations and audit engagement via virtual substantially equivalent in the different member countries (Collier and
operations (Al-Sartawi et al., 2021). According to Albitar et al. (2021a), Zaman, 2005; Herranz et al., 2020). The AC functions and characteris­
the effects of the COVID-19 pandemic have been the toughest challenge tics are subject in the European area to a process of convergence, which
for auditors and their clients since the 2007–2008 global financial crisis. exists also all over the globe (Sarens and Abdolmohammadi, 2011).
Despite all changes, the commitment to AC quality remains intact as a Specifically, the Recommendation 2005/162/EC has additionally rec­
safeguard for investors in the context of COVID-19 (Mardessi, 2021). ommended European listed companies to provide a composition of the
The economic and social crisis related to the COVID-19 outbreak has AC that can guarantee an appropriate level of independence and tech­
generated additional pressure on companies to commit to their social nical competence (EC, 2005), providing general directives in many cases
and ethical responsibilities (Sachin and Rajesh, 2021). Hence, COVID-19 integrated by specific guidelines, such as the ones enacted by the Eu­
has drawn greater attention to environmental, social and governance ropean Central Bank (ECB, 2018).
(ESG) performance and disclosure (Albitar et al., 2021b). The increased The contribution of the paper is twofold. First, to the best of our
interest by investors in ESG aspects of companies during the pandemic knowledge, this paper is the first study carried out on the relationship
suggests that they view sustainability as a necessity rather than a luxury between AC characteristics and ESG performance during the first year of
good (Pastor and Vorsatz, 2020). A quality process increases the credi­ the pandemic. Second, the paper is relevant to regulators, academics and
bility of financial information by reducing information asymmetry standard setters in relation to the support that the audit committee can
(DeFond and Zhang, 2014; Beisland et al., 2015). Consequently, provide to ESG performance, even during the pandemic. The remainder
third-party assurance from an auditor enhances the reliability of the ESG of this paper is organized as follows. Section 2 provides a literature re­
information presented by companies to stakeholders (Prinsloo and view on AC characteristics and ESG performance. Section 3 describes the
Maroun, 2021; Ranjbari et al., 2021). theoretical background that supports the empirical research and the
The relationship between corporate governance and sustainability hypothesis developed therein. Section 4 provides a description of the
issues has been deeply investigated in the literature (Slater and research methodology adopted in this research and describes the
Dixon-Fowler, 2009; Spitzer, 2009; Khan et al., 2013; Fernandez-Feijoo empirical results. The last two sections provide discussion of results as
et al., 2014; Trireksani and Djajadikerta, 2016). A broad range of liter­ well as concluding remarks, implications and limitations.
ature has demonstrated that sustainability performance indicators can
support the entity’s creation of financial value in the medium and long 2. Literature review
term (Mohr and Webb, 2005; Leung and Gray, 2016; Buallay and
Al-Ajmi, 2020). One of the most critical corporate governance controlling mecha­
However, few authors have investigated the impact of AC charac­ nisms is AC. According to Jensen and Meckling (1976), managers act on
teristics on sustainability issues (Dwekat et al., 2020). In some cases, behalf of shareholders. The principal will use monitoring tools – such as
authors have tried to provide an explanation of the positive effects that a the AC – to try to contain the consequences of any opportunistic
high-quality AC can have on sustainability by emphasizing how com­ behaviour of the agent and to implement incentive systems to reduce the
mittees’ components and being involved in more companies can stim­ divergence of interests. In addition, following Healy and Palepu (2001),
ulate virtuous processes and update environmental practices (Bravo and management aims to maximize the current value of the firm, whereas
Reguera-Alvarado, 2019; Jain et al., 2015). In shedding light on this shareholders are interested in the long-term value of the firm. In fact,
underexplored issue, this research investigates the relationship between agency theory considers that the agency relationship existing between
ESG scores, as a proxy to measure the level of ESG performance, and AC the principal (shareholders) and the agent (managers) involves asym­
characteristics. The paper looks at the relationship, contextualized metries of information, and it provides insight on the role of the external
during the COVID-19 pandemic, between AC characteristics and ESG auditing, which represents one of the effective monitoring mechanisms
performance. This issue has been examined in general terms and in to control managers’ activities and to offer reasonable assurance on the
relation to financial crises or scandals (Aldamen et al., 2012; Bose et al., reporting quality (Watts and Zimmerman, 1986; Bacha et al., 2020;
2021; Buallay and Al-Ajmi, 2020; Rahmat et al., 2009). Additionally, Blackwell et al., 1998). Along this line, external and internal auditing
our paper aims to analyse whether the ongoing pandemic is impacting help to reduce information asymmetry and to protect the interests of the
the results by examining the data before and during COVID-19. For this various stakeholders by presenting financial statements that are free of
purpose, the study considers the Refinitiv Eikon database to measure material misstatements, biases or fraud and, because of this, can
ESG and AC characteristics. The AC characteristics selected are inde­ adequately inform capital providers.
pendence, expertise and tenure. In particular, the research is focused on There is an extensive literature on how managers create ‘shared
listed companies that operate in the 13 EU member states and covers the value’ between shareholders and multiple stakeholders (Porter and
period from 2018 to 2020. At the same time, it is observed that the Kramer, 2011; Jones and Wright, 2018). Moreover, the interest in sus­
pandemic due to COVID-19 has created a different scenario with respect tainable and responsible investing (SRI) has grown significantly over the
to the past because of, on the one hand, the restriction of financial re­ last two decades (Daugaard, 2020; Leins, 2020). According to Broad­
sources and the potential temptation to disinvest in ESG issues and, on stock et al. (2021), investors care about ESG investing because ethical
the other hand, to the need of stressed out investors to estimate the effect investment practices are actively promoted by focusing on ESG invest­
of ESG risk perception in the uncertain environment caused by the ing. In fact, investors take into account the non-financial aspect into
pandemic (Ferriani and Natoli, 2021). Therefore, many scholars and their investment decision; in this view the ESG performance is usually
observers indicate how the pandemic stimulates companies to be more addressed as a risk measurement.

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M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Previous research investigated the correlation between ESG on firm independence, financial expert members and chair independence, and
financial performance (Wong, 2017; Martini, 2021). For instance, CSR disclosure (Dwekat et al., 2020) or integrated reporting quality
Almeyda and Darmansya (2019) revealed that there is a significant in­ (Raimo et al., 2021). Other research has found a positive relationship
fluence of the ESG disclosure as a whole on the real estate companies’ among AC meetings and size and CSR disclosures (Musallam, 2018). In
financial performance as measured by financial indicators such as ROA other cases, the research has recognized an association between ACs and
and ROC. However, market based measures, such as stock price and P/E governance effectiveness, internal audit function and sustainability
ratio, do not have any correlation with the ESG factor as a whole. reporting practices (Tumwebaze et al., 2021; Amran et al., 2014). At the
Following this line of reasoning, shareholders are becoming more same time, another minority body of literature has found a negative
interested in ESG scores during COVID-19 pandemic (Broadstock et al., influence of ACs and CEO compensation on ESG disclosure (Suttipun,
2021; Yoo et al., 2021; Gregory, 2022). For instance, Broadstock et al. 2021). With reference to the bank sector, Buallay and Aldhaen (2018)
(2021) confirm the incremental importance of ESG performance during examined the relationship between AC characteristics and the level of
the COVID-19 global pandemic. ESG investing is increasingly considered sustainability report disclosure in Gulf countries. Moreover, Al-Shaer
to enhance the performance of a managed portfolio, increasing returns and Zaman (2018) demonstrate that in addition to the board of directors
and reducing portfolio risk (Broadstock et al., 2021). Using the specific and the existence of sustainability committees, AC characteristics have
context of COVID-19 pandemic, Palma-Ruiz et al. (2020) highlights the an impact on voluntary sustainability assurance. Specifically, it has also
potential role of ESG factors in guiding investment decisions by exam­ been demonstrated that internal audit committee members who are
ining investors’ behaviour in an extreme context such as a pandemic independent and expert and who attend committee meetings improve
crisis. sustainability assurance quality (Zaman et al., 2021). In other research,
The existence and characteristics of an AC enhance board oversight, AC activism and independence, at the compliance level, have been
improve auditor performance, and reduce the asymmetry of information related to sustainability standards (GRI guidelines), which emphasizes
between managers and different stakeholders, which improve the level that audit activism and attributes positively affect ESG reporting and
of the companies’ disclosures, such as CSR (Dwekat et al., 2020). The AC environmental disclosures (Arif et al., 2021).
plays a pivotal role in supporting boards of directors in providing ac­ A high level of controls concerning items such as ESG risk manage­
curate, relevant, timely and sufficient information to allow users of ment leads to a more accurate ESG score (Del Giudice and Rigamonti,
financial reporting to evaluate management and make informed de­ 2020; Hua and Alam, 2021; Rajesh et al., 2022). However, little litera­
cisions (Allegrini and Greco, 2013; Buallay and Al-Ajmi, 2020). Subse­ ture is available that has investigated the relationship between ACs, as
quently, good AC practices will also influence management in making identified through its determinants, and the ESG score. Indeed, no pre­
decisions that can oversee nonfinancial reports and reduce the infor­ vious contribution analyses this specific topic, which represents the
mation asymmetry between management and stakeholders (Karamanou theme of this study. In this paper, the agency theory framework was
and Vafeas, 2005; Bédard et al., 2008). As a consequence, the AC rep­ used to analyse the association between the characteristics of ACs and
resents a monitoring and control mechanism aimed at ensuring share­ ESG scores. The importance of analysing ESG score arises from the need
holder interests. to select a proxy of a company’s related ESG performance, commitment
However, for the AC to effectively carry out its monitoring task, it and effectiveness across some issues, comprising environmental, social,
must possess specific characteristics. Previous literature has affirmed and governance pillars.
that the effectiveness of an AC depends on its characteristics (Akhtar­ It has been demonstrated that scholars have only limitedly investi­
uddin and Haron, 2010), even in the field of corporate social re­ gated the relationship between corporate governance and ESG themes
sponsibility (CSR) (Mohammadi et al., 2020). In this perspective, it has during the pandemic period, even if the issues have been separately
to be premised that the concept of ESG partially differs from that of CSR addressed (Koutoupis et al., 2021). However, a body of literature has
or sustainability. In literature there is not – and probably there cannot be initially exposed the first considerations about the impact of the
– a unique, precise definition of CSR (Argandoña and von Weltzien COVID-19 pandemic on internal controls and ESG performance (Sachin
Hoivik, 2009) or sustainability. Consequently, the CSR is an umbrella and Rajesh, 2021). Ferriani and Natoli (2021) found that ESG risk has
term overlapping with some, and being synonymous with other, con­ been significantly considered during the COVID-19 crisis and that
ceptions of business–society relation (Matten and Moon, 2008). The governance risks and especially environmental risks became much more
European Commission has defined CSR as the responsibility of enter­ important since COVID-19 significantly affected financial markets. It is
prises for their impact on society (EU, 2011). The language of sustain­ generally accepted that ESG indicators can move investors’ decisions
ability is more formally rational than the language of CSR, which is more (Yoon et al., 2018), and the uncertain scenario determined by the
normative (Strand et al., 2015). pandemic situation has naturally requested a supplementary level of AC
Previous literature has widely investigated the role of ACs in the attention to companies’ attitudes towards ESG matters (Alshabibi et al.,
quality of financial and nonfinancial reporting (Al-Shammari and 2021; Khatib and Nour, 2021). From this perspective, the effect that the
Al-Sultan, 2010; Allegrini and Greco, 2013; Samaha et al., 2015; pandemic has had on ACs’ activity on ESG matters and whether they
Al-Shaer et al., 2017). Nevertheless, these studies focus their attention have produced a different level of effectiveness and effects on the basis
more on disclosure features than on ESG behaviour. This paper also of the presented characteristics have not been demonstrated. Following
considers previous studies on ESG reporting/information as an indicator this approach, we investigate whether and how AC characteristics play a
of ESG performance. Rajesh and Rajendran (2020) analyse empirical significant role in the ESG score. Specifically, using the ESG score, our
evidence for the relationship between binding ESG scores and the sus­ research looks at the impact of three AC characteristics (independence,
tainability performance of firms; their study demonstrates that the ESG expertise and tenure) on ESG performance in a clearly and extensive
reporting strategy is an indicator of ESG performance. manner, before and during the COVID-19 pandemic. In the following
In this context, it is useful to highlight that some studies have focused table, we report a list of scientific contributions in order to identify the
on analysing the effects of AC characteristics (Al-Shaer and Zaman, most significant and recent literature in this area (see Table 1).
2018; Bravo and Reguera-Alvarado, 2019; Bose et al., 2021) and
ownership structure (Li et al., 2013; Muttakin and Subramaniam, 2015) 3. Hypothesis development
on CSR aspects. In other cases, the research has focused on a broader
analysis of the characteristics of corporate governance and ESG behav­ Prior research emphasizes a key role in monitoring management
iour (Michelon and Parbonetti, 2012; Cuadrado-Ballesteros et al., 2017; disclosure practices and internal control to be played by the AC (Persons,
Lavin and Montecinos-Pearce, 2021; Albitar et al., 2022). Some further 2009). Therefore, studies that address AC characteristics and ESG as­
studies investigate the relationship between AC characteristics, namely, pects come from a range of perspectives and cover a broad spectrum of

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M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Table 1 important corporate governance control instrument, as the existence of

Recent contributions on specific subjects. nonexecutive directors ensures the monitoring of corporate manager
Subject Recent contributions actions and certifies that shareholders’ interests are safeguarded.
Prior studies investigate the role of internal and external controls on
ESG Performance Rajesh, R., Rajeev, A., & Rajendran, C., 2022
Broadstock, D.C., Chan, K., Cheng, L.T.W., Wang, ESG issues. According to Hammami and Zadeh (2019), a high audit
X., 2021 quality helps managers convey the authenticity and trustworthiness of
Garcia, A.S., Mendes-Da-Silva, W., Orsato, R.J., their voluntary ESG disclosures to different stakeholders. Boiral et al.
2017 (2019) present an analysis of the opinions of assurance providers
Gregory, R.P., 2022
Yoon, B., Lee J.H., Byun, R., 2018
regarding the quality and limitations of sustainability reports. Other
Corporate Governance and Albitar, K., Abdoush, T., Hussainey, K., 2022 studies specifically conclude that the effectiveness of ACs relies on the
ESG characteristics of their members (Samaha et al., 2015; Akhtaruddin and
Bacha, S., Ajina, A., Saad, S.B., 2020 Haron, 2010). Hummel et al. (2019) investigate the relationships be­
Del Giudice, A., Rigamonti, S., 2020
tween firm sustainability performance and the affiliation of the assur­
Hammami, A., Zadeh, M.H., 2019
Hua, M., Alam, P., 2021 ance provider to the accounting profession and assurance quality. The
Lavin, J.F., Montecinos-Pearce, A.A., 2021 current literature on the specific role of ESG performance during times
Audit Committee and ESG Arif, M., Sajjad, A., Farooq, S., Abrar, M., Joyo, A. of crisis, such as the COVID-19 crisis, is limited (Broadstock et al., 2021;
S., 2021 Takahashi and Yamada, 2021). As we have stated before, the purpose of
Bose, S., Ali, M. J., Hossain, S., & Shamsuddin, A.,
2021
this paper is to fill this gap. Consistent with an agency theoretical
Bravo, F., Reguera-Alvarado, N., 2019 perspective of monitoring, in our research, we selected three AC char­
Buallay, A., Aldhaen, E., 2018 acteristics (Audit Committee independence, Audit Committee expertise,
Buallay, A., Al-Ajmi, J., 2020 Audit Committee tenure) to investigate the impact on the ESG score.

3.1. Audit committee independence

issues. According to Arif et al. (2021), the role of ACs becomes essential
to reduce any opportunistic behaviour on the managers’ part that may
According to Bronson et al. (2009), one of the principal character­
emerge while they are making ESG decisions. Thus, AC quality repre­
istics that can positively affect the AC’s ability to supervise and monitor
sents a protective and reliable body that may bridge the gap between
is its independence. The demand for independence arises from the need
opposing motives of ESG activities (Haji and Anifowose, 2016). Further
to face asymmetric information and conflicts of interest between man­
contributions have demonstrated that AC quality, specifically in terms of
agement and stakeholders above all shareholders; in this way, inde­
independence, is vital for enhancing the quality of financial and nonfi­
pendent professional directors mitigate the agency costs related to the
nancial disclosures (Pucheta-Martınez and De Fuentes, 2007; Appuhami
financial statement prepared by managers. It has been stated that AC
and Tashakor, 2017; Boiral et al., 2019; Buallay and Al-Ajmi, 2020;
independence is the basis to positively influence the preparation process
Clarkson et al., 2019).
of financial statements (Baxter and Cotter, 2009). The AC is required to
There is a significant positive relationship between the level of ESG
express its opinion on delicate issues, such as the reliability of the in­
disclosure and ESG performance. For instance, according to previous
formation contained in the financial statements, the auditors’ operations
studies (Cho and Patten, 2007; Clarkson et al., 2008, Grougiou et al.,
and the measurement of earnings quality, where independence is an
2016), there is a positive association between ESG performance and the
essential quality. Therefore, the perception of independence is essential,
level of discretionary disclosures in ESG reports or related disclosures.
as stakeholders rely on financial statements and other public informa­
Alsayegh et al. (2020) provide strong evidence that both incorporating
tion to make their decisions. Therefore, an independent AC is expected
and disclosing a robust structure that combines the three pillars (ESG) in
to play a pivotal role in good corporate governance, financial reporting
an organization strengthen corporate sustainability performance among
and auditing. Zgarni et al. (2016) found that AC independence increases
firms in Asia. Aureli et al. (2020) emphasize the positive relationship
involvement in ensuring the reliability of reported financials. According
between ESG disclosure and ESG performance, underlying the pivotal
to Safari (2017), the independence of AC directors has often been found
function performed by internal audits in setting up the process to draw
to be positively associated with reduced levels of earnings management
up the nonfinancial disclosure (complying with the EU Directive). Ac­
and improved earnings quality. Raimo et al. (2021) provide evidence
cording to agency theory, well-governed firms should have better per­
that AC independence allows an increase in the quality of the integrated
formance than their poorly governed counterparts (Brown and Caylor,
reports. Al-Shaer and Zaman (2018) show that AC independence is
2006).
associated with the use of a Big Four audit firm for sustainability
In line with the agency theory, ACs -through their oversight and
assurance. Buallay and Al-Ajmi (2020) found that AC independence
monitoring functions-respond to stakeholders’ information needs. Ac­
positively influences ESG disclosure. However, Haniffa and Cooke
cording to Altawalbeh (2020), ACs are a monitoring tool to bridge the
(2005) show that AC independence negatively impacts CSR disclosure.
gap of information asymmetry, which, in turn, results in minimizing
In addition, Li et al. (2012) stated that there was no significant rela­
agency costs. From this perspective, ACs are an important element of
tionship between AC independence and nonfinancial disclosure.
safeguarding all the different types of stakeholders. The AC is considered
Even if most studies confirm the positive relationship between board
an internal governance mechanism to reduce agent conflicts by sepa­
independence and sustainability performance (Hussain et al., 2018),
rating management and monitoring aspects of the control and
there are researches indicating that the presence of independent di­
decision-making processes. According to Turley and Zaman (2004), the
rectors on the boards has a negative impact on social and environmental
function of an AC is to protect the interests of shareholders by moni­
performance (Mallin et al., 2013). Regarding the specific role of ESG
toring financial and nonfinancial reporting, external auditing and in­
performance and controls during times of crisis, Broadstock et al. (2021)
ternal controls. A large body of accounting and auditing literature
underlined a positive relationship between auditor independence and
underlines and verifies the existence of a positive relationship between
the ESG performance. Based on the above discussion, the following
AC quality and information quality. The auditors’ monitoring strength
hypothesis is formulated:
can be identified in their ability to provide information that minimizes
the difference between a client’s reported economic circumstances and H1. → There is a positive and significant relationship between audit
the “true”, unobservable, economic circumstances of the client (Watkins committee independence and ESG performance.
et al., 2004). Following agency theory, the composition of the AC is an

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M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

3.2. Audit committee expertise with lower audit quality, while other academics have provided evidence
that a long audit tenure increases audit quality Copley and Doucet
According to the previous literature, agency theory postulates that (1993); Carey and Simnett (2006); Chi et al. (2009). In fact, the pro­
members with financial expertise can be instrumental in developing a ponents of long audit tenure emphasize the concept formulated by
more rigorous internal control system and risk-management framework DeAngelo (1981), who identified the “learning curve” that gives
(Buallay and Al-Ajmi, 2020; Sultana et al., 2015). Agency theory implies incumbent auditors a comparative quality advantage, i.e., a long tenure
that ACs that express competent opinions on directors’ and auditors’ reduces audit risk due to familiarity with the client’s system and an
opinions are better able to guarantee investors. This aim can be pursued understanding of the risks associated with the client’s business/industry
through operations by adopting a rigorous internal control system and a environment (Manry et al., 2008; Onwuchekwa et al., 2012). Analysing
risk management framework or an effective flow of information within the previous literature on external audits, the contributions provide
the entity and to third parties (Sultana et al., 2015). According to different findings about the relation between auditor tenure and audit
Mukhlasin (2018), the main role of the AC is to monitor the financial quality or firm performance. Despite the extant literature, the effects of
reporting process of an organization. According to Velte (2018), the AC the AC tenure length on the ESG performance (and ESG disclosure) have
individual members’ expertise improves its efficiency. As a conse­ not been significantly addressed. Therefore, based on the fact that the
quence, an AC with financial expertise and competence equals effective literature on AC tenure and the ESG performance is very limited and
monitoring. Expert knowledge gained through experience increases the according to the agency theory perspective, in this study, it is postulated
likelihood that ACs can detect errors in financial statements and in that when the AC tenure is longer, the AC will be more effective in
management operations. If AC members have financial expertise in monitoring the entity (Othman et al., 2014). As a consequence, the
discharging their duties, then entities will improve their corporate following hypothesis is formulated:
governance (Defond et al., 2005). Persons (2005) demonstrated that AC
H3. → There is a positive and significant relationship between audit
expertise is not associated with fraud occurrence. However, the litera­
committee tenure and ESG performance.
ture reaches a nonunanimous conclusion about the relationship between
AC expertise and financial and nonfinancial performance. Kent et al.
4. Research data and analysis
(2010) demonstrated a positive relationship between AC expertise and
the quality of financial reporting. According to Shaukat et al. (2016), AC
4.1. Sample
expertise can support a firm to better assess its CSR related financial and
regulatory risks and help the management in developing an effective
As discussed above, this study examines the combined impact of AC
CSR related risk management; as a consequence, firms are more likely to
characteristics and ESG performance of the following 15 EU member
achieve higher environmental and social performance. In contrast, Li
states of the European Union (EU), which represent the “old” member
et al. (2012) reported a significant negative association between AC
states (Falkner and Treib, 2008): Austria, Belgium, Denmark, Finland,
expertise and the quality of nonfinancial disclosure. Appuhami and
France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands,
Tashakor (2017) and Buallay and Al-Ajmi (2020) found that sustain­
Portugal, Spain, Sweden, and the United Kingdom. These countries have
ability disclosure has a significantly negative relationship with AC
been selected considering that they have similar corporate governance
expertise. Subsequently, previous literature has not reached a unani­
codes, specifically, board composition and an AC. Italy has been
mous conclusion on this issue. In line with agency theory, the following
excluded because there is a different internal audit board, the so-called
hypothesis is formulated:
“Collegio Sindacale”, in which members are all independent and do not
H2. → There is a positive and significant relationship between audit have any relationship with board members. Furthermore, the United
committee expertise and ESG performance. Kingdom has also been excluded because it is the only common
law-based state with different roles and procedures in corporate
governance practices. Consequently, we obtained a final sample of 13
3.3. Audit committee tenure
EU member States. We tested our hypotheses using a sample that con­
sists of 641 listed firms in the above European stock markets1 that covers
The relationship between board tenure and financial reporting
the period of 2018–2020; therefore, we collected a total of 1923 ob­
quality started to become highly investigated after the Enron collapse. In
servations. All data related to financial statement information and
the literature, some studies have underlined a negative relationship
nonfinancial statements (such as sustainability reports, narratives, etc.)
between board tenure and the quality of financial reporting (Sharma and
were collected from the Refinitiv Eikon database, which has already
Iselin, 2012; Setiany et al., 2017). From this perspective, it is assumed
been used by scholars in ESG issues analysis (Garcia et al., 2017; Dor­
that a long board tenure generates more familiarity that undermines the
fleitner et al., 2020). Table 2 shows the final number of observations
effectiveness of control activities. In contrast, other authors have pre­
used in the regression analysis. It also specifies the geographical setting
sented empirical evidence of there being no relationship between tenure
of each study, namely, 22.46% of the total observations are German
and financial reporting quality and thus have found no significant evi­
companies, followed by 21.37% representing French listed companies.
dence of a relationship between committee tenure and fraudulent
Table 3 shows the industry composition of our sample.
financial reporting (Owens-Jackson et al., 2009). According to the
agency theory perspective, Rutherford and Buchholtz (2007) provided
evidence that a longer tenure increases the frequency of interactions and 4.2. Model specification and variables
the speed of information exchange between boards and managers and
contributes to less information asymmetry. In addition, some research In view of the objective of this research, which is to determine the
has concluded that AC tenure is positively related to the comprehen­ existence of associations between the AC characteristics of listed com­
siveness and relevance of ESG disclosures (Bravo and Reguera-Alvarado, panies in 13 EU member states and their ESG performance through panel
2019). Other research has demonstrated that a firm’s sustainability data regressions (static and balanced), and based on the set of variables
performance decreases with CEO tenure (Chen et al., 2019). Instead, chosen, the empirical model to be tested (1) is specified below. The
Cucari et al. (2018) found that board tenure does not have an impact on coefficients in Eq. (1) are estimated based on our cross-sectional
ESG performance. regression analysis. It describes the proposed best practices match
Regarding external audits, the issue concerning the relationship be­
tween audit quality and tenure has been investigated by research papers.
Some scholars have demonstrated that a long audit tenure is associated 1
The population consisted of 2496 firms.

5
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Table 2 Ln_Sales = the natural logarithm of sales revenues from business activ­
Sampling and country composition. ities, which represents a proxy for company size; Ln_TotalAsset = the
N◦ companies % natural logarithm of total assets, which represents a second proxy for
company size; Leverage = the index of net financial debt over common
2018 2019 2020
equity, which is the proxy for company solvency; and Price = the price
Austria 23 23 23 3.59% closing for year t, which represents the market value per share for
Belgium 31 31 31 4.84%
Denmark 35 35 35 5.46%
companies. Furthermore, we identified two variables that control for
Finland 33 33 33 5.15% institutional conditions,2 specifically GDP_growth = the percentage of
France 137 137 137 21.37% growth in GDP per capita for a specific country; and Inflation = the
Germany 144 144 144 22.46% inflation rate for a specific country. We also included the control vari­
Greece 10 10 10 1.56%
able DummyCovid-19 that takes the value of 1 for the Covid-19 period
Ireland 10 10 10 1.56%
Luxembourg 1 1 1 0.16% (the year 2020) and is 0 otherwise. We finally controlled for the country
Netherlands 46 46 46 7.18% and industry. βi = various model parameters, i = the analysed company,
Portugal 11 11 11 1.72% t = the year of 2018, 2019 and 2020, and ε = the error term. Table 5
Spain 57 57 57 8.89% summarizes all the information about the dependent and explanatory
Sweden 103 103 103 16.07%
Total 641 641 641 100.00%
variables with the related sources.
As previously mentioned, Refinitiv Eikon database represents the
only database used in this study, as it is relevant for several reasons (Del
Giudice and Rigamonti, 2020). First, it offers the ESG score and the ESG
Table 3
combined score by considering the role of controversies in the sustain­
Sampling and industry composition.
ability assessment. Second, it considers different capital markets, which
TRBC Sector Name Number of companies % aids scholars in structuring an international dataset. Finally, the ESG
Basic Materials 63 9.83% score has a range between 0 and 100, which allows a minimum level of
Consumer Cyclicals 102 15.91% variability.
Consumer Non-Cyclicals 45 7.02%
Energy 23 3.59%
Financials 77 12.01% 4.3. Descriptive statistics
Healthcare 51 7.96%
Industrials 143 22.31% The descriptive statistics of the numeric and dichotomous variables
Real Estate 42 6.55% are presented in Table 6 and are the ones used in the regression model
Technology 74 11.54%
Utilities 21 3.28%
applied to European listed companies in the period 2018–2020. The
Total 641 100.00% descriptive results indicate that the mean of the ESG score is 60.590,
while the means of AC_Independence, AC_Expertise and AC_Tenure are
70.443, 0.674 and 5.130, respectively. The examination of the correla­
between Audit Committee determinants and ESG performance, as proxied tion matrix in Table 8 shows that all correlation coefficients are lower
by the ESG score, which is reported below: than 0.9, which indicates that there are no serious problems of corre­
ESG_Scoret,i = β0 + β1AC_Independence + β2AC_Expertise + β3AC_Tenure lation between a given explanatory variable and other explanatory
+ β4BoardSize + β5ROE + β6Ln_Sales + β7Ln_TotalAsset + β8Leverage + variables in the model. Furthermore, all variables have a variance
β9Price + β10GDP_growth + β11Inflation + β12DummyCovid-19 + εi,t (1) inflation factor (VIF) value (Table 7) of less than 10; this limit is sug­
gested by Gujarati (1995), Kennedy (1998) and James et al. (2013).
where ESG_Score is the proxy of ESG performance for company i times t. These results allow us to conclude that there is no serious problem of
The ESG Score represents the dependent variable. Over 500 ESG mea­ multicollinearity.
sures at the company level are captured and calculated by Refinitiv
Eikon database. These are divided into 10 categories that reformulate 4.4. Empirical findings
the three pillar scores and the final ESG score, which is based on publicly
available data and reflects the company’s ESG performance, commit­ We set the panel data regression analysis based on ordinary least
ment and effectiveness (Refinitiv, 2021). As shown in Fig. 1, the envi­ squares (OLS) to estimate the parameters of the model and to input all
ronmental pillar refers to resource use, emissions and the degree of the data into Stata software. The model 1 indicates an adjusted R-
innovation, the social pillar includes workforce, human rights, com­ squared of 0.2178. As shown in Table 9, there is a positive and strong
munity and product responsibility categories, and the governance pillar relationship between AC_Independence and ESG since the significance is
is divided into management, shareholders and CSR strategy categories. at the 1% level and has positive coefficient of 0.096. This empirically
The ESG pillar score is a weighted average of the environmental and demonstrates that the number of independent members within the AC
social category weights, which differ by industry. The weights for produces higher levels of ESG performance. Furthermore, we found a
governance are the same in all industries. The pillar weights are adjusted positive relationship between AC_Expertise and ESG since the signifi­
to percentages that range from 0 to 1 (Refinitiv, 2021) and are expressed cance is still at the 1% level (coefficient of 1.927). The results demon­
and further explained in Table 4. strate that having an AC with at least three members and at least one
AC_Independence is the percentage of independent auditors. AC_Ex­ “financial expert” generates a higher ESG score. In contrast with the
pertise takes the value of 1 if the company has an AC with at least three above results, AC_Tenure is found to be negatively associated with ESG
members and at least one "financial expert" within the meaning of the score performance at the 5% level (coefficient − 0.2095), which means
Sarbanes-Oxley Act and is 0 otherwise. AC_Tenure is the average number that the number of years that the AC has been serving the organization
of years that the audit committee has been serving the company. We also does produce a negative impact on any performance in terms of ESG
identified several control variables used in corporate governance studies activities. We also emphasize that the statistical test shows a positive
by prior research (Bansal and Sharma, 2016; Dyck and Zingales, 2009; impact of the COVID-19 dummy on the ESG score at the 1% level
Epps and Cereola, 2008; Jiraporn and Gleason, 2007; Lepore et al.,
2018; Ojeka et al., 2014), which are reported as follows: BoardSize = the
total number of board members at the end of the fiscal year; ROE = 2
GDP growth per capita and inflation have previously been used in business
return on equity, which is the proxy for companies’ profitability; studies (Chan and Cheung, 2012; John et al., 2008; Onakoya et al., 2012).

6
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Fig. 1. ESG score structure (Refinitiv, 2021).

Table 4 Table 5
ESG score range (Refinitiv, 2021). List of all variables.
Score range Grade Description Variable Explanation/Definition Source

0.0000 ≤ score D- “D” score indicates poor relative ESG performance and ESG_Score It measures a company’s relative ESG Refinitiv Eikon
≤ 0.0833 an insufficient degree of transparency in reporting performance, commitment and effectiveness
0.0833 < score D material ESG data publicly. across 10 main themes (emissions,
≤ 0.1666 environmental product innovation, human
0.1666 < score D+ rights, shareholders, etc.) based on publicly
≤ 0.2500 reported data
0.2500 < score C- “C” score indicates satisfactory relative ESG AC_Independence Percentage of independent board members Refinitiv Eikon
≤ 0.3333 performance and a moderate degree of transparency in on the AC as stipulated by the company
0.3333 < score C reporting material ESG data publicly. AC_Expertise Does the company have an AC with at least Refinitiv Eikon
≤ 0.4166 three members and at least one "financial
0.4166 < score C+ expert" within the meaning of the Sarbanes-
≤ 0.5000 Oxley Act? If yes, the variable takes 1 and is
0.5000 < score B- “B” score indicates good relative ESG performance and 0 otherwise
≤ 0.5833 an above-average degree of transparency in reporting AC_Tenure The average number of years that the current Refinitiv Eikon
0.5833 < score B material ESG data publicly. audit committee has been serving the
≤ 0.6666 organization
0.6666 < score B+ BoardSize The total number of board members at the Refinitiv Eikon
≤ 0.7500 end of the fiscal year
0.7500 < score A- “A” score indicates excellent relative ESG performance ROE Return on equity is a profitability ratio Refinitiv Eikon
≤ 0.8333 and a high degree of transparency in reporting calculated by dividing a company’s net
0.8333 < score A material ESG data publicly. income by the total equity of common shares
≤ 0.9166 Ln_Sales Natural logarithm of sales revenues from Refinitiv Eikon
0.9166 < score A+ business activities
≤ 1.0000 Ln_TotalAsset Natural logarithm of total assets Refinitiv Eikon
Leverage The ratio of net debt divided by the value of Refinitiv Eikon
total shareholders’ equity
(coefficient is 6.42), which demonstrates that the pandemic period leads Price The latest available closing price. If there are Refinitiv Eikon
to a significant increase in ESG performance (see Tables 10 and 11). no trades for the most recent completed
tradable day, the most recent prior tradable
day with trading activity is used, provided
4.5. Further testing that the last tradable day for the instrument
is within 378 completed calendar days (54
We present two types of robustness checks of our main findings. First, weeks).
GDP_growth The percentage growth of the total GDP of a DataWorldBank
we test the relationship between the AC determinants for each of the
country divided by its population
single pillars of ESG, namely, the environmental, social and governance Inflation The annual rate at which the value of a DataWorldBank
pillars. Second, we explore whether our empirical findings are supported currency is falling and, consequently, the
by a single year. For this reason, we test the relationship between the AC general level of prices for goods and services
that is rising
variables on ESG for each of the single years (2018, 2019 and 2020). To
DummyCovid-19 It takes the value of 1 for the Covid-19 period
support our general findings, we checked for single ESG pillars by setting (the year 2020) and is 0 otherwise
single additional regression analyses, specifically, one for Environ­ Dummy_Country It takes the value of 1 for each of the EU
mental (Model 2), one for Social (Model 3) and one for Governance member states
(Model 4), by considering the period from 2018 to 2020. According to Dummy_Industry It takes the value of 1 for nonfinancial
companies and is 0 otherwise
the individual component analysis, we found a logical support for Model
4 (as the Audit committee is an integrated part of corporate governance
mechanism) that reinforces Model 1. On the other hand, Model 3 only
supports the hypothesis related to AC_Expertise and Model 2 does not
support the general findings.

7
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Table 6

Inflation
Descriptive statistics.

1000
Variable Obs Mean Std. Dev. Min Max

ESG_Score 1923 60.590 18.321 4.128 94.465

GDP_ growth
E_Pillar 1923 57.108 25.907 0.000 99.120

− 0,2269
S_Pillar 1923 65.918 20.315 1.280 98.082
G_Pillar 1923 55.708 21.993 2.694 97.217

1000
AC_Independence 1923 70.443 28.002 0.000 100.000
AC_Expertise 1923 0.674 0.469 0.000 1.000

− 0,0212
AC_Tenure 1923 5.130 2.842 1.000 23.000

0.0316
1000
Price
BoardSize 1923 10.670 4.009 3.000 28.000
ROE 1923 0.012 0.138 - 0.675 1.240
LnSales 1923 21.559 1.752 12.678 26.255

− 0,0825***
− 0,0539**
LnTotalAsset 1923 22.328 1.870 15.865 28.403

Leverage

− 0,0002
Leverage 1923 0.628 1.879 - 3.692 39.180

1000
Price 1923 46.079 105.603 0.065 1.905
GDP_growth 1923 - 0.934 3.833 − 11.234 7.688
Inflation 1923 1.802 0.781 − 1.212 4.271

LnTotal Asset

− 0,0700***
− 0,0505**
DummyCovid-19 1923 0.333 0.472 0.000 1.000

0.1174***
0.0553**
1000
Table 7

0.7406***

0.1072***
− 0,0428*
− 0,0318
Variance inflation factor (VIF).

LnSales

0.0177
1000
VIF 1/VIF

GDP_growth 5.23 0.191269

− 0,0514**
DummyCovid 5.09 0.196551

*Significance at 10%, **significance at 5%, and ***significance at 1%. The data are from the Refinitiv Eikon database and DataWorldBank.
0.0592**
− 0,0190

0.0160
0.0319
0.0171
LnTotalAsset 4.07 0.245658

1000
ROE
Ln_Sales 3.09 0.323242
BoardSize 1.64 0.609274

− 0,1173***
Inflation 1.09 0.914964

0.5481***
0.5414***
BoardSize
AC_Independence 1.08 0.923938

− 0,0370

− 0,0518
0.0364
0.0011
AC_Expertise 1.05 0.952122

1000
Leverage 1.04 0.958354
Price 1.04 0.965542

− 0,1196***
AC_Tenure 1.03 0.969379

− 0,0536**
AC_Tenure

0.0882***
− 0,0419*
− 0,0045
− 0,0132
− 0,0188
ROE 1.01 0.985930

0.0351
Mean VIF 2.16

1000
AC_ Expertise

Furthermore, to better support our general findings, we also checked

0.1404***

0.1401***
0.1658***
− 0,00525

0.0576**
for a single year by setting additional cross-sectional regression ana­

− 0,0160

− 0,0226
0.0361

0,0136
lyses: one for each year of the period from 2018 to 2020. According to
1000

these robustness checks, all regressions shown in Models 5, 6 and 7

reinforce Model 1.
AC_ Independence

− 0,1307***

5. Discussion of results
0.0914***

0.0787***

0,0501**
− 0,0052

0.0344
0.0156

0.0059

0.0341
0,0251
1000

Our results show how AC characteristics affect ESG performance. In

fact, a high ESG performance is affected by a combination of AC char­
− 0.1093***

− 0.0848***
0.3606***
0.2167***

0.1135***

0.2857***
0.3393***

acteristics. More specifically, our analysis underlines a significant posi­

− 0.0162

0.0431*
G_Pillar

0.0092

0.0065

tive effect of AC independence and expertise on ESG performance. In

1000

contrast, AC tenure has a negative and significant relationship with the

ESG performance. Therefore, the findings from the study accepted Hy­
− 0.1046***
− 0.0611**
0.4029***
0.1235***
0.1732***

0.3524***

0.5373***
0.4721***

potheses H1 and H2, and they did not support Hypothesis H3. The sig­
− 0.0387*

− 0.0539*
− 0.0063
S_Pillar

0.0238

nificant and positive relationship between AC independence and AC

1000

expertise with the ESG performance confirms that the presence of a large
number of independent members guarantees better monitoring activity
− 0.0999***
− 0.0767**
0.7074***
0.3684***
0.1167***
0.1507***

0.3911***

0.5691***
0.5431***

on the part of the AC. This suggests that an accounting expert on the AC
− 0.0515*

− 0.0351

0.0505*
E_Pillar

0.0317

would contribute to improving ESG performance. In fact, according to

1000

agency theory (Jensen and Meckling, 1976), the results confirm that AC
expertise enhances ESG performance by reducing information asym­
− 0,1164***
− 0,0469**
− 0,930***
0.8428***
0.8759***
0.7022***
0.2353***
0.2132***

0,3586***

0.5665***
0.5542***
ESG_Score

metry and protecting the increased stakeholders’ interests in ESG per­

− 0,0235

0.0115
0.0257

formance. In addition, our results confirm the monitoring role of the AC,
1000

according to previous studies (Chen et al., 2016; Hammami and Zadeh,

2019; Gillet-Monjarret, 2018). In contrast, the significant and negative
Correlation matrix.

AC_Independence

relationship between AC tenure and the ESG performance confirms that

a long board tenure generates more familiarity that undermines the
LnTotalAsset
AC_Expertise

GDP_growth
AC_Tenure
ESG_Score

BoardSize

effectiveness of control activities, according to a body of previous

Leverage

Inflation
G_Pillar

LnSales
E_Pillar
S_Pillar
Table 8

literature on audit quality (Sharma and Iselin, 2012; Setiany et al.,

Price
ROE

2017). As a consequence, long AC tenure also reduces attention to ESG

8
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

Table 9 Table 10
Regression results Robustness checks (pillars)
Model 1 – Panel data analysis covering the period from 2018 to 2020. Robustness checks for a single ESG pillar covering the period from 2018 to 2020.
Dependent Variable ESG score (Model 1) Dependent Variable E pillar (Model 2) S pillar (Model G pillar (Model
3) 4)
AC_Independence 0.096***
(6.88) AC_Independence 0.015 0.013 0.271***
AC_Expertise 1.927*** (0.76) (0.80) (13.00)
(3.84) AC_Expertise 0.586 1.046* 4.899***
AC_Tenure − 0.2095** (0.84) (1.79) (5.90)
(-2.44) AC_Tenure 0.156 − 0.021 − 0.863***
BoardSize 0.044 (1.30) (-0.21) (-6.13)
(0.38) BoardSize 0.319* 0.339 − 0.562***
ROE 1.051 (1.91) (2.42) (-3.14)
(0.75) ROE 1.873 − 0.039 2.257
Ln_Sales 2.9929*** (0.96) (-0.02) (0.96)
(8.69) Ln_Sales 4.035*** 3.119*** 1.947***
Ln_TotalAsset 3.1858*** (8.29) (7.66) (3.78)
(9.13) Ln_TotalAsset 4.237*** 2.439***. 3.293***
Leverage − 0.050 (8.61) (5.93) (6.19)
(-0.45) Leverage 0.135 − 0.089 − 0.253***
Price − 0.001 (0.87) (-0.69) (-1.36)
(-0.19) Price 0.008** − 0.001 − 0.005***
GDP_growth 0.3763*** (2.56) (-0.35) (-1.28)
(4.12) GDP_growth − 0.010 − 0.051 1.376***
Inflation 0.1270 (-0.08) (-0.48) (8.53)
(0.61) Inflation − 0.367 0.183 0.687*
DummyCovid-19 6.4215*** (-1.26) (0.75) (1.85)
(9.28) DummyCovid-19 3.040*** 2.019** 1.6241**
Constant − 8.124 (3.16) (2.52) (13.31)
(-8.51) Constant − 137.755*** − 58.142*** − 65.094***
Observations 1923 (-10.21) (-5.15) (-4.49)
Number of companies 641 Observations 1923 1923 1923
Year RE Yes Number of 641 641 641
Country RE Yes companies
Industry RE Yes Year RE Yes Yes Yes
Within R2 0.2178 Within R2 0.1162 0.0711 0.2463

This table presents the results of the estimates of Eq. (1) that involve Notes: *Significance at 10%, **significance at 5%, and ***significance at 1%.
panel data and are estimated with random effects. The results of three The data are from the Refinitiv Eikon database and DataWorldBank.
independent variables (AC_Independence, AC_Expertise and AC_Te­
nure) are tested together with the control variables and the COVID-19
dummy. Notes: *Significance at 10%, **significance at 5%, and Table 11
***significance at 1%. The data are from the Refinitiv Eikon database Robustness checks (cross-sectional analysis)
and DataWorldBank. Robustness checks for a single year covering the period from 2018 to 2020.
Dependent Variable: Year 2018 Year 2019 Year 2020
activities. In line with previous studies on audit quality, our results ESG score (Model 5) (Model 6) (Model 7)
confirm that a long tenure has negative effects on the independence of AC_Independence 0.125*** 0.118*** 0.113***
the auditor (Carey and Simnett, 2006; Chi et al., 2009). Following this (5.71) (5.71) (5.74)
line of reasoning, the findings related to Hypotheses H1 and H3 are AC_Expertise 4.096*** 4.005*** 3.718***
(3.36) (3.35) (3.45)
coherent. Therefore, our analysis of AC tenure extends the AC literature
AC_Tenure − 0.816*** − 0.702*** − 0.590***
by examining the association between AC tenure and ESG performance. (-3.72) (-3.70) (-3.54)
In line with the prior literature that showed the positive link between BoardSize 0.131 0.087 0.135
ESG performance and disclosure (Wang et al., 2018; Uyar et al., 2020), (0.67) (0.46) (0.78)
our findings can explain how and why agency theory can be used to ROE − 2.554 4.539 − 1.091
(-0.61) (1.17) (-0.29)
explain the impact of the quality of internal audits on ESG performance
Ln_Sales 2.238*** 1.890*** 1.831***
and disclosure and whether audits play an important role in improving (3.98) (3.52) (3.58)
the quality of the reporting process. This disclosure enhancement can Ln_TotalAsset 5.250*** 4.985*** 4.341***
reduce agency costs, since reporting is the key mechanism for commu­ (8.71) (8.79) (7.90)
Leverage − 0.442 − 0.593** − 0.142
nicating the ESG initiatives undertaken by the firms. In this perspective,
(-1.50) (-2.04) (-0.49)
the findings contribute also to the improvement of the ongoing standard Price − 0.007 − 0.004 − 0.006
setting process. Regulator efforts are significant in this direction. The (-1.17) (-0.62) (-1.59)
Directive 2014/95/EU requires the member states of the EU to ensure GDP_growth − 0.002** 0.002 − 0.001
that the statutory auditor checks for the presence of the information, but (-2.10) (-0.53) (-1.30)
Inflation 0.004 − 0.002 − 0.002
it does not require an audit of nonfinancial information (EU, 2014; Del
(0.75) (-1.05) (-0.85)
Giudice and Rigamonti, 2020). As a consequence, our findings provide Constant − 122.220*** − 109.591*** − 100.549***
useful evidence about the principal AC characteristics, showing also the (-11.41) (-10.36) (-10.97)
positive impact of independence and expertise and the negative effect of Observations 641 641 641
Number of companies 641 641 641
tenure during a crisis, such as the COVID-19 pandemic. The statutory
Prob > F 0.000 0.000 0.000
auditor is not required to issue an assurance opinion on the nonfinancial Adj R2 0.4951 0.4758 0.4511
information disclosed but only a consistency check. The efforts of the
European Commission in this field are very important, especially since Notes: *Significance at 10%, **significance at 5%, and ***significance at 1%.
The data are from the Refinitiv Eikon database and DataWorldBank.
the beginning of the 2000s (EC, 2001), and its guidelines on

9
M. Pozzoli et al. Journal of Cleaner Production 371 (2022) 133411

nonfinancial disclosure state that independent external assurance can be characteristics and ESG performance in (before and during) the COVID-
seen as a way to make information “clearer and accurate”. Our findings 19 pandemic.
go in this direction and document that AC characteristics improve the Apart from the importance of the current study, it has some limita­
reliability of nonfinancial reporting by facilitating the bridging of the tions that can be overcome by other studies, as follows. First, the ESG
gap between the company and the market regarding sustainability data collected from the Refinitiv Eikon database present one main lim­
reporting. Our findings also recommend the creation of efficient moni­ itation (Del Giudice and Rigamonti, 2020) since the ESG performance
toring bodies. Increasing the participation and presence of stakeholders are presented on a yearly basis, while a monthly basis may provide a
shows a clear predisposition of the company to meet the needs of all more accurate proxy. Another measure of ESG can integrate the data­
stakeholders – such as the ESG practices – and greater transparency in its base, such as MSCI, which has the advantage of a longer time series. It
actions. According to our findings, we can state that AC characteristics could be interesting to explore whether our results hold in the years to
are an example of these efficient monitoring bodies, since they transmit come, after the COVID-19 crisis. Second, the current study investigated
and ensure the social concerns of all stakeholders and indicate a greater the impact of AC independence, expertise and tenure on ESG perfor­
predisposition to compliance with social principles and the adoption of mance as perceived by the decision maker; therefore, future studies may
global standards. A better understanding of these relationships repre­ use other measures by developing a self-constructed index over a long
sents an important question that requires further research to assess the time period for AC independence and AC competence, which will
impact of AC characteristics globally. eliminate the subjectivity and potential bias of the investors’ perception
of AC. It is important to note that these limitations do not affect the
6. Conclusion, implications and limitations findings, but future research could include more characteristics related
to the board’s attributes, such as AC size or the AC’s number of meetings.
In this paper, we examine a dataset that includes 1923 companies, Third, the paper examines only the latest available years from 2018 to
AC variables and ESG performance collected in the Refinitiv Eikon 2020. Accordingly, future research could examine more years and
universe in the investigation period from 2018 to 2020. Following the perhaps wait for the next years to verify what happens after the
agency theory perspective, the role of ACs is essential in reducing pandemic situation in which we are still living. Fourth, the research
asymmetric information and conflicts of interest between managers and design chosen for this paper shows some methodological sub-limitations
stakeholders while managers are making an ESG decision. This paper since the dataset is limited to some EU countries (including other
investigates how the principal AC characteristics – namely, indepen­ non-EU or even developing countries might make the results more
dence, expertise, and tenure – affect the ESG performance. The analysis generalizable), and the econometric models adopted may have resulted
is conducted in a specific context: the EU listed companies that operate in biases because of variables that are important but were omitted.
in EU member states throughout the period from 2018 to 2020. We seek However, the use of robustness checks may alleviate this limitation.
to fill a gap in the scarcely available literature by directly investigating
how some AC variables affect the ESG score of firms. In addition, the CRediT authorship contribution statement
originality of our research is also justified by the scarcity of previous
studies that have addressed the relationship between AC characteristics Matteo Pozzoli: Conceptualization, Investigation, Writing – review
and ESG score, especially during the COVID-19 pandemic. & editing. Alessandra Pagani: Validation, Resources, Writing – review
This paper contributes to the ongoing debate on the impact of AC & editing. Francesco Paolone: Methodology, Software, Formal anal­
characteristics on ESG performance. First, it represents a novelty in the ysis, Writing – review & editing.
literature on the ACs and ESG performance of listed companies in EU
member states. Second, we demonstrate that the internal audit quality Declaration of competing interest
proxied by AC characteristics plays a vital role in assuring that funda­
mental internal controls related to financial, operational, and compli­ The authors declare that they have no known competing financial
ance activities are operating effectively. This role includes validating the interests or personal relationships that could have appeared to influence
effectiveness of ESG-related controls and activities to help organisations the work reported in this paper.
manage these risks and foster resilience.
As a result of this study, we can also extract important practical and Data availability
theoretical implications. From the practical perspective, stakeholders
could use these implications to address the composition of an AC with The data that has been used is confidential.
specific characteristics as well as to mandate the formation of a self-
directed and engaged AC; in doing so, they can use ESG issues as a References
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