What Does “G” Say About “E” of ESG?

Sustainability in Academia (Article 6, October 2025)

Santhosh Jayaram

Back in 2023, I wrote an article titled “The Governance of Purpose is the Purpose of Governance” [1], where I argued that the board’s primary take on governance is to ensure that the business has a purpose — and that purpose must be to solve problems profitably, not to make profits by creating problems. I have always felt that a company’s progress in addressing its environmental and social commitments is directly tied to its board’s attributes. The research I am exploring in the sixth of the series “Sustainability in Academia” examines the impact of board and, especially, audit committee attributes on companies’ sustainability (proxy: ESG score) and environmental performance.

While most corporate conversations on “E” (Environmental) and “S” (Social) are drenched in the moral high ground of bettering the environment and empowering communities, the “G” (Governance) often sits quietly in the corner — unglamorous, procedural, and tragically underestimated. But a recent study by Ali Thabit Yahya and colleagues shows that Governance isn’t the backstage crew; it’s the director.

Yahya, A. T., Rehman, S., Farhan, N. H., & Almaqtari, F. A. (2025). Does the effectiveness of board and audit committees influence the environmental and sustainability performance: A Comparative study of developed and developing countries. International Journal of Innovative Research and Scientific Studies, 8(3), 164–174. https://doi.org/10.53894/ijirss.v8i3.6470

The authors decided to investigate a deceptively simple question: Does the effectiveness of a company’s board and audit committee actually influence how environmentally and sustainably it performs?

To answer this, they examined 3,752 companies across Europe and Asia from 2016 to 2021. That’s a decent cast for a study like this, which is trying to figure out which traits of the board — size, diversity, expertise, independence, meeting habits — most strongly predict good behaviour (sustainability performance). In short, the study is less of a philosophical musing and more of a corporate autopsy — dissecting the anatomy of Governance to find out where the sustainability muscle lies.

The Anatomy of the Study

The study measured two key outcomes:

Environmental Performance (ENVP) – How much a company actually reduces harm to ecosystems, manages its carbon footprint, and uses resources wisely. (Proxy: E Score of ESG Rating)
Sustainability Performance (SUSP) – A broader score combining environmental, social, and governance indicators. (Proxy: ESG Score of the company)

And then it looked at the following attributes of the board:

Board Size – How many people are sitting at the table (and hopefully not just for the sandwiches).
Board Independence – How many members are free from executive influence and can say “no” without fearing a career obituary (Rare, but let us go with this meaning).
Board Expertise – Here, the expertise was limited to finance and accounting (Which is a realistic assumption).
Board Diversity – Limited to gender diversity, but carrying symbolic weight for varied thinking.
Board Meetings – Frequency of interactions.
Audit Committee Independence and Expertise – The sub-committee that watches over the watchers, ensuring transparency and accountability in financial and sustainability reporting.

Control variables such as firm size, revenue, and profitability were included to ensure the results weren’t just picking up the effect of being rich or big.

What the Data Whispered

After the data gymnastics, a few insights emerge loud and clear:

Bigger boards seem to care more about sustainability.

Larger boards had a significant positive effect on both environmental and sustainability performance. Apparently, more voices around the table bring more ideas and more accountability. A crowded room may be noisy, but it’s also less likely to miss the climate elephant in the room.

Independence matters — the “no-men” are more valuable than the yes-men.

Independent directors were strongly linked with better sustainability outcomes. Perhaps there is still independence in thinking that prompts one to ask the right questions.

Diversity is the superstar of sustainability

Among all attributes, board diversity (read: gender diversity) had the greatest influence on environmental responsibility. Turns out, having women on the board is good for the planet.

Audit committees are not mere compliance clubs.

The audit committee’s independence and expertise significantly improved sustainability outcomes.

Profitability, ironically, seems to dampen sustainability zeal.

The data showed a slight but notable negative link between high profitability and environmental performance. It’s almost poetic — when the coffers are full, the conscience runs dry.

Over-specialised boards can miss the forest for the spreadsheets.

Interestingly, boards with too much technical expertise in finance and accounting scored worse on environmental outcomes. Perhaps when you only have hammers, every problem looks like a financial nail.

Developed vs. Developing: A Tale of Two Realities

This was a somewhat amusing comparison. In developed countries, we assume governance mechanisms are already institutionalised. A predictable system ensuring sustainability compliance, and hence, the study results were steady, with no dramatics.

But in developing countries, the same governance attributes had stronger effects. In other words, a diverse or independent board made a bigger difference in Asia than in Europe. Maybe because in regions where sustainability hasn’t yet become a reflex, the right people in the room can help transform culture for better sustainability.

The study thus underlines a fascinating paradox: Governance is more powerful where it is least institutionalised. In countries where ESG is still “aspirational,” boards matter more. In mature economies, the system already carries part of the moral load.

The Methodology

To those allergic to econometrics, fear not. The methodology can be appreciated without peeking at the equations.

The researchers first compiled data from over 22,000 companies, then narrowed it to 3,752 with consistent data from 2016 to 2021.
They then measured governance attributes using numerical indicators, such as the percentage of independent board members and female directors.
Using panel regression models, they analysed how these attributes influenced two primary outcomes (sustainability and environmental performance) while controlling for other factors.
Finally, they ran the models separately for developed and developing countries to see if geography altered the governance gospel.

The Broader Message: Governance Is the Hidden “E”

The beauty of this study lies in its implicit message: the “E” in ESG doesn’t thrive without a robust “G.” Governance is not a checkbox — it’s the invisible infrastructure of sustainability. The authors’ findings confirm that good Governance is the precondition for good environmental behaviour.

The paper by Yahya and colleagues confirms what many practitioners have long talked about — that the health of the planet is increasingly tied to the health of corporate Governance. ESG is not three letters standing side by side; it’s a hierarchy. Governance is the foundation upon which “E” and “S” stand.

So, next time someone tells you ESG is about “Environment,” remind them that the “G” is not the footnote of sustainability; it’s the preface.

[1] https://santhoshjayaram.com/the-purpose-of-governance-is-the-governance-of-purpose/

Article 1: Higher the ESG Score, Higher the Risk of Green Washing

Article 2: Do We Really Care for Climate Change-Related Targets?

Article 3: The Hidden Cost of SDG Progress: Who’s Paying the Price?

Article 4: How susceptible are you to being Greenwashed?

Article 5: The Great Indian Political CSR

Cutting through academic jargon, this monthly series distills key findings from sustainability research into actionable insights for professionals and decision-makers.