Effects of board characteristics, corporate governance reform and SOE on ESG in Chinese Market

Corporate governance issues, which have garnered significant attention from Chinese regulators, may affect the implementation of corporate environmental, social, and governance (ESG) strategies. As a crucial component of corporate governance, the board plays a vital monitoring role. The relationship between board characteristics and ESG performance in China is worth exploring due to the country’s unique institutional context. To investigate whether board characteristics, including board diversity, board independence, and the presence of busy independent directors, affect ESG performance, this study utilises a sample of Chinese A-shares from 2012 to 2022. Using the fixed effects model, this study demonstrates the positive relationship between board diversity and ESG performance. The resources (e.g., knowledge, experience, and social networks) that come with board diversity increase the effectiveness of the board in enhancing ESG practices. Moreover, increasing the percentage of busy independent directors has a negative impact on ESG performance. Thus, the findings support the busyness hypothesis regarding the ineffectiveness of busy independent directors in monitoring ESG strategy implementation. Corporate governance reform is effective in strengthening the positive relationship between board diversity and ESG performance. This demonstrates the effectiveness of corporate governance reform in promoting board diversity, and ESG strategies are enhanced by having diverse boards. Further, the positive impact of board diversity on ESG performance is more pronounced in non-state-owned enterprises (non-SOEs) than in state-owned enterprises (SOEs). Therefore, this study shows that non-SOEs are more reliant on the board's oversight role. The Heckman two-step selection model proves the robustness of the findings. Lastly, this study contributes new insights for regulators, investors, companies, and rating agencies