Corporate governance and sustainability reporting in the Australian resources industry: an empirical analysis

1. Introduction

While literature and empirical studies on sustainability reporting have grown tremendously in recent decades, it is evident that sustainability reporting and sustainability performance are still limited and largely fragmented with little improvement in sustainable performance (Huang and Watson, 2015; Jain and Jamali, 2016; Rao and Tilt, 2016). Previous studies have established that corporate governance mechanism, which involves the system of rules, practices and processes by which a company is directed and controlled, plays a vital role in the quality of sustainability reporting and sustainability performance (Garcia-Torea et al., 2016; Gibson and O’Donovan, 2007; Kolk, 2008; Lau et al., 2016).

Recent developments in economic theory suggest that the board of directors (BOD) is an important part of a company’s corporate governance structure (Fama and Jensen, 1983). The BOD of a company, which represents the highest level of management in a company (Keasey and Wright, 1993), has a major impact on a company’s reporting practices and procedures. Consequently, many recent studies have identified a significant correlation between the composition of a company’s BOD and the quality of its sustainability reporting (Michelon and Parbonetti, 2012; Post et al., 2011; Rao et al., 2012; Rupley et al., 2012; Webb, 2004).

While there have been many studies conducted on BOD, few have examined a board’s impact toward sustainability reporting. Among the existing studies, most have tended to focus only on the environmental aspects of sustainability, without considering the economic and social aspects. Hence, this research addresses this gap to explore the impact of the composition of a company’s BOD that is an important corporate governance mechanism on the quality of a company’s sustainability reporting by reviewing several attributes of board composition.

The stakeholder theory posits that a company has a binding fiduciary duty to value the different stakeholders’ needs. This is in line with the recommendations of the Australian Corporate Governance Council (ACGC) in the call for companies to be transparent in their corporate governance mechanism. The ACGC sets out principles and recommendations, which related to corporate governance for listed companies in Australia, to promote central principles that include acting ethically and responsibly, safeguarding integrity in corporate reporting and making timely and balanced disclosure. According to Kolk (2008), the increased...