Sustainable Environmental Governance and Corporate Environmental Performance: Empirical Evidence from Saudi Companies

Abstract

This study investigates the internal governance mechanisms of sustainability and their influence on corporate environmental performance (CEP) from 2014 to 2021 in Saudi Arabia. The analysis centers on three primary mechanisms: the presence of a sustainability committee, issuance of sustainability reports, and external assurance of these reports. Utilizing a sample of 188 firm-year observations from publicly listed companies, we evaluate each mechanism and their combined effect as predictors of CEP through ordinary least squares (OLS) regression analysis. We constructed a composite index of sustainability governance practices to assess the overall governance strength of the firm, referred to as the sustainability index. Our findings indicate that, while sustainability external assurance is positively associated with CEP, it is statistically insignificant. By contrast, the positive correlations of sustainability committees and sustainability reports with CEP were significant. The overall sustainable mechanisms’ composite index in the regression positively influences corporate environmental performance. This suggests that the composite sustainability index is more effective than individual sustainability mechanisms because of its complementary functions. This study aims to advance theories related to emerging markets in which institutional arrangements and stakeholder demands differ from those in developed countries. These results emphasize on the importance of corporate boards and policymakers in establishing dedicated sustainability committees, enhancing reporting quality, and integrating various governance systems to improve environmental performance which, in turn, promote responsible corporate behavior and ensure accountability towards environmental protection and sustainable development. This aligns with Saudi Arabia’s Vision 2030 and the Sustainable Development Goals, specifically Goals 12 and 13.

1. Introduction

Bridging the gap between intended and actual corporate actions aimed at minimizing ecological damage, optimizing resource utilization, and mitigating climate deterioration has increasingly been assessed through corporate environmental performance (CEP) (Albitar et al., 2020; Al-Shaer & Zaman, 2018; Li et al., 2018). CEP is integral to numerous policies, strategies, and actions, including the reduction in greenhouse gas emissions, enhancement of waste management systems for environmental and social sustainability, and implementation of eco-efficient resource management within internationally adopted environmental frameworks (Hussain et al., 2018; Albitar et al., 2020). It serves as a benchmark for evaluating organizational responsiveness to the growing expectations of the state, investors, and society regarding sustainable business practices, as documented in the literature (Karim et al., 2024; Tan et al., 2022). Furthermore, there is a prevailing perception that environmental performance constitutes a practical obligation and primary strategy for ensuring sustained profitability, increased risk exposure, and competitiveness in the market (Hummel & Schlick, 2016; Ntanos et al., 2019; Yadav & Jain, 2023).

While the body of literature concerning Corporate Environmental Performance (CEP) has expanded considerably over recent decades, most scholars examine environmental outcomes within the broader frameworks of Corporate Social Responsibility (CSR) and Environmental Social Governance (ESG) (Abdalkrim, 2019; Ebaid, 2022). Although ESG frameworks encompass comprehensive sustainability management, they often obscure the specific contributions of specialized governance instruments, such as sustainability boards, sustainability reports, and external verification, to environmental performance (Al-Shaer, 2020; Albitar et al., 2020). Existing research indicates that specialized sustainability governance frameworks enhance firms’ strategic emphasis on environmental objectives and bolster the legitimacy of sustainability disclosures and stakeholders’ trust (Amran et al., 2014; Al-Shaer & Zaman, 2016; Peters & Romi, 2015). However, most of these studies have focused on developed countries, where the rules of law and institutional frameworks are well established (Liao et al., 2018; Romero et al., 2019). There is a notable paucity of research on emerging markets, where institutional frameworks, governance enforcement capabilities, and stakeholder engagement differ significantly (Ammer et al., 2020; Khan et al., 2013).

Saudi Arabia is particularly interested in these issues. As one of the largest producers of petroleum products worldwide, the country faces a particular economic development challenge with environmental drawbacks. Crowned by Vision 2030, Saudi Arabia has striven to set ravenous environmental targets, including net-zero emissions by 2060, which have also included significant investments in renewables, circular economy principles, and biodiversity protection measures (Alwadani et al., 2024). Saudi Arabia has a distinct position in addressing these issues. As one of the world’s largest producers of petroleum products, Saudi Arabia faces the complex problem of reconciling economic growth with environmental protection. Under the Stewardship of Vision 2030, Saudi Arabia’s net-zero emissions goals set for 2060 have already shown considerable investments in renewable power, circular economic principles, and biodiversity programs (Alwadani et al., 2024). Sustainability disclosure and the growing prominence of environmental issues on the business agenda point to institutional changes shifting towards the integration of sustainability within the strategic framework of business (Albitar et al., 2020). However, the literature on the influence of internal corporate governance structures—reasonably bespoke for environmental issues— on Saudi Arabia-related corporate environmental performance (CEP) is still limited. In accordance with the objectives of Vision 2030, Environmental, Social, and Governance (ESG) considerations have emerged as a strategic policy focus for Saudi Arabia’s capital markets. In 2022, the Capital Market Authority (CMA) promulgated the inaugural set of formal sustainability disclosure regulations, with the objective of standardizing ESG reporting among listed companies. Following this regulatory trajectory, the Tadawul ESG Index was launched in 2023 to evaluate companies based on quantifiable environmental performance metrics, as opposed to the previously utilized self-disclosed narrative reporting. These policy developments are corroborated by recent professional surveys conducted by PwC Middle East (2023), which indicate that regional institutional investors exhibit a preference for companies with externally verified ESG practices. Collectively, these initiatives represent a transition from voluntary, superficial activities to more structured, governance-focused accountability, underscoring the efforts’ timely and institutionally relevant context for the current study (CMA, 2022).

This study is situated within the broader context of Saudi Arabia’s Vision 2030, which emphasizes environmental responsibility, sustainable economic development, and corporate accountability. Specifically, the study aligns with the United Nations Sustainable Development Goals (SDGs), particularly SDG 12 (Responsible Consumption and Production) and SDG 13 (Climate Action). By examining how internal sustainability governance mechanisms—such as board oversight, transparent reporting, and external assurance—enhance environmental performance, this research not only addresses academic gaps but also advances national and international sustainable development objectives. The findings provide practical insights for regulators, investors, and companies aiming to enhance sustainability integration within corporate governance structures.

This study evaluates the relationship between sustainable governance mechanisms and Corporate Environmental Performance (CEP). It identifies three key governance mechanisms: (1) the establishment of a sustainability committee (SC), (2) the issuance of a sustainability reporting, and (3) external assurance of reporting. SCs, as board-level entities, are instrumental in overseeing environmental policies, integrating sustainability into corporate decision-making, and aligning corporate practices with stakeholder expectations (Al-Shaer & Zaman, 2016; Albitar et al., 2020). Sustainability reporting enhances organizational transparency and legitimacy by communicating environmental management strategies and performance indicators to stakeholders (Hummel & Schlick, 2016; Peters & Romi, 2015). External assurance further strengthens credibility, reduces information asymmetry, and mitigates managerial opportunism in sustainability disclosures (Al-Shaer et al., 2017; Romero et al., 2019).

Unlike the study conducted by Alwadani et al. (2024), who developed an internal corporate governance quality index incorporating a range of variables such as board size, board independence, audit committee independence, sustainability committee, sustainability reporting, and sustainability assurance, our study adopts a more focused approach. We concentrate specifically on sustainability by examining both individual and composite sustainable environmental mechanisms. This targeted set of sustainable variables is more practical for evaluating governance practices that directly affect the environmental outcomes.

This study makes three significant contributions to the literature. First, it advances the literature on corporate environmental performance (CEP) by extracting and empirically validating the impact of discrete sustainability governance mechanisms, offering more precise outcomes than aggregate ESG or CSR indicators. Second, it enriches the literature on Saudi Arabia and its regions by addressing the knowledge gap in other emerging resource-rich economies undergoing sustainability transitions. Third, it derives and analyzes individual indicators and a composite measure to estimate the impact of the combination of multiple governance mechanisms utilized in unison, rather than in isolation, thereby providing practical contributions to policymakers, regulators, and business leaders aiming to enhance environmental governance and sustainability performance.

The remainder of this paper is organized as follows. Section 2 provides a review of the related literature and hypothesis development, while Section 3 outlines the methodology, including sample selection and data, measurement of variables, and the empirical model. Section 4 presents the empirical findings of the study. Finally, Section 5 concludes the study.

2. Literature Review and Hypotheses Development

Corporate environmental performance (CEP) reflects an organization’s capacity to translate ambitious environmental objectives into concrete outcomes. It serves as a measure of the effectiveness of strategic initiatives aimed at minimizing environmental footprints, enhancing resource and energy efficiency, reducing waste, and managing climate change risks. In the contemporary business landscape, the increasing demands from regulators, institutional investors, and environmentally conscious consumers have significantly amplified the need for measurable environmental footprints as a fundamental aspect of business operations (Albitar et al., 2020; Al-Shaer & Zaman, 2018; Al-Shaer et al., 2017; Hollindale et al., 2019; Karim et al., 2024; Li et al., 2018; Qureshi et al., 2020; Tan et al., 2022). Failure to achieve an adequate CEP can result in severe repercussions, including damage to corporate legitimacy, increased reputational risk, loss of competitive advantage, and disruption of business operations in extreme cases. Consequently, the integration of sustainability into firms strategic, operational, and governance frameworks has evolved from voluntary ethical considerations to an essential component of a competitive strategy.

Our theoretical predictions are derived from four interrelated perspectives. According to stakeholder theory, businesses engage in environmental initiatives to secure essential resources—such as funding, legitimacy, ongoing investment, and goodwill—based on stakeholder expectations (Freeman, 1984; Clarkson, 1995). This suggests that formal governance structures, including sustainability committees and sustainability-focused formal reporting, can translate stakeholder expectations into measurable stakeholder performance (Eccles et al., 2014; Dixon-Fowler et al., 2017). Secondly, legitimacy theory, particularly the “expectations gap” concept, posits that organizations may adopt disconnected or even contradictory practices to legally manage and regulate stakeholder expectations (Deegan, 2002; Suchman, 1995). In the context of sustainability, organizations might disseminate strategic sustainability information without independent verification, rendering such information an empty signifier or symbolic narrative (Delmas & Burbano, 2011; Tregidga et al., 2018). Thirdly, from the perspectives of agency and signaling theories, the external assurance of sustainability reports serves as a mechanism to enhance credibility—addressing information asymmetries and mitigating concerns about greenwashing—thereby strengthening the link between reported practices and actual sustainability performance (Simnett et al., 2009; La Torre et al., 2020). Lastly, within corporate governance literature, resource dependence and board capital theories regard a dedicated sustainability committee as a unique governance resource that can provide valuable expertise and stakeholder connections, thereby enhancing and promoting environmental initiatives through improved strategic and operational decisions (Pfeffer & Salancik, 1978; Hillman & Dalziel, 2003; Hussain et al., 2018). All these theoretical perspectives support our central argument: that transparency (through sustainability reporting) and credibility (through external assurance) are distinct facets of governance, and that companies with committee oversight, structured sustainability reporting, and external assurance tend to achieve superior corporate environmental performance (CEP) (Hussain et al., 2018).

Establishing a specialized sustainability committee (SC) at the level of the board of directors is widely recognized as a crucial internal governance mechanism that facilitates the incorporation of environmental and social considerations into corporate strategies. As highlighted by Amran et al. (2014), SCs play a key role in determining priority decisions related to sustainability, thereby promoting the integration of environmental and social objectives into organizational planning and decision-making processes. When a firm engages in a self-committed stakeholder (SC) process and publicly discloses it, it sets a firm-wide expectation to create a responsive stakeholder expectation continuum based on firm-gained sustainability performance disclosure. Liu and Zhang (2017) attribute such initiatives to motivating performance disclosures in which the firm may not have otherwise volunteered. For a firm to possess SC, it must communicate it in ways that advance stakeholder expectations. This communication serves to enhance the firm’s recognition of the significance of environmental issues, as the sustainability report (Al-Shaer, 2020) improves its reliability, and the SC reduces the firm’s information asymmetry with external stakeholders (Al-Shaer & Zaman, 2016).

SCs are positioned to reduce the coordination challenges and information asymmetry between firms and external stakeholders. They are regarded as valuable assets within a firm’s capital structure that facilitates the implementation and management of sustainability strategies. SCs autonomously allocate budgets for CSR and enhance stakeholder engagement (Hussain et al., 2018; Uyar et al., 2021). Although not exhaustive, numerous empirical studies corroborate the influence of SCs on firms’ sustainability disclosure. Peters and Romi (2015) examined SCs and their role in expanding a firm’s disclosure. The literature addressing the quality of sustainability disclosures includes contributions by Elmagrhi et al. (2019) and Liao et al. (2018). Alwadani et al. (2024) analyzed a firm’s performance in terms of environmental outcomes. While the body of SC literature continues to expand, evidence from these studies indicates that SCs should not be classified merely as governance arrangements. Instead, SCs can function as strategic assets, offering potential enhancements to a firm’s environmental performance.

In reviewing the literature on corporate environmental performance (CEP), it becomes evident that internal governance structures play a crucial role, with the establishment of a sustainability committee emerging as the most significant factor in enhancing environmental outcomes. A sustainability committee assumes a strategic leadership position, facilitating the integration of environmental objectives into corporate decision-making processes, and enhancing accountability for sustainability initiatives. We hypothesized that the establishment of a sustainability committee would lead to improved environmental performance through more effective resource allocation, enhanced monitoring, and increased responsiveness to stakeholder concerns. Consequently, we propose our first hypothesis H1.

H1. 

Ceteris paribus, there is a positive correlation between the presence of sustainability committees and corporate environmental performance.

The issuance of a sustainability report is an advanced method that fulfills stakeholder expectations; enhances disclosures; and exemplifies the stewardship of economic, social, and environmental objectives. Conversely, standalone reports often promote consistency of environmental values and superior performance (Chen et al., 2016; Romero et al., 2019; Mahoney, 2012; Al-Shaer & Zaman, 2018). Amran et al. (2014) conceptualized reporting as a strategic tool through which firms improve disclosure, bolster governance systems, and foster stakeholder dialogue through achievements in economic, social, and environmental governance. Rezaee and Tuo (2019) find that the disclosure of sustainability information and its associated documents provides valuable financial and non-financial data to shareholders and stakeholders while concurrently mitigating managerial opportunism and the risks linked to exploitative earnings manipulation. The ‘sustained engagement’ of stakeholders is a fundamental aspect of the report’s overall quality. Integrating sustainable practices into the business model enhances the quality of the disclosure and management of stakeholder relationships.

Even with the establishment of sustainable governance processes, information related to sustainability often falls under the managerial influence. The structural arrangements for reporting play a crucial role in ensuring the intersectional harmonization, plausibility, and credibility of the information provided (Adams, 2002; Amran et al., 2014; Fernandez-Feijoo et al., 2018; Romero et al., 2019; Michelon et al., 2015; Mio et al., 2020; Romero et al., 2019). Alwadani et al. (2024) empirically demonstrated that the presence of sustainability reports is positively correlated with enhanced environmental performance (EVP). Al-Shaer (2020) highlighted that companies that produce high-quality sustainability reports tend to significantly reduce their earnings management expenditures. Moreover, high-quality sustainability disclosures contribute to opportunistic financial reporting.

In this context, sustainability reporting constitutes an essential form of supporting evidence for the responsible documentation of environmental progress, adherence to environmental and health regulations, compliance with investor due diligence, and the cultivation of stakeholder trust. The intentional and systematic reporting of performance indicators extends beyond mere accountability and responsiveness to stakeholder concerns. Organizations gain competitive advantages such as access to capital, improved market positioning, enhanced ability to attract and retain high-quality employees, and increased customer loyalty, all of which collectively contribute to long-term corporate strength and resilience (Hummel & Schlick, 2016; Hussain et al., 2018; Jizi et al., 2014; Ntanos et al., 2019; Yadav & Jain, 2023). In this scenario, effective corporate environmental practices function as both performance indicators and instruments of strategically refined value creation in a market that increasingly focuses on environmental sustainability.

Sustainability reporting facilitates organizations in disclosing quantifiable environmental outcomes, communicating sustainability and assurance messages, and fulfilling stakeholder expectations. Firms that publish sustainable and verifiable documents on their environmental initiatives are better positioned to gain legitimacy, attract investment, and secure stakeholder trust, all of which contribute to improving environmental performance. This leads to the prediction of the second hypothesis H2:

H2. 

Ceteris paribus, a positive correlation exists between the issuance of sustainability reports and corporate environmental performance.

Engaging reliable external auditors to assure sustainability reports serves as a strategic mechanism for mitigating stakeholder pressure by enhancing the credibility, reliability, and perceived integrity of the disclosed information. This assurance contributes to the overall quality improvement of sustainability disclosures, thereby bolstering stakeholder confidence and enhancing firm reputation. Moreover, a firm that secures third-party assurance for its reports demonstrates a commitment to robust governance, ethical conduct, and sustainable value creation. Companies that integrate and subsequently evaluate their sustainability performance by external independent auditors, with findings disclosed in their annual reports, further exhibit dedication to quality assurance, accountability, and comprehensive disclosure processes (Alwadani et al., 2024; Al-Shaer & Zaman, 2018; Brown-Liburd & Zamora, 2014; Eccles et al., 2014; Fernandez-Feijoo et al., 2018; Martínez-Ferrero et al., 2018; Perego & Kolk, 2012; Peters & Romi, 2014). Alwadani et al. (2024) reported a positive and significant correlation between assurance and environmental performance, indicating that the voluntary adoption of external independent assurance enhances report credibility and tangibly improves a firm’s environmental performance.

The considerations for ensuring sustainability highlight the advantages of engaging reputable external auditors in validating sustainability disclosure. Independent assurance enhances the credibility of reported environmental information, thereby augmenting disclosed environmental data, reducing stakeholder skepticism and fostering confidence. In this context, external assurance not only preserves the integrity of sustainability information but also mitigates the risk of greenwashing and reinforces the firm’s commitment to environmental responsibility. Such a commitment is likely to lead to improved corporate environmental performance. Sustainability reporting is widely recognized for its role in enhancing transparency by disclosing companies’ environmental initiatives. However, prior research suggests that without external oversight, mere disclosure may be insufficient to secure stakeholders’ trust (Peters & Romi, 2015; Michelon et al., 2015). Consequently, our study distinguishes between transparency mechanisms—such as sustainability reporting—and credibility mechanisms, which we identify as independent assurance. Assurance functions as a governance control that reduces the likelihood of greenwashing by verifying the accuracy of disclosed information. Investor confidence has notably declined as prominent asset managers and assurance firms like BlackRock, PwC, and KPMG have openly acknowledged the issue of unsupported ESG claims and revealed a concerning level of trust in unverified closed reports (Fernandez-Feijoo et al., 2018; Peters & Romi, 2015). Recognizing recent empirical research linking sustainability governance structures with improved ESG outcomes (Pizzi et al., 2024; Abusharbeh et al., 2025; Ali et al., 2025), we examine the effects of sustainability reporting and third-party assurance (H3) separately. This theoretical distinction is supported by empirical evidence suggesting that disclosure is likely to be impactful only when paired with independent verification; otherwise, it may merely be symbolic. Therefore, the third hypothesis H3 is as follows.

H3. 

Ceteris paribus, sustainability reporting assurance is positively correlated with companies’ environmental performance.

The research literature indicates a consensus on the integration of various metrics into composite indices for assessing the governance aspects of complex constructs. Gompers et al. (2003) and Brown and Caylor (2006) developed governance indices, revealing that governance scores may simply represent the sum of several binary indicators. Conversely, Oh et al. (2018) contend that governance mechanisms should be perceived as interconnected bundles rather than isolated elements. The interdependence of these bundled constructs demonstrates how governance mechanisms function collectively and cohesively, in contrast to indicators that assess governance in isolation. In the present study, we constructed a composite index of sustainable environmental mechanisms comprising three principal components: the establishment of a sustainability committee, issuance of a sustainability report, and external assurance of this report by an auditor. This composite indicator represents the scope and comprehensiveness of the internal governance systems aimed at enhancing environmental stewardship. A higher index value indicates a more sophisticated and comprehensive governance process designed to improve environmental performance. This leads to the fourth hypothesis H4.

H4. 

Ceteris paribus, a positive correlation exists between the index of sustainable environmental mechanisms and corporate environmental performance.

3. Methodology

3.1. Sample Selection and Data

The datasets used in this study were obtained from Thomson One Banker, focusing on companies listed on the Saudi Stock Exchange in 2014–2021. The study variables were extracted from the Eikon Database. Observations with missing corporate governance and financial data were excluded from analysis. The resulting unbalanced panel dataset comprises 189 firm-year observations from companies across 10 sectors: telecommunications (18), healthcare (5), financials (67), real estate (10), consumer discretionary (4), consumer staples (14), industrials (12), basic materials (45), energy (5), and utilities (8). The distribution of observations over the years was as follows: 2014 (6), 2015 (14), 2016 (14), 2017 (16), 2018 (34), 2019 (36), 2020 (41), and 2021 (27). The final dataset comprises an unbalanced panel, which, as indicated in the ESG and corporate governance literature, corresponds with the uneven adoption of sustainability practices across firms and temporal spans (Alwadani et al., 2024; Ammer et al., 2020). In accordance with the emerging markets literature, we opted not to impose an artificial balance, thereby preserving the firm-year observations and, more importantly, maintaining the heterogeneity of actual adoption patterns to mitigate sample selection bias. The unbalanced nature of the dataset is widely accepted in econometrics concerning pooled OLS and fixed-effects models, provided that appropriate diagnostics are conducted (Baltagi, 2008).

The firms sampled in this study are all publicly listed on the Tadawul exchange and consist of large, economically significant corporations operating in sectors with considerable environmental exposure and strategic alignment with Saudi Arabia’s Vision 2030 sustainability agenda. These firms are subject to heightened public accountability, regulatory scrutiny, and investor attention compared to smaller or privately held firms. Consequently, they represent the most pertinent empirical context for examining the impact of governance mechanisms on environmental performance.

3.2. Measurement of Variables

The dependent variable in this study is Corporate Environmental Performance (CEP), quantified using the Environmental Pillar Score from the Eikon database, a recognized proxy in the literature (Alwadani et al., 2024; Duque-Grisales & Aguilera-Caracuel, 2021; Eccles et al., 2014; Ioannou & Serafeim, 2012). The hypothesized independent variables, termed sustainable environmental mechanisms, encompass the presence of a sustainability committee (SUScom), the publication of a sustainability report (SUSrep), and the adoption of sustainability reporting assurance (SUSextr). These mechanisms are identified in the literature as key governance and disclosure practices that can enhance environmental standards and stakeholder trust (Alwadani et al., 2024; Al-Shaer, 2020; Al-Shaer & Zaman, 2016, 2018; Al-Shaer et al., 2017; Ioannou & Serafeim, 2012; Ullah et al., 2019). SUScom, representing the existence of a sustainability committee, is measured as a binary variable and assigned a value of 1 if the firm has such a committee and 0 otherwise. Additionally, sustainability reporting (SUS_rep) is controlled for, measured as a binary variable with a value of 1 if the firm publishes a sustainability report and 0 otherwise. Furthermore, the adoption of sustainability reporting assurance (SUS_extr) is assessed using a binary variable set at 1 when the sustainability report is externally assured and 0 otherwise. These variables form the theoretical foundation of sustainable environmental mechanisms posited to have a positive relationship with corporate environmental performance in our study. Moreover, a composite indicator of Sustainable Environmental mechanisms (SUS_score) was developed to assess the robustness of sustainable environmental mechanisms, capturing three core components: existence of a sustainability committee, publication of a sustainability report, and external assurance of that report. This composite indicator reflects a company’s internal governance process, which promotes corporate environmental responsibility. A higher index value indicates a more integrated and efficient sustainability governance system that correlates with improved environmental performance.

Previous research has established a connection between environmental performance and various control variables of firms, including corporate governance and board characteristics (Alwadani et al., 2024; Al-Shaer et al., 2017; Al-Shaer & Zaman, 2018; Ullah et al., 2019). Board size (BODSIZE) is the total number of directors on the company’s board. Board independence (BODINDEP) is quantified as the proportion of independent directors’ relative to the total board size. Board meetings (BODMEET) are quantified by the total number of board meetings conducted annually. Additionally, firm-level characteristics are controlled for by considering firm size (FSIZ), measured as the natural logarithm of total assets; profitability (ROA), measured as return on assets; and leverage (LEV), measured as the ratio of total debt to total assets.

3.3. Empirical Models

This study uses the Pooled Ordinary Least Squares (POLS) regression method to examine the relationship between corporate environmental mechanisms and corporate environmental performance. The multiple regression model serves as the primary tool for hypothesis testing as it is the most suitable for assessing the combined impact of several independent variables on a dependent variable. The empirical model is mathematically specified as follows:

CEP = β + β1 SUS_com + β2 SUS_rep + β3 SUS_extr + β4 BODSIZE + β5 BODMEET + β6 BODINDEP + β7
FSIZ + β8 LEV + β9 ROA + €

(1)

Model 2 illustrates the substitution of individual corporate environmental mechanism variables with a composite index (SUS_score), which functions as an aggregated metric to encapsulate the overall robustness of a firm’s sustainability governance framework.

CEP = β + β1 SUS_score + β2 BODSIZE + β3 BODMEET + β4 BODINDEP + β5 FSIZ + β6 LEV + β7 ROA + €

(2)

where

CEP	Overall company score based on reported information in the environmental pillars from the Asset4 database.
SUS_score	Composite index averaging the presence of sustainability committee, sustainability reporting, and external assurance to assess environmental governance strength
SUS_com	Indicator variable equal to 1 if a board-level sustainability committee exists; 0 otherwise.
SUS_rep	Indicator variable equal to 1 if the firm publishes sustainability reports; 0 otherwise.
SUS_extr	Indicator variable equal to 1 if the sustainability report is externally assured; 0 otherwise.
BODSIZE	Total number of directors on the board.
BODMEET	Number of board meetings held during the year.
BODINDEP	Proportion of independent directors on the board.
FSIZ	Natural logarithm of total revenues.
ROA	Return on assets, measured as net income divided by total assets.
LEV	Leverage ratio, measured as total debt divided by total assets.

4. Empirical Results

4.1. Descriptive Statistics

To mitigate the influence of extreme observations on the descriptive statistics of all variables,

Table 1. Summary statistics.

Variable	No.	Mean	SD	P25	P50	P75	Min.	Max.	Sk	Ku
CEP	188	17.5580	23.04397	0.0000	7.8850	38.4556	0.00	84.79	1.197	0.243
SUS_com	188	0.32	0.469	0.00	0.00	1.00	0	1	0.756	−1.444
SUS_rep	188	0.33	0.471	0.00	0.00	1.00	0	1	0.730	−1.483
SUS_extr	188	0.06	0.245	0.00	0.00	0.00	0	1	3.597	11.059
SUS_score	188	0.2394	0.32159	0.0000	0.0000	0.6667	0.00	1.00	1.026	−0.238
BODSIZE	188	9.9734	2.71741	8.5000	9.0000	11.0000	1.00	25.00	2.112	8.845
BODMEET	128	6.1016	2.14013	4.0000	6.0000	7.0000	2.00	15.00	1.511	3.741
BODINDEP	188	0.4259	0.12576	0.3485	0.4444	0.5420	0.09	0.80	0.327	0.437
FSIZ	135	9.9200	0.72676	9.2900	9.9143	10.3334	8.46	12.18	−0.059	−0.773
LEV	188	0.5956	0.65025	0.1998	0.6621	1.1255	0.00	3.90	1.463	2.873
ROA	188	0.0487	0.07621	0.0054	0.0269	0.0879	−0.14	0.38	1.730	4.253

We winsorized all the continuous variables at 1% level in order to control for the potential effects of extreme values and outliers.

applies winsorization to continuous variables at the 1% level. The mean corporate environmental performance (CEP) of 17.56, with a standard deviation of 23.04, further demonstrates cross-firm heterogeneity. A substantial proportion of the firms analyzed fell within the 1st (P25 = 0.00) and 3rd (P75 = 38.46) quartiles, indicating a low or negligible CEP. Conversely, a subset of firms in the sample reported a high CEP with a maximum value of 84.79.

In the context of sustainability governance mechanisms, 32% of companies have established a sustainability committee (SUS_com), 33% produce a sustainability report (SUS_rep), and a mere 6% obtain external assurance (SUS_extr). The composite measure (SUS_score) is 0.24, indicating that on average, most companies implement fewer than one-quarter of the three mechanisms under consideration. From a board perspective, the median board size (BODSIZE) is approximately 10, with a range of one to 25 directors, while the median frequency of board meetings (BODMEET) is 6.10, ranging from two to 15 meetings annually. The average percentage of board independence (BODINDEP) is 42.6%, ranging from 9% to 80%. Firm-level controls reveal an average firm size (FSIZ) of 9.92, measured as the logarithm of total assets, an average leverage (LEV) of 0.60, and an average return on assets (ROA) of 4.9, with some firms experiencing losses (minimum 0.14). These data demonstrate substantial heterogeneity across the sample in terms of governance structure and financial position, providing a robust foundation for evaluating the anticipated. The skewness and kurtosis statistics provide valuable insights into the empirical characteristics of ESG disclosure practices in Saudi Arabia. Most continuous variables demonstrate moderate right skewness (Sk ≈ 1–2) and acceptable levels of kurtosis (Ku < 10), which conform to widely accepted standards for applied research (Kline, 2015). Governance-related variables, such as external assurance, are inherently binary, and the relatively high kurtosis observed for assurance (Ku ≈ 11) reflects its limited occurrence in the market rather than any measurement bias. As Wooldridge (2010) elucidates, the consistency of OLS estimators is preserved under the central limit theorem, even in the absence of perfect normality. These distributional characteristics, therefore, substantiate the robustness and contextual relevance of our empirical findings.

The Pearson correlation matrix presented in

Table 2. Correlation matrix.

Variable	1	2	3	4	5	6	7	8	9	10
1. SUS_com	1
2. SUS_rep	0.577	1
3. SUS_extr	0.377	0.372	1
4. BODSIZE	0.032	−0.022	−0.013	1
5. BODMEET	−0.020	0.067	−0.047	0.028	1
6. BODINDEP	0.040	−0.006	−0.263	0.062	−0.078	1
7. FSIZ	0.463	0.510	0.374	0.010	0.282	−0.300	1
8. LEV	0.152	0.155	0.138	−0.140	0.051	−0.013	0.120	1
9. ROA	0.044	0.046	−0.021	−0.070	−0.237	−0.001	0.183	−0.296	1
10. SUS_score	N/A	N/A	N/A	0.001	0.015	−0.095	0.545	0.185	0.039	1

This table reports the Pearson correlation matrix between the variables used in the analyses, where coefficients in bold indicate significance at the 5% level or better.

illustrates the relationships among the study variables, with significant correlations at the 5% level highlighted in bold. According to Tabachnick and Fidell (2013), multicollinearity is identified when independent variables exhibit correlations of ≥0.90. The correlation matrices in Table 2 indicate the absence of multicollinearity, as no independent variables demonstrated a correlation exceeding 0.90, with the highest observed correlation of 0.577.

4.2. Hypotheses Testing

This section reports the empirical results of the pooled OLS regression as the dependent variable is a continuous measure. The hypothesized variables are sustainable committee existence, sustainable reporting, and sustainable external assurance as showing in

Table 3. Individual sustainable environmental mechanisms and CEP.

Variable	Expected Sign	Coef.	t	p > t	Tolerance	VIF
Constant		−56.256	−2.493	0.015
SUS_com	+	15.325	4.022	0.000	0.498	2.006
SUS_rep	+	14.215	3.736	0.000	0.490	2.040
SUS_extr	+	9.272	1.507	0.136	0.820	1.219
BODSIZE		−0.318	−0.616	0.539	0.932	1.073
BODMEET		0.155	0.243	0.809	0.769	1.301
BODINDEP		−24.176	−1.934	0.057	0.813	1.230
FSIZ		7.703	3.338	0.001	0.588	1.701
LEV		0.440	0.200	0.842	0.710	1.409
ROA		1.916	0.090	0.929	0.632	1.581

Adjusted R² 0.700, F-stat 22.764, p-value 0.000, N 188, DW 1.449.

.

Table 3 presents a summary of the multiple regression analysis conducted to assess the impact of sustainable environmental mechanisms on corporate environmental performance (CEP). The adjusted R-squared of the model is 0.700, indicating that the identified mechanisms explain 70 percent of the variance in the CEP. The overall fit of the model was corroborated by an F-statistic of 22.764 (p < 0.001), confirming the robustness of its explanatory power. The Durbin–Watson statistic is calculated to be 1.449. While this value does not reach the neutral benchmark of 2.0, it remains above the commonly accepted threshold of 1.5, suggesting there is no substantial evidence of problematic serial correlation (Gujarati & Porter, 2009).

As predicted, the existence of a sustainability committee (SUS_com) demonstrated a positive and statistically significant correlation with corporate environmental performance (CEP) (β = 15.325, t = 4.022, p < 0.001). A similar observation was made for sustainability reporting (SUS_rep), which also showed a positive and statistically significant impact on environmental performance (CEP) (β = 14.215, t = 3.736, p < 0.001). The variable representing external assurance of sustainability reporting (SUS_extr) exhibited a positive coefficient (β = 9.272); however, the correlation was not statistically significant (p = 0.136). This suggests that the mere presence of external verification does not enhance environmental performance in the absence of supportive governance structures.

In examining the control variables, firm size (FSIZ) demonstrates a significantly positive correlation with corporate environmental performance (CEP), as evidenced by a coefficient of β = 7.703, a t-statistic of 3.338, and a p-value of 0.001. This finding implies that larger firms are likely to exhibit superior environmental performance potentially because of increased resource availability and heightened stakeholder pressure. By contrast, board independence (BODINDEP) shows a weakly negative yet marginally significant relationship with CEP (β = −24.176, p = 0.057), suggesting that boards with greater independence might inadvertently hinder proactive environmental initiatives over time. The remaining control variables–board size (BODSIZE), board meeting frequency (BODMEET), leverage (LEV), and return on assets (ROA)–do not exhibit statistically significant associations with CEP within the parameters of the current model.

The variance inflation factor (VIF) values, which range from 1.073 to 2.040, are significantly below the conventional threshold of 10, thereby confirming the absence of multicollinearity. Collectively, these findings highlight the critical importance of structured sustainability governance, as demonstrated by dedicated sustainability committees and systematic sustainability reporting, in enhancing firm-level corporate environmental performance.

Table 4. Sustainable environmental mechanisms’ score and CEP.

Variable	Expected Sign	Coef.	t	p > t	Tolerance	VIF
Constant		−58.014	−2.609	0.011
SUS_score	+	42.068	8.939	0.000	0.692	1.445
BODSIZE		−0.274	−0.540	0.591	0.943	1.060
BODMEET		0.212	0.339	0.735	0.788	1.269
BODINDEP		−23.576	−1.941	0.056	0.846	1.182
FSIZ		7.794	3.412	0.001	0.589	1.697
LEV		0.396	0.182	0.856	0.711	1.407
ROA		5.311	0.256	0.799	0.658	1.520

Adjusted R² 0.705, F-stat 29.693, p-value 0.000, N 188, DW 1.484.

shows the regression analysis results assessing the influence of the composite sustainable environmental mechanism score (SUS_score) on corporate environmental performance (CEP). The model exhibited substantial explanatory power, as evidenced by an adjusted R² of 0.705, and an F-statistic of 29.693 was significant at the 1% level (p < 0.001), confirming the overall model fit. The coefficient for the SUS_score was both positive and statistically significant (β = 42.068, t = 8.939, p < 0.001), aligning with the hypothesized direction and highlighting the importance of integrated sustainability mechanisms for environmental performance. The variable denoting firm size (FSIZ) exerts a positive and statistically significant effect on CEP (β = 7.794, t = 3.412, p = 0.001), indicating that larger firms tend to achieve superior environmental outcomes, likely because of their greater resource capacity and increased stakeholder scrutiny. The measure of board independence (BODINDEP) is negatively associated with CEP and reaches marginal significance (β = −23.576, p = 0.056), corroborating the findings of the previous regression. This finding suggests that a higher proportion of independent directors may focus on oversight and regulatory compliance at the expense of proactive environmental initiatives.

Other board characteristics, specifically board size (BODSIZE) and board meetings (BODMEET), along with financial leverage (LEV) and profitability (ROA), do not demonstrate a statistically significant relationship with corporate environmental performance (CEP). The variance inflation factor (VIF) statistics range from 1.060 to 1.697, which is well below the conventional threshold of 10, indicating that the multicollinearity effects are negligible. Collectively, these findings provide robust, evidence-based confirmation that enhanced corporate commitment to comprehensive sustainability governance, operationalized through the composite sustainability governance score (SUS_score), acts as a significant catalyst for improving environmental performance. More broadly, evidence supports the notion that internal governance frameworks that are specifically oriented towards sustainability significantly enhance corporate environmental outcomes. Notably, the empirical data validate the effectiveness of dedicated sustainability committees combined with clearly defined sustainability oversight functions within board governance. Such specialized committees offer a structured platform for systematic dialog with diverse stakeholder constituencies, enabling firms to identify and prioritize critical environmental challenges and formulate strategic initiatives in alignment with long-term sustainability objectives.

Organizations that engage in open and transparent communication with stakeholders often produce sustainability reports as a structured means of articulating environmental objectives, interim achievements, and overall success. By disseminating timely and relevant disclosures, these reports enhance organizational credibility, thereby reinforcing a firm’s legitimacy among regulatory bodies, financial markets, and the public. In this context, external independent assurance adds an additional layer of reliability and credibility, thereby bolstering stakeholders’ confidence in the relevance and accuracy of environmental disclosures. Consequently, external assurance mitigates legitimacy pressures that arise in both highly competitive and heavily regulated sectors. The empirical findings indicate that the composite sustainability governance score (SUS_score) exerts a statistically significant and positive influence on firms’ environmental performance. This finding suggests that the implementation of a coordinated, multi-mechanistic governance framework yields superior performance effects compared to the adoption of any single governance mechanism in isolation. The combined influence of systematic board oversight and rigorous and comprehensive disclosure routines subject to third-party verification fosters a governance architecture that translates environmental intent into tangible outcomes and prevents mere superficial adherence to policy standards (Alwadani et al., 2024; Al-Shaer & Zaman, 2018; Peters & Romi, 2014, 2015; Al-Shaer, 2020).

4.3. Additional Robustness Tests

4.3.1. Sensitivity Analysis with COVID-19 Control

In terms of examining the individual sustainable mechanisms on CEP, we evaluated the potential influence of the pandemic on our results as shown in

Table 5. Individual sustainable environmental mechanisms and CEP.

Variable	Expected Sign	Coef.	t	p > t	Tolerance	VIF
Constant		−64.062	−2.660	0.010
SUS_com	+	14.982	3.910	0.000	0.494	2.025
SUS_rep	+	13.832	3.612	0.001	0.485	2.063
SUS_extr	+	8.707	1.407	0.164	0.812	1.231
BODSIZE		−0.281	−0.544	0.588	0.927	1.079
BODMEET		0.120	0.188	0.852	0.766	1.305
BODINDEP		−23.830	−1.904	0.061	0.812	1.231
FSIZ		8.294	3.464	0.001	0.547	1.829
LEV		1.141	0.491	0.625	0.636	1.573
ROA		1.631	0.076	0.939	0.632	1.582
COVID-19		2.752	0.934	0.353	0.796	1.256

Adjusted R² 0.699, F-stat 20.540, p-value 0.000, N 188, DW 1.470.

. we incorporated a COVID-19 dummy variable (1 for the years 2020–2021, 0 otherwise) into the baseline model. The pivot variables, SUS_com and SUS_rep, continue to demonstrate positive and statistically significant correlations with environmental performance, with only minor changes in magnitude (approximately 2–3%). SUS_extr remains positive but statistically insignificant. There are no significant changes in model diagnostics (adjusted R² of 0.699 compared to 0.700 in the baseline, no multicollinearity with VIFs ranging from 1.1 to 2.1, and no serial correlation with a Durbin–Watson statistic of 1.470). The COVID-19 variable in the pandemic-sensitive model is statistically insignificant (p = 0.353). These findings indicate that our primary relationships persist, suggesting they are not spurious correlations induced by the COVID-19 pandemic.

The composite sustainability governance score remains consistently and significantly positive both prior to and following the COVID-19 period as shown in

Table 6. Sustainable environmental mechanisms’ score and CEP.

Variable	Expected sign	Coef.	t	p > t	Tolerance	VIF
Constant		−65.660	−2.762	0.007
SUS_score	+	40.930	8.401	0.000	0.647	1.546
BODSIZE		−0.237	−0.466	0.643	0.937	1.067
BODMEET		0.180	0.287	0.775	0.785	1.273
BODINDEP		−23.219	−1.909	0.060	0.845	1.183
FSIZ		8.371	3.529	0.001	0.548	1.826
LEV		1.075	0.467	0.642	0.637	1.570
ROA		5.155	0.248	0.805	0.658	1.520
COVID-19		2.674	0.916	0.363	0.797	1.255

Adjusted R² 0.704, F-stat 26.032, p-value 0.000, N 188, DW 1.507.

. The variation between these periods is minimal, approximately 2.7%, increasing from 40.930 (t = 8.40, p < 0.001) to 42.068 (t = 8.94, p < 0.001), underscoring the stability of this relationship in economically meaningful terms. Essentially, stronger sustainability governance is consistently associated with enhanced environmental outcomes. When considering firm size (FSIZ), which continues to be a positive and significant factor (β increases from 7.79 to 8.37), and board independence (BODINDEP), which suggests that formal independence alone does not yield significant environmental benefits, the findings emphasize the necessity of additional, substantive sustainability structures within governance frameworks. Aside from board size/meetings, leverage, and ROA, most control variables remain stable and statistically significant, indicating a robust governance setup that supports sustainability goals. Model diagnostics further confirm this robustness.

The adjusted R² remains nearly unchanged (0.705 vs. 0.704), and while the F-statistics remain strongly significant (p < 0.001), the variance inflation factors remain low (around 1.06 to 1.83), suggesting minimal multicollinearity. The Durbin–Watson statistic shifts slightly from 1.48 to 1.51, indicating some correlation but not at a problematic level. The COVID-19 dummy variable is statistically insignificant (β = 2.674, p = 0.363), reinforcing that the observed relationships are stable and unaffected by pandemic-related shocks. Collectively, these results bolster confidence in the core findings. Integrated sustainability governance, as captured through the composite score, is clearly and consistently linked to improved environmental performance in Saudi Arabia. This relationship appears well-sized, responsive, and resilient, even during crisis periods.

4.3.2. Sensitivity Analysis with Alternative Dependent Variable (EGS)

Substituting the dependent variable from CEP to EGS does not modify the fundamental findings as shown by

Table 7. Individual sustainable environmental mechanisms and EGS.

Variable	Expected Sign	Coef.	t	p > t	Tolerance	VIF
Constant		−18.835	−0.794	0.429
SUS_com	+	10.866	2.714	0.008	0.498	2.006
SUS_rep	+	14.137	3.537	0.001	0.490	2.040
SUS_extr	+	10.318	1.596	0.115	0.820	1.219
BODSIZE		−1.015	−1.876	0.065	0.932	1.073
BODMEET		0.201	0.300	0.765	0.769	1.301
BODINDEP		−0.254	−0.019	0.985	0.813	1.230
FSIZ		5.619	2.318	0.023	0.588	1.701
LEV		−4.022	−1.742	0.086	0.710	1.409
ROA		−37.863	−1.686	0.096	0.632	1.581

Adjusted R² 0.579, F-stat 11.457, p-value 0.000, N 188, DW 1.406.

. The two principal governance mechanisms, Sustainability Committee (SUS_com) and Sustainability Reporting (SUS_rep), continue to exert a significant and positive influence in both models. Their coefficients remain robust (CEP: β = 15.33, 14.22; EGS: β = 10.87, 14.14; all p ≤ 0.008). Although External Assurance (SUS_extr) remains positive, it does not achieve statistical significance (CEP: p = 0.136; EGS: p = 0.115), likely due to the low adoption rate of guarantees within the sample. The control variables demonstrate consistent patterns; Firm size (FSIZ) is positively correlated with environmental outcomes in both models, with statistically significant results (CEP: p = 0.001; EGS: p = 0.023). Under the EGS framework, Board size (BODSIZE) becomes slightly negative (p = 0.065), while Leverage (LEV) and Return on Assets (ROA) also exhibit slight negative trends (p ≈ 0.09). The EGS metric, which encompasses broader ESG-oriented scoring practices, may reflect greater sensitivity to a firm’s capital structure and profitability compared to the more performance-focused CEP measure.

The model diagnostics remain robust: variance inflation factors (VIFs) are low (ranging from 1.1 to 2.0), and the Durbin–Watson statistic is stable at approximately 1.41. As anticipated, the adjusted R2 decreases from CEP (0.700) to EGS (0.579), since EGS is noisier and more disclosure-intensive, whereas CEP is more performance-driven. Crucially, the core governance variables retain their direction and significance, reinforcing the assertion that sustainability committees and sustainability reporting are reliable predictors of environmental performance, irrespective of the specific measure employed.

As for the composite score of sustainable mechanisms, Substituting EGS for CEP as the dependent variable does not alter the primary conclusion as shown in

Table 8. Sustainable environmental mechanisms’ score and EGS.

Variable	Expected Sign	Coef.	t	p > t	Tolerance	VIF
Constant		−18.677	−0.801	0.425
SUS_score	+	36.561	7.412	0.000	0.692	1.445
BODSIZE		−0.995	−1.871	0.065	0.943	1.060
BODMEET		0.256	0.390	0.698	0.788	1.269
BODINDEP		−1.392	−0.109	0.913	0.846	1.182
FSIZ		5.621	2.348	0.021	0.589	1.697
LEV		−4.070	−1.783	0.078	0.711	1.407
ROA		−37.033	−1.700	0.093	0.658	1.520

Adjusted R² 0.539, F-stat 15.012, p-value 0.000, N 188, DW 1.414.

.

The composite governance score (SUS_score) remains strongly positive and highly significant in both models (CEP: β = 42.07, t = 8.94, p < 0.001; EGS: β = 36.56, t = 7.41, p < 0.001). Although there is a slight reduction in effect size—approximately 13%—the relationship continues to be economically significant and statistically robust. This finding supports the assertion that enhanced sustainability governance is consistently associated with improved environmental outcomes, irrespective of the metric employed. Control variables exhibit stable patterns. Firm size continues to be a significant positive factor in both models (CEP: p = 0.001; EGS: p = 0.021). Under EGS, board size becomes slightly negative (p = 0.065), and both leverage and ROA shift to weakly negative values (p ≈ 0.08–0.09). These patterns suggest that the disclosure-intensive nature of EGS renders it somewhat more sensitive to a firm’s size and financial structure compared to the more performance-oriented CEP measure. Model diagnostics remain robust: VIFs are low (approximately 1.06–1.70), and the Durbin–Watson statistic remains within acceptable limits (around 1.41–1.48). As anticipated, the adjusted R² decreases from 0.705 (CEP) to 0.539 (EGS), reflecting EGS’s greater variability and its emphasis on disclosure rather than outcomes. Importantly, the strength, direction, and statistical significance of SUS_score remain unchanged under EGS. This consistency enhances the construct validity of the relationship between governance and environmental performance, demonstrating that the findings are not contingent on the choice of performance metric.

4.3.3. Robustness to Heteroskedasticity (HC-Type Robust SEs)

As shown by

Table 9. Robustness to heteroskedasticity (HC-type Robust SEs)—individual sustainable environmental mechanisms’ model.

Variable	Coef.	Robust SE (HC)	z (≈t)	p-Value	95% CI Lower	95% CI Upper
Constant	−17.444	18.7139	−0.93	0.351	−54.123	19.234
SUS_com	+15.325	5.0077	3.06	0.002	5.510	25.140
SUS_rep	+14.215	5.3340	2.66	0.008	3.761	24.670
SUS_extr	+9.272	8.4283	1.10	0.271	−7.247	25.791
BODSIZE	−0.318	0.3753	−0.85	0.398	−1.053	0.418
BODMEET	+0.155	0.4126	0.38	0.706	−0.653	0.964
BODINDEP	−24.176	9.5505	−2.53	0.011	−42.895	−5.457
FSIZ	+7.703	1.9719	3.91	0.000	3.838	11.568
LEV	+0.440	3.0658	0.14	0.886	−5.569	6.449
ROA	+1.916	21.7296	0.09	0.930	−40.673	44.505

Omnibus LR χ²(9) = 111.934, p < 0.001; AIC = 676.251; BIC = 703.120.

, the robustness test using heteroskedasticity-consistent (HC-type) standard errors confirms the stability and reliability of the main model’s findings. The coefficients of SUS_Committee and SUS_Reporting remain positive and statistically significant at the 1% level, reinforcing their substantial contribution to corporate environmental performance. Although SUS_Report_External remains positive yet insignificant, this outcome reflects its limited adoption rate in the Saudi context rather than statistical weakness. Control variables such as Board Independence and Firm Size also retain their significance, indicating consistent governance and scale effects. Overall, the model demonstrates robustness against heteroskedasticity, enhancing the credibility of the empirical results.

Table 10. Robustness to heteroskedasticity (HC-type Robust SEs)—composite sustainable environmental mechanisms score’s model.

Variable	Coef.	Robust SE (HC)	z (≈t)	p-Value	95% CI Lower	95% CI Upper
Constant	−58.014	17.2242	−3.37	0.001	−91.773	−24.255
SUS_score	+42.068	4.8634	8.94	0.000	32.536	51.600
BODSIZE	−0.274	0.3590	−0.76	0.445	−0.978	0.430
BODMEET	+0.212	0.4560	0.47	0.642	−0.682	1.106
BODINDEP	−23.576	9.7088	−2.43	0.015	−42.605	−4.547
FSIZ	+7.794	1.9295	4.04	0.000	4.012	11.575
LEV	+0.396	3.2414	0.12	0.903	−5.957	6.749
ROA	+5.311	20.9042	0.25	0.799	−35.660	46.283

Omnibus LR χ²(7) = 111.194, p < 0.001; AIC = 672.991; BIC = 694.975.

shows that using HC-type robust SEs, the composite sustainability governance score (SUS_Score) remains strongly positive and highly significant, indicating that denser sustainability governance co-moves with higher environmental performance. Board independence is negative and significant, while firm size is positive and significant, mirroring baseline conclusions. Other controls are statistically unchanged, confirming that the main inference is robust to heteroskedasticity.

5. Conclusions

This study investigates the relationship between internal sustainability governance mechanisms and corporate environmental performance (CEP) in Saudi Arabia’s rapidly evolving sustainability setting. This study focuses on three specific environmental mechanisms: (1) the formal establishment of a sustainability committee, (2) the periodic issuance of sustainability reports, and (3) the external, independent assurance of sustainability reports. Each practice was analyzed both individually and collectively through a composite sustainability score, which estimates the composite impact of governance architecture on CEP enhancement. The empirical analysis was conducted on a dataset comprising 188 firm-year observations from publicly listed Saudi corporations, utilizing sustainability reports and accounting disclosures that are readily accessible to users. Regression analysis was performed using ordinary least squares (OLS) models.

This study provides several empirical findings. First, the presence of a formal sustainability committee and the active dissemination of sustainability reports are significantly and positively associated with corporate environmental performance (CEP). Second, although the empirical estimate for the external assurance of sustainability disclosures indicates a positive relationship, the coefficient does not achieve conventional statistical significance within the expected single-regression framework. This suggests that the current practice of assurance in Saudi capital markets remains varied and potentially underdeveloped, in terms of both density and rigor. Third, the composite sustainability score, which consolidates distinct and observable sustainable variables, has a positive and statistically significant differential effect on the CEP. This indicates that the composite sustainable mechanisms produce a greater aggregate effect than the sum of their individual components.

This study had several limitations. The dataset is confined to companies listed on the Saudi exchange (Tadawul), which constrains the generalizability of the findings to unlisted companies and smaller firms, as their motivations and capacities for disclosure may differ. The composite score for corporate environmental performance was derived from publicly available environmental indicators, which may be influenced by non-disclosure, selective reporting, and timing issues. Additionally, the cross-sectional nature of the study limits its capacity to infer causality. Governance structures, resource allocations, and environmental outcomes may co-evolve and influence each other over time, rendering the current data insufficient for determining directionality and mechanisms. Future research should adopt a longitudinal approach to identify time lags, leads, and feedback loops among governance, resources, and performance variables, including non-listed firms in the dataset; conduct comparative analyses both within and across national borders; and incorporate qualitative insights from case studies that capture the interpretation and application of governance norms beyond their public declarations. Subsequent studies might explicitly model moderating factors, such as industry-specific risk profiles, the impact of regulatory inspections and penalties, and the characteristics and motivations of institutional investor equity holders, all of which affect the efficacy of governance practices.

This study theoretically contributes to the discourse on corporate governance and sustainability by offering empirical evidence from an emerging economy, thereby broadening the existing knowledge base that predominantly focuses on developed markets. The findings support the assertions of stakeholder and legitimacy theories, demonstrating that the intentional institutionalization of governance frameworks enhances environmental performance and bolsters stakeholder trust. This evidence is of immediate significance to policymakers, regulators, and the boards of directors. Supervisory authorities and norm-setting bodies are encouraged to incorporate or develop provisions mandating the establishment of sustainability subcommittees and systematic disclosure protocols as essential components of corporate governance codes. Directors should perceive these structures as strategic enablers of sustainable value creation rather than mere compliance tools. The statistically significant correlation between the composite governance score and corporate environmental performance suggests that the simultaneous implementation of multiple sustainability governance arrangements is likely to produce superior environmental outcomes. The findings of this study contribute significantly to the advancement of sustainable business practices in developing markets. The research illustrates how structured sustainability governance and specific external mechanisms, such as external assurance, can enhance environmental outcomes. The study advocates for a transition from merely “friendly” ESG disclosure to “active” value creation, aligning with the journal’s emphasis on Corporate Finance and ESG as critical components for the future of business sustainability. Within the framework of Saudi Arabia’s Vision 2030, these findings highlight how market practitioners, regulators, and corporate boards can enhance the credibility and effectiveness of ESG initiatives, thereby facilitating the country’s transition towards ESG integration. The findings of this research have substantial implications for Saudi Arabia’s trajectory toward sustainable development. By illustrating that governance-driven transparency and credibility mechanisms can significantly enhance corporate environmental performance, the study offers evidence-based support for national policies that promote corporate accountability in alignment with Vision 2030. Furthermore, the results highlight the significance of the United Nations Sustainable Development Goals, particularly SDG 12 and SDG 13, by demonstrating how formal internal structures, such as sustainability committees and assurance practices, serve as effective tools for advancing sustainable production and climate action. As companies align with these global objectives, they not only mitigate their environmental impact but also strengthen their long-term resilience and contribute to the nation’s economic transformation.