Institutional Ownership and Climate-Related Disclosures in Malaysia: The Moderating Role of Sustainability Committees

Abstract

This study explores the relationship between institutional shareholders and climate-related disclosure (CRD) and how sustainability committees influence this relationship among publicly listed Malaysian firms. For the analysis, 990 firm-year observations were studied from 198 highly polluting firms from 2021 to 2024. A strong CRD index was designed using the recognized climate reporting frameworks and well-grounded literature to assess the level of climate-related disclosure. Fixed-effects and hierarchical panel regression models show that CRD increases when institutional investor ownership increases, meaning firms with more institutional investors disclose more information on climate-related topics. In addition, a sustainability committee at the board level greatly improves this relationship by highlighting the positive impact of strong internal governance. As a result, such committees establish climate management and improve communication with investors, making the firm’s actions more transparent. The findings of this study are consistent with agency and legitimacy theories because institutional investors assist in monitoring firms’ environmental performance, and sustainability committees help the company maintain these standards internally. Further, this study helps grow the understanding of corporate governance (CG) and sustainability by pointing out that the presence of institutional owners and sustainability committees can promote openness about climate matters. Accordingly, these findings can guide policymakers, investors, and business leaders in boosting responsible environmental reporting and sustainable business practices in developing countries.

1. Introduction

Global economies, ecosystems, and social progress depend on each other and are seriously threatened by climate change. By pushing businesses to be more responsible for environmental and climate-related concerns, governments and multilateral organizations have significantly tried to counteract their influence [1]. Globally, climate change compromises societal development and economic resilience [2]. Aiming to prevent severe anthropogenic interference with the climate system by utilizing the stabilization of greenhouse gas (GHG) concentrations, the acceptance of the United Nations Framework Convention on Climate Change (UNFCCC) in 1992 marked a turning point [3]. The Kyoto Protocol, which launched explicit policies and clear guidelines for climate governance and drove worldwide regulatory attempts to reduce emissions, followed this in 1997. After Russia’s 2004 ratification, the protocol took effect on 16 February 2005. Still, other countries, including Australia, Switzerland, and the United States, have turned down the ratification of the protocol [4]. Signatory nations promised to set rules to track and control CO₂, methane, and nitrous oxides [3].

Over the past two decades, Malaysia has seen increased temperatures and erratic rainfall patterns, intensifying the focus on climate change and its repercussions [5]. In response, the government accepted the UNFCCC and the Kyoto Protocol, agreeing to reduce GHG emissions through international collaboration [6]. However, despite these agreements and imposed emission restrictions, carbon emissions have continued to climb in Malaysia, resulting in higher surface temperatures and drier years, notably in Peninsular regions [7]. Industrial expansion and production growth have exacerbated environmental concerns, bringing enterprises under substantial pressure to connect profitability with environmental responsibility [8]. As such, firms face growing scrutiny to demonstrate accountability in addressing environmental impacts. Stakeholders are also more aware of the ecological harm caused by corporate activities, hence amplifying demands for firms to offset their environmental footprints [9].

Traditionally, firm disclosures focused exclusively on financial performance. However, disclosure procedures have evolved dramatically to include social and environmental factors [10]. Environmental reporting is becoming a strategic focus globally, driven by rising institutional and public pressures connected to sustainability challenges such as climate change, deforestation, and resource scarcity [11]. Despite the emergence of global climate reporting systems such as the UNFCCC, the Paris Agreement, the Task Force on Climate-related Financial Disclosures (TCFD), and the Global Reporting Initiative, their effectiveness in pushing firm-level climate-related disclosure remains dubious [12]. Firms sometimes disclose climate information freely through annual or sustainability reports, but this voluntary method has drawn criticism, particularly for enabling greenwashing [13]. Studies indicate that corporations typically use climate-related disclosure to legitimize rather than enlighten, jeopardizing transparency and quality [14]. While more corporations release climate information, its quality, comparability, and standardization remain unsatisfactory, often failing to meet investor needs and permitting managerial manipulation [12]. Furthermore, inadequate access to emissions data impairs stakeholders’ ability to judge firms’ genuine environmental performance [9].

Given the increased global interest in climate-related disclosure, earlier studies have highlighted numerous critical criteria determining the extent and quality of such disclosures. These include the composition and effectiveness of the board of directors, the supervisory role of audit committees, strategic decisions made by management, regulatory frameworks, and firms’ level of environmental consciousness [15,16,17]. Each element is crucial in defining how and why corporations publish climate-related information. However, among these qualities, institutional ownership remains a source of serious contention and continuous research within the academic community [18]. While some studies argue that institutional investors, particularly those with long-term interests, promote greater transparency and accountability by pressuring firms to disclose climate-related risks and actions [19], others suggest that institutional ownership may not consistently lead to enhanced disclosure, especially in contexts where governance mechanisms are weak or where institutions are more concerned with short-term financial returns [20]. This ambiguity underscores the need for further research to explain the influence of institutional ownership on climate change disclosure and to examine the scenarios under which it works as a catalyst for enhanced environmental reporting.

Boards of directors often execute their obligations either collectively or through specialized subcommittees answerable to the board [12]. The efficiency of a board depends not only on its composition but also on the performance of its subcommittees, which increases governance quality and permits better-informed decision making [18]. Specialized committees enable concentrated analysis and professional guidance on critical governance issues [10]. Past research has mostly studied the influence of traditional committees, such as audit committees, in the context of climate change disclosure. However, emergent structures, including sustainability committees in charge especially of ESG-related monitoring, have gained scant scholarly attention despite their growing relevance in directing firms’ climate-related goals and disclosures [21]. Stakeholder pressure for enhanced climate change-related disclosure openness has driven firms to form board-level frameworks, such as sustainability committees, to address climate-related concerns [22]. These committees can advise top management on emission reduction efforts and help create disclosure regulations that reflect stakeholder expectations [21]. As such, sustainability committees may have a moderating impact by strengthening institutional investors’ scrutiny of management behavior regarding climate-related disclosure [18]. Establishing such committees displays a firm’s environmental commitment and promotes incorporating climate concerns into strategic reporting [23]. Thus, addressing the current knowledge gap about the function of sustainability committees in climate disclosure is vital for strengthening academic understanding and practical governance.

This study assesses 990 observations from 198 Malaysian firms across highly polluting industries. The findings suggest a positive and significant relationship between institutional ownership and the level of climate change disclosure, showing that institutional investors play a vital role in fostering transparency by compelling firms to strengthen their climate reporting. Additionally, sustainability committees positively moderate this link, suggesting they improve institutional investors’ influence by providing structured supervision and aligning firms with climate disclosure guidelines. Accordingly, this study provides numerous additions to the scholarly literature. First, greater attention is paid to the role of institutional investors as monitors and drivers of environmental disclosure standards [20]. Institutional investors are often inspired by views on social responsibility to reward firms with strong environmental performance and transparent reporting, as this minimizes monitoring expenses [12]. While earlier research has focused mostly on their influence over corporate social responsibility (CSR) and non-financial disclosures [24], studies specifically tying institutional ownership to climate change disclosure remain sparse. Moreover, the extent to which institutional investors monitor managerial behavior related to climate change disclosure is yet unknown. Therefore, this study adds to the literature by analyzing the impact of institutional ownership on climate change disclosure among Malaysian-listed corporations.

Second, while audit committees have traditionally been part of board governance frameworks, sustainability committees are a relatively recent development [21,22,23]. These committees convey to stakeholders that corporations are addressing increased requests for environmental information [23]. However, minimal research has explored the impact of sustainability committees on climate change-related disclosures. Most existing research has focused on their direct influence on traditional non-financial reporting, such as CSR disclosure [25]. Given that internal and external CG mechanisms can complement one another [18], the potential interactive role of sustainability committees with other CG mechanisms, such as institutional investors, remains underexplored. To the best of the author’s knowledge, this study is the first to analyze such interactions in the context of climate-related disclosures. Thus, a fundamental contribution of this research is its original insight into the complementary role of sustainability committees in altering organizations’ climate disclosure practices and guiding future research.

Lastly, considering the expanding global concerns about carbon emissions and disclosure connected to climate change, there is a shortage of empirical research about climate-related disclosure in developing countries such as Malaysia. Most climate-related disclosure research was undertaken in industrialized countries [23]. Climate change accounting is comparable to the link between sustainability accounting and sustainability reporting. Although environmental disclosure has attracted substantial attention from enterprises and scholars due to the increased awareness of ecological challenges [17,18,19,21], only a few studies have been undertaken in developing nations [9]. The relevance of findings from developed states to emerging states may be limited due to the variations in policy and regulation, as well as the political, social, and economic issues [12]. Hence, the present study, which was undertaken in Malaysia, a developing nation, presents a particular scholarly addition to the disciplines of CG and climate-related disclosures. It presents unique insights and empirical facts from emerging economies, which can be generalized to other similar markets that share comparable social, economic, and environmental variables with Malaysia.

The rest of this paper is organized as follows: Section 2 discusses this study’s contextual background, Section 3 presents a literature review, and Section 4 and Section 5 discuss the theoretical framework and hypothesis development, respectively. Section 6 and Section 7 outline this study’s data, variables, research methods, and results. Finally, Section 8 discusses the results, and concludes this study.

2. Contextual Background

Like many other developing countries, Malaysia suffers major environmental problems from fast industrialization, urban growth, and higher greenhouse gas (GHG) emissions. Rising temperatures, erratic weather patterns, and more frequent climate-related catastrophes, including floods and droughts, have been experienced by the nation throughout the past two decades [7]. These environmental changes have attracted national notice to the pressing necessity of sustainable development and climate action. Malaysia has shown that it will reduce emissions and confront climate change by participating in international environmental accords such as the Kyoto Protocol and the UNFCCC [6]. To include sustainability in its development plan, the government has instituted several environmental rules and policies at the national level, including the Green Technology Master Plan and the National Policy on Climate Change [21].

Notwithstanding these initiatives, Malaysia’s corporate sector has shown conflicting development in climate-related disclosures. Historically, financial performance has dominated corporate reporting in Malaysia; environmental issues have had a secondary role [12]. However, as knowledge of environmental damage and climate change rises, firms are under an increasing amount of pressure from civil society, investors, and governments to provide climate-related data freely [9]. The Malaysian Code on Corporate Governance (MCCG) was revised in 2021 to specifically underline the board’s responsibilities in controlling sustainability risks and opportunities, including climate change, thereby supporting this transition [11]. In line with worldwide moves towards environmental responsibility, the revised MCCG exhorts listed companies to include climate issues in their policies and disclose carbon emissions [12].

Nonetheless, climate-related disclosures in Malaysia remain mostly voluntary and vary substantially in depth and quality across businesses. While some firms, particularly in high-emission sectors, such as energy, manufacturing, and construction, have begun integrating climate data into their annual or sustainability reports, others provide minimal or generic information [26]. The lack of defined frameworks, enforcement mechanisms, and industry benchmarks continues to hamper the uniformity and comparability of disclosures [21]. Moreover, worries about greenwashing and symbolic reporting exist, as some corporations may release climate-related information purely for reputational purposes rather than as part of a genuine sustainability strategy [19]. This raises problems regarding the trustworthiness, completeness, and utility of the revealed data, particularly in the absence of statutory reporting standards [27]. In this environment, boosting climate-related disclosure standards in Malaysia is crucial for enhancing corporate transparency, enabling informed decision making by stakeholders, and ensuring alignment with national and global climate obligations [23]. As Malaysia evolves toward a low-carbon economy, creating a robust climate disclosure culture will be vital for attaining sustainable growth and reaching long-term environmental commitments [9].

Thus, it is important to conduct this study in Malaysia, where there is an increase in the exposure to climate risks and the country depends on a voluntary disclosure framework. Although governance frameworks such as the MCCG 2021 and that of Bursa Malaysia on sustainability reporting promote transparency in climate-related reporting, their application is weak [9]. Simultaneously, the corporate environment in Malaysia, where institutional investors are mainly government-related, provides an exclusive setting to investigate the impact of internal and external governance mechanisms on disclosure practices [12]. Most previous studies concentrate on developed markets; therefore, this study fills a significant gap by providing facts on a developing economy where climate governance and reporting are still in their initial stages.

3. Literature Review

This section offers an in-depth overview of the existing literature on climate-related disclosures and governance mechanisms that can affect climate-related disclosures. The literature review is structured following the research objectives and presents three thematic areas according to the primary constructs of the research model. To begin with, this review presents a conceptual background and the development of climate-related disclosures, insisting on their increased importance in the context of corporate reporting systems. Second, it also critically studies the role of institutional ownership as a corporate governance tool and its possible influence on the transparency and quality of environmental reporting. Third, it discusses the rise of sustainability committees through the boardroom and their impacts on the environmental responsibility of firms. Thus, by organizing the literature review in this way, this paper attempts to give a theoretically oriented and empirically informed picture of the variables to be discussed, which would form a clear rationale for the further formulation of the paper’s hypotheses.

3.1. Climate-Related Disclosures

Climate-related disclosures emerged as a response to the rising recognition of climate change as a substantial universal concern. Although the term climate disclosure may not have been widely used in the early stages, revealing climate information began to gain attention in the late 1990s and early 2000s [28]. Climate disclosure is also referred to as the accounting of carbon emissions and carbon sequestration because it is not closely related to the traditional accounting measurement [12]. As a result, the term carbon accounting appears for the first time in the accounting literature, and it also marks the beginning of climate change accounting, receiving interest and concerns from international accounting academics as an essential and unique accounting issue [26]. Climate-related disclosures and accounting involve tracking and reporting greenhouse gas (GHG) emissions, assessing their financial implications, and disclosing this information through regulatory or voluntary frameworks [23]. Originally referred to as carbon accounting, this practice includes maintaining an emissions inventory, reporting emissions in CO₂-equivalent, and reflecting emission-related liabilities and assets in financial statements [9]. As regulatory demands grow, firms increasingly disclose climate-related data to demonstrate compliance and manage stakeholder expectations. The scope has evolved to include broader climate-related disclosures, integrating GHG reporting and narrative carbon disclosure [4].

Firms rely on external stakeholders to obtain resources, allowing climate change actors to influence how businesses operate [19]. To stay credible and earn trust, firms now reveal climate-related facts, mainly about carbon emissions, as a smart response to pressure from environmental and social groups [15]. Being clear about climate issues can improve investor confidence, attract money focused on sustainability, and lower the gaps in information between investors and companies [14]. The government, investors, and the public encourage firms in carbon-heavy industries to adopt sustainable climate practices. That is why several companies willingly share climate information to follow new trends, avoid new rules, and stay seen as legitimate [12]. Still, some organizations may present their emission reduction plans as a gesture rather than thorough, genuine efforts [9]. Moreover, the practice of disclosing climate-related matters can increase the risks to the environment, society, and corporations because it helps speed up climate change [21]. As a result, many countries have introduced carbon regulations, including New Zealand’s ETS, which was created in 2008 to help cut greenhouse gas emissions. Firms in the ETS are required to hand over NZUs to account for their emissions; if they do not, they can be fined [29]. Failure to comply with emissions targets may bring regulatory fines or financial charges for firms. By recording and revealing how much greenhouse gas and energy they use, firms can show compliance and prevent facing these additional costs [23]. However, facing problems with climate-related disclosures, firms, governments, and society can benefit from managing them strategically [18]. Nowadays, many businesses point out their lower GHG impact and add sustainability efforts to their branding to improve their reputation and financial returns [15].

According to Ernst & Young (2010) [30], many equity analysts consider climate-related factors when assessing companies. Sharing clear information about the environment can allow firms to be recognized, appeal to environmentally minded customers, and show readiness for new regulations. In addition, open and comprehensive climate-related reporting may attract the attention of investors and lenders who are concerned about the environment [21]. Modern trends have largely reorganized the climate disclosure environment, with the general trend towards a consensus supporting goals to standardize prospective reporting [13]. The stakeholder expectations have been shifted collectively through frameworks, most well-known being the Task Force on Climate-related Financial Disclosures (TCFD), the International Sustainability Standards Board (ISSB), and other legislative or regulatory reporting initiatives in the EU, UK, New Zealand, and other jurisdictions [21]. The unifying factor behind these instruments is the necessity of timely, decision-making, useful information to address the information needs of both internal stakeholders (including managers and employees) and external stakeholders (investors, regulators, and the general population) [15]. In this regard, disclosures related to climate take both a place in enhancing transparency and driving decision making around risk assessment and a position in shaping corporate strategy, stakeholder relationships, and access to capital. This means that the usefulness and the quality of such disclosures should be reviewed periodically, along with the changes in standards and increased stakeholder demand [23].

In summary, companies now rely on climate-related disclosures and accounting to address environmental risks, fulfil regulatory obligations, and respond to stakeholders’ expectations. At first focusing on carbon accounting, these approaches have now grown to include reporting on all greenhouse gases and financial matters related to climate change. Since climate change is a pressing global problem, firms find they must meet new regulations and are choosing to use their climate disclosures to increase their reputation, attract investors, and improve their competitiveness.

3.2. Institutional Ownership

Institutional ownership is part of a corporation’s shares owned by institutional investors [31]. Black (1991) [32] stated that institutional shareholders can be classified into institutional control and voice. The first participates in corporate business via key occupational positions, such as manager or director. In contrast, the latter does not involve management but can challenge and pressure corporate managers. Institutional ownership ensures that managers within the firm practice good CG [33]. Good CG improves investor confidence and assists firms in attracting and expanding foreign and local investments [24]. In addition, enhancing CG will improve the firm’s disclosure to interested users, minimize the firm’s capital cost, and boost shares’ marketability [12].

The impact of institutional ownership and the resultant effect of its engagement in firms has become the subject of numerous studies [18]. Researchers have raised an important question regarding high-level institutional ownership: “Does institutional ownership enhance, diminish, or have no impact on corporate efficiency?” [34]. Since then, many studies have addressed and investigated this question and reached several conclusions. For example, Elyasiani and Jia (2010) [35] investigated the relationship between institutional ownership stability and firm performance. The study indicated a positive relationship between institutional ownership and firm performance stability. Baghdadi et al. (2018) [36] studied whether the efficiency with which managers generate revenue is sensitive to monitoring by institutional investors in the US from 1989 to 2015. The study findings confirmed that institutional investors’ monitoring role assists firms in improving their managerial efficiency, which suggests that greater institutional ownership leads to higher management monitoring actions and increases the optimal supervision of the firms [31].

Institutional investors mainly care about the financial results and dangers of investing, leading them to pay more attention to ESG factors in their decisions [24]. Therefore, companies are now more transparent, especially regarding environmental matters, as the UN Principles for Responsible Investment (PRI) promote including ESG factors [35]. Various studies in the academic literature have shown a connection between firm disclosure and ownership by institutions [24,31,32]. Because institutional investors carry important information, they are more likely to choose companies that follow clear disclosure practices [18]. Chang and Zhang (2011) [31] demonstrated that institutional investors encourage companies in polluting industries to be more open about their environmental practices. Likewise, Velte (2020) [20] showed that firms doing well in ESG tend to obtain more institutional investment, indicating that ownership by institutions can boost the company’s environmental efforts and outcomes. Adam et al. (2025) [18] also discovered that engaging in climate issues with institutional investors improves shareholder value, mostly where climate concerns are important. In addition, Akbaş et al. (2018) [37] revealed that Turkish firms with more institutional investors are more likely to disclose their GHG emissions voluntarily. Similarly, Ilhan et al. (2020) [38] found that social and civil law countries’ institutional investors push for more voluntary carbon reporting with greater detail.

Although many studies show that institutional ownership increases disclosure on non-financial matters such as carbon emissions, some research suggests the opposite. According to Aluchna et al. (2022) [39], publicly traded firms on the Warsaw Stock Exchange had less non-financial disclosure when they had more institutional ownership. According to Nair et al. (2019) [40], institutional ownership had no significant effect on the CSR-related disclosures of top Indian firms covered by the Companies Act 2013. Although institutional ownership usually supports better transparency and more non-financial information, the research on its impact on climate disclosures is still unclear. It shows there is a need for additional research to understand how institutional investors influence environmental reporting in companies as new global sustainability standards are introduced.

3.3. Sustainability Committees

The environmental implications generated from a firm’s activities expose the firm and its stakeholders to a great demand to adopt sustainable strategies and disclose more useful information about such consequences on the environment [41]. As a result, firms have been facing tremendous pressure to address related environmental concerns and monitor sustainability. In response, many firms have established a specific committee (an additional governance mechanism) on their boards to address these problems, such as the sustainability committee [25]. This committee’s advocates believe that it can play a significant role in risk management and integrating sustainability initiatives, reporting, goal setting, developing performance protocols, and maintaining the firm’s sustainable growth by implementing policies and practices of sustainability [22].

Sustainability committees can take various forms, from formal board-level subcommittees with defined mandates to informal advisory groups, depending on the firm’s size, industry, and ESG commitment. Formal committees, often composed of board members with sustainability expertise, oversee climate strategies, set emissions targets, and ensure compliance [23]. They influence policies, resource allocation, and strategic planning to integrate sustainability into business operations. Informal committees advise management without direct authority [22]. Their effectiveness depends on composition, independence, meeting frequency, and governance alignment. More independent and expert committees tend to drive stronger accountability and climate disclosures. This role is crucial in high-pollution industries, where these committees connect external pressures like institutional investors with internal governance, enhancing transparency and legitimacy [25].

The presence of a sustainability committee or any committee responsible for environmental matters at the level of the firm’s board refers to firms having a robust strategic posture relating to the stakeholders and being willing to balance conflicting interests between various stakeholders [18]. Generally, the sustainability committee is like other board subcommittees. Usually, the board of directors designs these committees to make their duties and responsibilities more efficient [12]. Accordingly, establishing particular committees enables the board of directors to address specific matters better and allows those with expertise in a field to offer the most value to the board of directors [21]. The sustainability committee is an indicator for stakeholders to address their concerns about environmental matters and reduce information asymmetry [22]. According to Velayutham et al. (2017) [42], firms establishing sustainability committees are more likely to provide more transparent information about environmental risks to various stakeholders. Therefore, firms with sustainability committees have notably greater proactive environmental performance than firms without these committees. In other words, the sustainability committee is vital to the firm’s outcome level [25].

Further, the sustainability committee is responsible for assessing the firm’s natural capital, advising the firm’s board, and ensuring high-level environmental transparency [18]. The committee will take an additional proactive interest in firm risks generated from environmental activities. The committee will be more likely to respond to the demands of the firm’s stakeholders to provide information related to carbon emissions and be associated with higher transparent carbon disclosure [43]. Additionally, the sustainability committee advocates disclosing GHG information to the public and stakeholders [22]. It supports the board in performing its responsibility towards various shareholders in terms of practices and policies related to the sustainable growth of firms on an international basis. The committee members help management implement and formulate practices, principles, and policies to achieve sustainable development and review the firm’s annual sustainability reports [23].

The existing body of research has extensively examined the direct relationship between traditional board committees, such as audit committees, and non-financial-related disclosures, with only a few studies considering sustainability committees in this regard [18,21,22,23]. Most of these studies have yielded significant findings and an agreement about the crucial role such committees play in enhancing non-financial disclosure in general. Notably, previous CG studies focused on each mechanism’s independent direct effects or relationship with such disclosures, resulting in a lack of evidence concerning the effectiveness of these mechanisms’ interactions [44]. Hence, the potential moderating contribution of an emerging CG mechanism, such as a sustainability committee, and its interaction with other CG mechanisms, such as institutional ownership regarding climate-related disclosures, are largely overlooked. In summary, while prior research highlights the positive role of traditional board committees in enhancing non-financial disclosures, limited attention has been given to the role of sustainability committees. Moreover, a notable gap exists in exploring how sustainability committees interact with other governance mechanisms, particularly institutional ownership, influencing climate-related disclosures, and underscoring the need for further investigation in this area.

4. Theoretical Foundation

This section describes the theoretical frameworks supporting the study’s conceptual model and the hypotheses. The choice of theories is determined by the usefulness of the theories in explaining the processes in which corporate governance induces climate-related disclosures. In particular, this paper relies on stakeholder, agency, legitimacy, and institutional theories to present a multi-faceted account of the institutional ownership and sustainability committees’ influence on environmental reporting practices. All theories provide different but complementary explanations to firms’ motivations, limitations, and strategic actions in addressing climate accountability concerns. Therefore, with the combination of these theoretical representations, this section provides a strong conceptual basis to understand the empirical correlations analyzed in the work.

4.1. Stakeholder Theory

While the word “stakeholder” appeared first at the Stanford Research Institute in 1963, Freeman’s book started to define it as we know it today. According to Freeman, to create lasting benefits for everyone, companies should put the interests of all stakeholders ahead of just their shareholders [45]. From this point forward, stakeholder theory was formally used in strategic management. Stakeholder theory is useful for examining how companies behave regarding environmental and climate disclosures [21]. According to this view, corporations must balance doing what is best for shareholders by considering what matters to employees, customers, regulators, local communities, and the environment [18]. The theory contends that companies that want to flourish long-term must care for the relationships with all stakeholders touched by their operations. Stakeholder theory clearly explains why more firms are making their environmental practices public. Because more people worldwide are aware of climate change, stakeholders are pushing firms to take actions that help the environment and support wider society [9]. Currently, stakeholders are well informed and often speak out about topics like greenhouse gas emissions, sustainable practices, and managing climate risks. Should these demands not be met, stakeholder theory suggests that a business may face damage to its reputation, see investors lose faith, and experience government interference [45]. The theory also shows why mechanisms such as sustainability committees and institutional ownership play a role in increasing climate disclosure. Many large investors who act on behalf of groups like pension fund beneficiaries are now considering ESG factors when making decisions [21]. They act by urging companies to share details of their environmental influence to preserve their long-term worth [39]. Similarly, setting up sustainability committees in companies is an internal way for firms to react to pressure from external stakeholders [22]. These committees help align what stakeholders want with what the company does by ensuring climate-related issues are included in the company’s strategy [44].

4.2. Agency Theory

Agency theory allows us to examine how companies address climate-related disclosures. The theory mainly centers on the disagreement between shareholders and managers who run the business, when managers may act to benefit themselves more than the business owners [18]. The result of this is the agency problem, and to resolve it, businesses should introduce different monitoring and incentive plans. In this way, disclosing climate-related information is a tool for greater transparency that helps reduce agency costs [12]. When environmental risks and performance are kept secret, some managers may try to hide environmental issues or claim an exaggerated amount of sustainable activity to maintain a positive reputation [9]. Not being transparent increases the difference in knowledge between management and stakeholders, which can damage the firm’s long-term value. According to agency theory, providing full disclosure brings down these asymmetries and helps shareholders and other stakeholders track managers’ actions more closely [46]. Under agency theory, institutional investors play a very important part. Usually, these investors own a large part of a company and have the means to review the information carefully [38]. When they are involved, external reviews can guide how managers work and help improve their behavior. Institutional investors who ask for better climate-related information effectively deal with the agency issue by reducing how much the managers can decide on their own and ensuring environmental concerns are considered in a company’s strategy [19]. Having them around motivates companies to make their actions clearer and to care more about the environment, mainly to avoid the costly consequences they might face (like divestment, harm to their reputation, or activism from owners) [39]. Also, sustainability committees within a company are strongly connected to the main ideas of agency theory. These committees, which are part of the board, offer guidance and knowledge on environmental matters [18]. Their task is to guarantee that the company follows the best practices in sustainability reporting and that all climate disclosures are correct, complete, and meet the needs of stakeholders. As a result, sustainability committees provide useful internal oversight while institutional investors continue to monitor from the outside [22]. It means they are taking responsibility for the environment, which helps managers act in ways that benefit shareholders and stakeholders [25]. In short, the theory treats climate-related disclosure as a way to guide managers and check their actions. It allows the firm to use team committees inside and demands from investors outside to link managers’ actions to the preferences of the firm’s owners [18]. As stakeholders and regulators pay more attention to environmental concerns, the theory points out that being open about information helps manage agency risk and protect a company’s worth [12].

4.3. Legitimacy Theory

How entities can earn their communities’ or stakeholders’ support and trust is central to legitimacy theory in social, political, and organizational research. It has become very influential in social and environmental accounting, political science, and CSR, since how legitimately an organization determines its actions and outcomes [18]. Legitimacy theory shows why businesses often release climate-related information, responding to increasing societal and environmental demands [12]. The concept is built on the idea that organizations aim to obey society’s norms and values to keep their reputation, that is, people see their actions as appropriate, proper, and fitting within the established rules and definitions [47]. Here, it is viewed that corporate disclosure and climate-related reporting serve as strategic practices to help firms achieve or recover their legitimacy [46]. Now that climate change affects everyone, people are paying more attention and having higher expectations. Regulators, investors, customers, and civil society are now counting on companies in high-emission sectors to focus on improving their environmental record [27,47]. If a firm fails to meet these expectations, it could create a legitimacy gap, which could cost the company its right to be in business, cause public scorn, reduce investors’ trust, or result in tougher rules by regulators. To address concerns, businesses often report on climate issues to show they are fulfilling what society wants, using sustainable practices, and contributing to environmental goals [21]. It is intended to symbolically demonstrate the firm’s care for the environment, even if no significant changes in its operations exist. When firms encounter pressure to be sustainable but find it hard to act, this phenomenon is especially important and is sometimes referred to as symbolic legitimacy [48]. Disclosure about climate-related issues can be seen as truly meaningful if a company works towards becoming greener, for example, by setting emissions goals or forming sustainability committees [37]. Under legitimacy theory, having institutions owning a company is very important. Many institutional investors act in a way that is mindful of society and are now using environmental, social, and governance (ESG) factors when making investment decisions [20]. In short, legitimacy theory considers climate-related disclosure a strategic move to maintain an organization’s standing with others. It demonstrates that businesses improve how they communicate and run their organizations by being more open, involving institutional investors, and setting up sustainability committees so they match stakeholder expectations and obtain people’s support. Today, being seen as legitimate is more important than ever, and revealing data is a significant way to achieve that.

4.4. Institutional Theory

Institutional theory is a strong analytical model for understanding companies’ behavior, especially in climate-related disclosure. According to the theory, organizations live in a wider institutional environment that is supported by the formal rules, the social norms that predominate, and cultural expectations that directly influence the strategy development and the reporting process [47]. In this environment, companies seek legitimacy and long-term survival by responding to pressures that arise out of three major sources: coercive pressures caused by the regulatory scrutiny; normative pressures of professional associations and industry conventions; and mimetic pressures caused by competitive benchmarking [12]. Institutional theory plays a significant role in explaining internal organizational processes, such as the hierarchies in the form, cultures, and decision-making channels, which are all formed under constraints and social expectations outside organizations [33]. Abdelrahman et al. (2024) [9] argue that the institutional theories provide essential information regarding organizational responses to unique coercive, normative, and mimetic pressures. These pressures dictate the type of organization, thus compelling firms to meet external social expectations and industry standards.

In the climate-related disclosure literature, the institutional theory can explain the response of firms to formal regulatory requirements (e.g., MCCG 2021 in Malaysia), professional practice established by investors or environmental rating agencies, and the peer pressure of other firms in an industry [15]. Companies that engage in institutional environments that give prominence to climate responsibility have a higher tendency to implement transparent reporting measures, regardless of whether it is required by law [18]. This theoretical framework is particularly relevant in the Malaysian context, in which the environment is becoming a highly dynamic regulatory environment with most disclosure in the climate area voluntary. Therefore, institutional theory adds to the stakeholder and legitimacy theories by pointing out that external institutional forces trigger internal responses to governance, including creating sustainability committees or listening to institutional investor calls [21]. Further, it explains why companies in a particular industry exhibit similar disclosure behavior because they are aping the already successful to maintain their legitimacy and competitiveness [26].

5. Hypotheses Development

Based on the theoretical foundation highlighted in the preceding section, the development of the hypotheses of this study is elaborated in this section. It seeks to provide a transition between theoretical constructs and empirical investigation by stating propositions that can be tested and resemble the anticipated connections between institutional ownership, sustainability committees, and climate-related disclosures. The hypotheses are developed in two steps: the first is based on the direct relationship between institutional ownership and climate-related disclosure, and the second is the possible moderating effect of sustainability committees. These hypotheses are informed by the existing empirical evidence and corroborated by theoretical frameworks outlined in Section 4.

5.1. Institutional Ownership and Climate-Related Disclosures

The legal system in any country assists in setting some standards for CG, which may vary. In contrast, complete conformity to the system of CG is both unlikely and unnecessary, and there is almost an international acknowledgment of the need to maintain investors’ confidence through accountability, transparency, responsibility, and fairness [49]. The decision to select a specific firm to invest in is mainly linked to the personal values of institutional investors, such as social responsibility. Hence, if such investors realize that the chosen firm is not socially responsible, they can pressure this firm to make a change to meet those investors’ values [50]. In the field of CG, institutional investors are widely recognized as influential monitoring mechanisms. The substantial ownership holdings held by institutional investors allow them to exert influence over and oversee the conduct of firm management [31]. Moreover, institutional investors can dissuade management from making biased decisions by paying more attention and calling into question the quality of management [38].

Driven by their vital monitoring role, many prior studies have examined institutional investors as key drivers of non-financial disclosures and ethical business practices. While several empirical studies support this link, the findings remain inconsistent, reflecting a lack of consensus on the relationship between institutional ownership and non-financial-related disclosures [12,18]. Despite evidence supporting a positive link between institutional ownership and non-financial disclosures like carbon reporting, the role of institutional investors remains contested [38]. Their activism in CG can sometimes backfire, leading to managerial misconduct or fraudulent behavior under pressure. Moreover, some institutional investors may participate in initiatives like CDP or PRI more for reputational signaling than for genuine environmental engagement, raising doubts about their influence on firms’ actual disclosure practices [51]. Empirical studies, such as those by Htay et al. (2012) [52] and Nair et al. (2019) [40], further highlight the inconsistent impact of institutional ownership, reporting insignificant relationships with environmental and CSR disclosures. These findings suggest that institutional investors’ influence on non-financial reporting may vary depending on context and intent.

Institutional ownership in Malaysia has evolved significantly, contributing to both economic development and the strengthening of the CG framework [18]. Through its Government-Linked Investment Companies (GLICs) and Government-Linked Companies (GLCs), the government historically played a central role in capital markets by directing investments into key sectors to spur growth [53]. Institutional investors help stabilize markets by ensuring steady capital inflows and reducing volatility [51]. Their presence, especially that of foreign investors, also supports the adoption of global standards and enhances Malaysia’s integration into international financial systems [21]. Recently, Malaysian institutional investors have increasingly embraced ESG-focused investing, encouraging firms to adopt more sustainable and responsible practices [12,18,21]. Therefore, in light of the documented mixed evidence regarding the monitoring role of institutional ownership and given their significant size and contribution to Malaysia’s economy, this study argues that institutional ownership has a significant positive relationship with the level of climate-related disclosure provided by Malaysian firms.

H1: Institutional ownership is positively associated with the level of climate-related disclosure among Malaysian firms.

5.2. The Moderating Effect of Sustainability Committees

Institutional ownership fosters a strong interest in a firm’s financial and strategic performance, including its impact on stakeholders [54]. As such, institutional investors often consider environmental and social performance in their investment decisions, leading firms with higher institutional ownership to demonstrate better ESG outcomes [51]. Environmental performance reflects a firm’s efforts to minimize harm to natural resources and disclose ecological impacts through internal reporting [35,40,44]. Corporate governance systems, which guide how firms meet stakeholder expectations, significantly influence these practices and the firm’s overall operations [49]. Unlike their non-institutional counterparts, institutional investors often hold substantial equity stakes and actively engage in corporate decision making [20,38]. Their significant ownership enables them to influence management directly or indirectly. Due to their industry expertise and financial motivation, they are effective monitors, lowering the cost of oversight compared to smaller shareholders [18]. Being highly sensitive to disclosure quality, they pressure managers to improve transparency, especially when disclosure affects profitability [51]. Some institutional investors are also known for publicly challenging underperforming management [19], compelling firms to align voluntary disclosure policies with investor expectations [39].

Adam et al. (2025) [18] highlighted that CG mechanisms operate collectively rather than in isolation. Scholars have called for further investigation into how multiple CG tools, such as sustainability committees, interact with institutional ownership [55]. From the stakeholder theory perspective, sustainability committees promote accountability and transparency by balancing the interests of various stakeholders, building trust, and enhancing long-term firm value [18]. Similarly, under legitimacy theory, firms use sustainability committees to demonstrate responsible environmental conduct and align with societal expectations, thereby preserving or enhancing their legitimacy [14]. As sustainability committees closely mirror the function of audit committees, their presence strengthens institutional investors’ monitoring capacity [43]. Although institutional investors are traditionally viewed as external actors, they increasingly rely on climate-related information for investment decisions [21]. Thus, sustainability committees may serve as internal proxies, enabling institutional investors to oversee firm practices more effectively and ensure robust climate-related disclosure. This leads to the following hypothesis:

H2: The presence of a sustainability committee strengthens the positive relationship between institutional ownership and the level of climate-related disclosure.

6. Methodology

This section outlines the methodological procedures employed to investigate the proposed hypotheses. It details the sampling strategy, data sources, variable measurements, and analytical techniques used to test the relationship between institutional ownership, sustainability committees, and climate-related disclosures. This research adopts a panel data design encompassing Malaysian publicly listed firms in highly polluting industries from 2021 to 2024. Emphasis is placed on the validity and reliability of the measurement instruments and the statistical models applied, including fixed-effects and hierarchical regression analysis. The methodological design is intended to ensure the study’s findings’ robustness, generalizability, and empirical integrity.

6.1. Sample Selection and Data Collection

For this study, we selected Malaysian public-listed companies in Bursa Malaysia by purposive sampling in highly polluting sectors. These firms are ideal for evaluating climate-related disclosures because they are at risk of climate damage, are watched by regulators, and feel pressure from stakeholders [9]. Responding to what stakeholders want, directors in these industries often implement environmental strategies. Highly polluting industries help researchers study climate-related disclosures, which are gaining importance in corporate reporting [47]. In addition, these industries help us see how disclosure practices adapt to new regulations. Many previous studies have regularly found that eight industries are highly polluting: construction, chemicals, building materials, oil and gas, energy, transport and logistics, industrial metals and mining, utilities, and healthcare [9,12,18,47].

The Securities Commission Malaysia introduced an updated version of the Malaysian Code on Corporate Governance (MCCG) in 2021, offering new guidelines and practices to support better CG practices in listed companies [56]. The new revision explains that it is important for boards and senior leaders to oversee sustainability risks and benefits, strengthening the company’s future resilience by adopting better governance. This year’s MCCG is significant since it is the first time the code has invited firms to consider carbon emissions when developing their strategies. It urges firms to cut their emissions based on science to support the world’s move toward a low-carbon economy [12]. That is why following the MCCG 2021 helps Malaysian firms gain investors’ trust and assist in making the country sustainable. Thus, the period of this study begins in 2021, as it was then that regulators started urging firms to strengthen their CG and increase their climate-related disclosures, particularly related to institutional ownership. As a result, the sample firms in this study include all the highly polluting firms shown on Bursa Malaysia’s website https://www.bursamalaysia.com (accessed on 31 May 2025) from 2021 to 2024. Accordingly, the number of firms listed in Bursa Malaysia was 220 as of December 31, 2024. Furthermore, the study excluded firms that did not have an annual report, had missing data, or were recognized as outliers. As a result, the study included 198 listed firms and gathered 990 observations for each firm year. The samples are summarized in

Table 1. Summary of the sample selection.

Sample Selection	Firms	Observations
Total number of firms extracted from Bursa Malaysia as of 31 December 2024	220	1100
Less:
Firms with missing data	15	75
Firms identified as outliers	7	35
Final sample size	198	990

below.

6.2. Variable Measurement

6.2.1. Dependent Variable: Climate-Related Disclosures

The dependent variable in this research is climate-related disclosure (CRD), which refers to the extent of information disclosed about climate-related topics measured using a specially developed climate reporting index. Unlike prior studies [23,57] that predominantly used the CDP questionnaire to define and quantify such disclosures, this study constructed a comprehensive index tailored to evaluate climate-related information. The index draws from both international and national reporting guidelines, including the Greenhouse Gas Reporting Program: MYCarbon (2014) [58], Environment and Climate Change Canada: Technical Guidance on Reporting Greenhouse Gas Emissions: TGRGGE (2016) [59], Sustainability Reporting Standards: GRI 305 (2016) [60], Climate Disclosure Standards Board framework: CDSB (2021) [61], and Carbon Disclosure Project Annual Questionnaire: CDP (2022) [62], as well as from the established academic literature [18]. The final index includes 45 binary disclosure items. This tool aims to address the gap in the literature concerning the measurement of climate-related information by offering empirical insight into how a diversified set of sources can enhance disclosure completeness and reliability. Each item is coded as “1” if disclosed in the annual report and “0” if not [12,18].

Ensuring validity and reliability is essential in developing an effective measurement instrument [9]. To ensure the index’s accuracy and credibility, it underwent expert validation, where a preliminary list of disclosure items was reviewed by one specialist and two academics with expertise in pollution, carbon emissions, and climate-related topics, in line with Adam et al. (2025) [18]. Annual reports were carefully reviewed for reliability, and a pilot test was conducted to guarantee that disclosure items are applied consistently across firms [47]. Finally, the study applied an unweighted scoring method. Al-ahdal et al. (2023) [63] observed no significant differences between weighted and unweighted scoring outcomes, but weighted approaches can introduce subjectivity due to researcher bias. Thus, an unweighted method was chosen. Firms that disclose all 45 items receive a score of 100%, while those disclosing no items receive a score of 0%. This approach is consistent with prior research [9,12,18,21,47].

6.2.2. Independent Variable: Institutional Ownership

The percentage of a firm’s ordinary shares that institutional investors hold is referred to as “institutional ownership.” Insurance firms, superannuation and pension funds, investment trusts, banks, investment firms, and other nominee corporations affiliated with the institutions mentioned above are all examples of institutional investors [18]. In the field of CG, institutional ownership is widely acknowledged as one of the most influential CG mechanisms, bearing a resemblance to the pivotal role played by a board of directors [24]. Because of their enormous shareholdings, institutional investors can exercise influence and oversee corporate management’s actions. In the context of Malaysia’s emerging capital market, institutional investors are influential due to their large equity stakes, long-term investment horizons, and growing focus on environmental, social, and governance (ESG) practices [53]. They are considered key governance agents who can reduce information asymmetry, influence management decisions, and demand greater disclosure, especially under volatile or uncertain market conditions [50]. Higher institutional ownership often signals stronger external monitoring, which can enhance transparency and reduce disclosure-related risks [21]. Therefore, many studies linked institutional ownership to better monitoring functions over firms’ disclosures [31,38,51]. Therefore, the present study defines institutional ownership according to the Malaysian Code for Institutional Investors. It refers to asset owners, which include collective investment vehicles that collect funds on behalf of their beneficiaries or clients and manage them either internally or externally. Asset owners include pension funds, private retirement scheme providers, insurance companies, takaful operators, and investment trusts. On the other hand, asset managers are agents who are entrusted with the responsibility of managing funds on behalf of asset owners, following an investment mandate. Thus, in this study, institutional ownership is measured by dividing the total number of ordinary shares held by all institutional investors by the total ordinary shares outstanding at year end. This is in line with references [12,18].

6.2.3. Moderator Variable: Sustainability Committee

In this study, the term “sustainability committee” refers to the existence of a sustainability committee at the board level in a firm that exclusively focuses on environmental matters and sustainability [23]. The primary responsibility of this committee is to supervise and provide guidance on environmental policies, procedures, and activities within the firm. The role of this committee may encompass evaluating environmental risks, establishing carbon emissions reduction targets, carbon reporting practices and benchmarks, overseeing adherence to carbon emissions regulations, and incorporating sustainability factors into corporate plans [18,43]. The absence of regulations under the MCCG regarding the formation of sustainability committees has resulted in the voluntary adoption of such committees at the board level in most Malaysian firms. Malaysian firms have formed committees based on their understanding of the importance of environmental stewardship and sustainability [12]. Accordingly, and in line with Adam et al. (2025) [18], to measure sustainability committees, the current study searches for sustainability committee titles, including, but not limited to, environmental, CSR, public policy, environmental health, and safety committees within the selected sample. The committee’s role must include a focus on the environment, corporate sustainability, or CSR practices to be identified as a sustainability committee. Thus, in this study, the sustainability committee was measured as a dummy variable with a value of 1 if a firm has a board-level sustainability committee and 0 otherwise.

6.2.4. Control Variables

Climate-related disclosures serve as the dependent variable in the present study, reflecting the extent of information firms disclose regarding their environmental impact and carbon emissions. This study incorporates different control variables that have been identified as influencing climate disclosure practices in earlier research. These variables are board of director effectiveness, audit committee effectiveness, firm size, profitability, firm age, liquidity, leverage, and audit quality [9,12,18,47,52,53]. All of these factors have been linked to changes in the amount, quality, level, and extent of environmental or sustainability disclosures. In this case, good oversight from the board and audit committee may result in more transparency in reporting [12]. In addition, factors such as bigger size, greater profitability, or higher liquidity at the company level tend to make it easier and more rewarding for firms to engage in sustainability reporting [9]. Alternatively, leverage and audit quality may show the effects of outside scrutiny or the company’s desire to maintain its reputation, which can lead to changed disclosure practices [27].

6.3. Study Model

6.3.1. Direct Effect (Model 1)

This study first employs Model 1 to examine the direct relationship between institutional ownership and climate-related disclosures. Subsequently, Model 2 is introduced to assess the moderating effect of the sustainability committee on the relationship between institutional ownership and climate-related disclosures. To evaluate this moderating influence, this study adopts the hierarchical regression procedure outlined by Baron and Kenny (1986) [64], which is widely used to test interaction effects in social science research. Accordingly, the estimated equations for both the direct and moderating models are presented below in

Table 2. Model 1 symbols.

Symbols	Description
it	for each firm (i) and each year (t)
Βo	regression constant
β1	the slope of the independent variables
γ	time control
ΕIT	error term
CRD	level of climate-related disclosure
IO	institutional ownership
SC	sustainability committee
BOARD	board of directors’ effectiveness
ACEEF	audit committee effectiveness
AQ	audit quality
FSIZE	firm size
FAGE	firm age
FPRO	firm profitability
LEV	leverage
LIQ	liquidity

, along with the corresponding symbols for Model 1

CRD_it = βo + _β1IO_it + _β2BOARD_it + _β3ACEEF_it + _β4AQ_it + _β5FSIZE_it + _β6FAGE_it + _β7FPRO_it + _β8LEV_it +
_β9LIQ_it + γ_it + ε_it

6.3.2. Hierarchical Regression (Model 2)

The moderating effect of the sustainability committee on the relationship between institutional ownership and climate-related disclosures is examined using hierarchical regression. Several prior studies suggested that hierarchical regression can effectively detect moderating effects. According to Baron and Kenny (1986) [64], four steps are involved in applying hierarchical regression. The first step is testing the relationship between the dependent and control variables. The second step tests the relationship between the dependent and independent variables while considering the control variables. The third step tests the relationship between the dependent and independent variables with the control and moderating variables. The final step is testing the relationship between the dependent and independent variables with the control variables, moderating variables, and the product of the interactions between the moderating variables. Thus, the steps outlined by Baron and Kenny were followed in this study to assess the moderating effect of the sustainability committee using a hierarchical regression model. The definitions and measurements of all variables used in this study are summarized in

Table 3. Definition of variables.

Variable	Acronym	Measurement
Dependent Variable
Level of Climate-related Disclosure	CRD	The checklist consists of a minimum of 0 items and a maximum of 45 items.
Independent Variable
Intuitional Ownership	IO	The proportion of the total number of common shares held by all institutional owners divided by the total common shares outstanding at year end
Moderator variable
Sustainability Committee	SC	Dummy variable with the value of 1 if a company has a board-level SC and 0 otherwise
Control Variables
Board Of Director Effectiveness	BOARD	Composite index—the sum of the four board indicators (independence, size, meeting, and gender) within the range of zero and four
Audit Committee Effectiveness	ACEEF	Composite index—the sum of the four committee indicators (independence, size, meeting, and financial expertise) within the range of zero and four
Audit Quality	AQ	Dummy 1 if the firm is audited by Big 4 audit firms and 0 otherwise
Firm Size	FSIZE	The logarithm of total assets
Firm Age	FAGE	The total years of operation for the firm up to the end of 2024
Firm Profitability	FPRO	Net income divided by total assets
Leverage	LEV	Total debt divided by total assets
Liquidity	LIQ	Current assets divided by current liabilities

.

CRD_it = βo + _β1BOARD_it + _β2ACEEF_it + _β3AQ_it + _β4FSIZE_it + _β5FAGE_it + _β6FPRO_it + _β7LEV_it + _β8LIQ_it
+ γ_it + ε_it

(1)

CRD_it = βo _β1BOARD_it + _β2ACEEF_it + _β3AQ_it + _β4FSIZE_it + _β5FAGE_it + _β6FPRO_it + _β7LEV_it + _β8LIQ_it
+ _β9IO_it + γ_it + ε_it

(2)

CRD_it = βo _β1BOARD_it + _β2ACEEF_it + _β3AQ_it + _β4FSIZE_it + _β5FAGE_it + _β6FPRO_it + _β7LEV_it + _β8LIQ_it
+ _β9IO_it + _β10SC_it + γ_it + ε_it

(3)

CRD_it = βo _β1BOARD_it + _β2ACEEF_it + _β3AQ_it + _β4FSIZE_it + _β5FAGE_it + _β6FPRO_it + _β7LEV_it + _β8LIQ_it
+ _β9IO_it + _β10SC_it + _B11IO_it × SCit γ_it + ε_it

(4)

IOSC → the interaction between the institutional ownership and the sustainability committee.

7. Empirical Results and Discussion

This section presents and explains the empirical findings of using fixed-effects and hierarchical regression models. The analysis is structured in terms of descriptive statistics, correlation diagnostics, and hypothesis testing in direct and moderated regression. Results are presented according to the study’s theoretical framework and the previous literature, and more specifically in terms of the explanatory value of institutional ownership and the moderating role of sustainability committees. This two-fold form of findings and explanation guarantees that empirical findings are contextualized in terms of more general theoretical and practical concerns.

7.1. Descriptive Analysis

Table 4. Descriptive statistics.

Variables	Mean	Standard Deviation	Minimum	Maximum
CRD	0.201	0.201	0.030	0.708
IO	0.642	0.201	0.051	0.990
SC	0.453	0.498	0.000	1.000
BOARD	2.494	0.965	0.000	4.000
ACEEF	2.923	0.848	0.000	4.000
AQ	0.638	0.480	1.000	0.000
FSIZE	9.244	1.333	2.107	11.518
FAGE	33.978	13.180	2.490	85.000
FPRO	0.184	0.120	0.0222	0.550
LEV	0.476	0.223	0.066	2.650
LIQ	2.807	3.523	0.134	29.2184

Notes: the variables used in this study are defined as follows: CRD = level of climate-related disclosure; IO = intuitional ownership; SC = sustainability committee; BOARD = board of director effectiveness; ACEEF = audit committee effectiveness; AQ = audit quality; FSIZE = firm size; FAGE = firm age; FPRO = profitability; LEV = leverage; LIQ = liquidity.

presents the descriptive statistics for the key variables used in this study, offering insights into the characteristics of the sampled firms, particularly concerning climate-related disclosure (CRD) and various governance and financial attributes. The average level of climate-related disclosure (CRD) is 20.1%, with a minimum of 3% and a maximum of 70.8%. This indicates that, while some firms disclose a relatively high amount of climate-related information, the overall level of disclosure remains low. The standard deviation, equal to the mean, highlights a wide disparity among firms, suggesting inconsistency in disclosure practices across the sample. Institutional ownership (IO) shows a relatively high average of 64.2%, with some firms having almost no institutional investors and others close to full institutional control. This variation may influence governance quality and, consequently, the extent of climate disclosures. Furthermore, 45.3% of the firms have established a sustainability committee (SC), suggesting that nearly half the sample is committed to environmental and social governance through dedicated board structures. The presence of these committees may play a role in promoting better disclosure practices, though their effectiveness would depend on the broader governance context.

The measures of board and audit committee effectiveness (BOARD and ACEEF) further illuminate the governance structures within firms. The average board effectiveness score is 2.49 out of a possible 4, indicating a moderate level of board performance, while audit committee effectiveness is higher, averaging 2.92. These results suggest that, on average, boards and audit committees are reasonably active and effective, potentially contributing to oversight functions such as the quality and extent of climate disclosures. Moreover, the audit quality (AQ) variable, with a mean of 0.638, indicates that approximately 64% of firms engage high-quality auditors, which may also enhance the credibility and comprehensiveness of their reporting. In terms of firm characteristics, the average firm size (FSIZE), based on the natural log of total assets, is 9.24, with a wide range that includes both small and large firms. Firm age (FAGE) averages 34 years, from just over 2 years to 85 years, reflecting a mix of newly established and mature companies. Profitability (FPRO) stands at an average of 18.4%, while leverage (LEV) shows that firms finance roughly 47.6% of their assets through debt. These financial indicators suggest a sample that includes firms with varying financial performance and risk levels, which could affect their capacity or motivation to engage in climate-related disclosure. Lastly, liquidity (LIQ) demonstrates considerable variability, with a mean of 2.81 and a maximum of over 29. This high standard deviation reflects the presence of outliers with very high liquidity, which might signal strong short-term financial health and a greater ability to invest in sustainability initiatives. However, the overall picture suggests that, while some firms are well equipped to support comprehensive disclosures, others may be constrained by financial or structural limitations.

7.2. Correlation Analysis

Table 5. Correlation matrix.

	CRD	IO	SC	BOARD	ACEEF	AQ	FSIZE	FAGE	FPRO	LEV	LIQ
CRD	1
IO	0.451	1
SC	0.677	0.313	1
BOARD	0.365	0.133	0.276	1
ACEEF	0.337	0.086	0.205	0.398	1
AQ	0.374	0.216	0.316	0.160	0.084	1
FSIZE	−0.101	−0.118	0.027	0.044	0.021	−0.114	1
FAGE	0.167	0.084	0.111	−0.020	0.026	0.068	−0.116	1
FPRO	0.429	0.229	0.290	0.238	0.170	0.257	−0.099	−0.003	1
LEV	0.082	0.072	0.088	−0.022	−0.002	0.055	−0.045	−0.007	0.074	1
LIQ	−0.094	−0.049	−0.058	−0.040	−0.023	−0.134	0.071	−0.038	−0.106	−0.541	1

Notes: the variables used in this study are defined as follows: CRD = level of climate-related disclosure; IO = intuitional ownership; SC = sustainability committee; BOARD = board of director effectiveness; ACEEF = audit committee effectiveness; AQ = audit quality; FSIZE = firm size; FAGE = firm age; FPRO = profitability: LEV = leverage; LIQ = liquidity.

presents the correlation coefficients among the study variables. CRD shows the strongest positive correlation with the presence of an SC at r = 0.677, suggesting that dedicated governance structures significantly enhance climate reporting. CRD is also moderately correlated with institutional ownership (IO, r = 0.451), board effectiveness (BOARD, r = 0.365), audit committee effectiveness (ACEEF, r = 0.337), audit quality (AQ, r = 0.374), and profitability (FPRO, r = 0.429). These findings indicate that stronger governance and better financial performance are associated with higher levels of disclosure. Further, firm age (FAGE) and leverage (LEV) show weak positive correlations with CRD, while firm size (FSIZE) and liquidity (LIQ) are weakly negative. These weak relationships suggest that not all firm characteristics strongly influence disclosure practices. Importantly, no multicollinearity concerns are evident, as all correlations remain below 0.80 [18]. This was further validated through variance inflation factor (VIF) testing; all VIF values were below 10, indicating no multicollinearity concerns [12] (see

Table 6. Variance inflation factor.

Variable	VIF	Tolerance
IO	1.11	0.900
SC	1.33	0.749
BOARD	1.26	0.793
ACEEF	1.20	0.833
AQ	1.14	0.880
FSIZE	1.05	0.954
FAGE	1.03	0.973
FPRO	1.17	0.852
LEV	1.43	0.700
LIQ	1.45	0.690
Mean VIF	1.20

).

7.3. Diagnostic Tests

Given the panel nature of the data, there is a potential endogeneity concern arising from unobserved firm-specific characteristics that may influence the independent and dependent variables. This makes ordinary least squares (OLS) regression potentially inappropriate. The Hausman test was conducted to determine the most suitable model for fixed or random effects, following the methodology of Chijoke et al. (2020) [65]. As shown in

Table 7. Regression results.

Variables	Coefficients	t-sat
IO	0.4182	5.93 ***
BOARD	0.0246	3.74 ***
ACEFE	0.0462	5.03 ***
AQ	0.0571	4.01 ***
FSIZE	−0.009	−0.86
FAGE	0.011	1.32
FPRO	0.194	3.80 ***
LEV	0.024	0.83
LIQ	0.001	1.36
Constant	−0.656	−2.52 **
R2	0.28
Number of obs	990
Prob > chi2	0.0000
Hausman Test	Prob > chi2 > 0.05

Notes: the variables used in this study are defined as follows: CRD = level of climate-related disclosure; IO = intuitional ownership; SC = sustainability committee; BOARD = board of director effectiveness; ACEEF = audit committee effectiveness; AQ = audit quality; FSIZE = firm size; FAGE = firm age; FPRO = profitability; LEV = leverage; LIQ = liquidity; *** p < 0.01, ** p < 0.05.

, the test results favored the fixed-effects model, indicating that individual firm effects are correlated with the regressors. Additionally, scatter plot analysis confirmed the presence of a linear relationship between the independent and dependent variables [18]. To assess model assumptions, the Breusch–Pagan/Cook–Weisberg test for heteroscedasticity and the Wooldridge test for autocorrelation were applied, in line with Born and Breitung (2016) [66]. Both tests revealed violations of these assumptions. Consequently, and following Rogers et al. (1993) [67], robust standard errors clustered at the firm level were employed to correct for heteroscedasticity and autocorrelation in the CRD model.

7.4. Direct Effect Results and Discussion (Model 1)

Table 7 presents the fixed-effects regression results examining the influence of institutional ownership (IO) and other firm-level factors on the level of climate-related disclosure (CRD). The model is statistically significant overall, as indicated by a p < 0.000), and explains 28% of the variation in CRD (R² = 0.28) across the 990 firm-year observations. The findings reveal that IO has a strong positive significant relationship with CRD (β = 0.4182, t = 5.93, p < 0.01). This indicates that firms with higher institutional ownership tend to disclose more climate-related information, likely due to increased pressure for transparency from influential investors. This result aligns well with stakeholder theory, which posits that organizations are accountable to shareholders and a broader group of stakeholders, including institutional investors, regulators, and the public. As powerful stakeholders, institutional investors often advocate for improved environmental, social, and governance (ESG) practices to safeguard long-term value and reduce non-financial risks. Their active engagement and monitoring roles compel firms to enhance climate-related disclosures to legitimize their operations and respond to stakeholder expectations. Therefore, the positive association between IO and CRD reflects firms’ strategic responses to stakeholder demands, reinforcing the idea that institutional pressure serves as a critical driver of corporate environmental transparency.

Several internal governance variables also show significant positive relationships. Among the control variables, BOARD and ACEEF are both significant at the 1% level, with coefficients of 0.0246 and 0.0462, respectively. These results suggest stronger oversight by boards and that audit committees contribute to greater climate-related disclosures. Similarly, audit quality (AQ) is positively associated with CRD (β = 0.0571, t = 4.01), reinforcing the idea that firms engaging high-quality auditors are more likely to provide reliable and detailed climate-related information. Moreover, profitability (FPRO) has a statistically significant positive relationship with CRD (β = 0.194, t = 3.80, p < 0.01). This implies that more profitable firms may have more resources and incentives to invest in sustainability reporting. On the other hand, firm size (FSIZE), firm age (FAGE), leverage (LEV), and liquidity (LIQ) are not statistically significant predictors of CRD, indicating that these firm characteristics do not meaningfully influence the level of climate disclosure within the sample. Overall, the results highlight the critical role of institutional ownership and effective CG in enhancing climate-related disclosure, while profitability also emerges as a key driver. These findings underscore the importance of both external and internal accountability mechanisms in promoting transparency and sustainability practices in firms.

7.5. Hierarchical Regression Results and Discussion (Model 2)

Hierarchical regression was employed to test the moderating effect of the sustainability committee on the relationship between institutional ownership (IO) and climate-related disclosure (CRD). As noted by Baron and Kenny (1986) [64] and Aguinis et al. (2008) [68], this method is suitable for testing moderating effects due to its simplicity. Hierarchical panel regression was conducted following Baron and Kenny’s (1986) [64] four-step approach to assess the moderating effect. First, the model tested the relationship between dependent and control variables. Next, the independent variable (IO) was added, followed by the moderator (sustainability committee). Finally, the interaction term (IO × sustainability committee) was introduced. Each step involved calculating the change in R² to assess the additional explained variance, with F-tests used to determine significance [18]. A significant increase in R² indicates the presence of a moderating effect.

Table 8. Hierarchical regression results.

Variables		Step 1	Step 2	Step 3	Step 4
BOARD	Coef t-stat	0.034 4.18 ***	0.024 3.74 ***	0.018 3.54 ***	0.017 4.40 ***
ACEFE	Coef t-stat	0.059 4.75 ***	0.046 5.03 ***	0.031 4.71 ***	0.030 6.68 ***
AQ	Coef t-stat	0.072 4.31 ***	0.057 4.01 ***	0.034 2.78 **	0.036 3.90 ***
FSIZE	Coef t-stat	−0.010 −0.94	−0.009 −0.86	−0.009 −0.91	−0.011 −1.60
FAGE	Coef t-stat	0.0155 1.43	0.011 1.32	0.007 1.40	0.007 6.11 ***
FPRO	Coef t-stat	0.261 4.86 ***	0.194 3.80 ***	0.194 4.19 ***	0.179 6.24 ***
LEV	Coef t-stat	0.043 1.19	0.024 0.83	0.015 0.66	0.013 0.59
LIQ	Coef t-stat	0.002 1.68 *	0.001 1.36	0.001 0.89	0.001 0.65
IO	Coef t-stat		0.418 5.93 ***	0.299 6.04 ***	0.237 6.78 ***
SC	Coef t-stat			0.119 9.43 ***	0.040 1.84 **
IO*SC	Coef t-stat				0.125 3.85 ***
Number of obs	990		990	990	990
F-test			78.94		195.69
Prob > chi2			0.0000		0.0000
R-squared		0.15	028	0.43	0.45
R2 change			0.13	0.15	0.02

Note: CRD = level of climate-related disclosure; IO = intuitional ownership; SC = sustainability committee; BOARD = board of director effectiveness; ACEEF = audit committee effectiveness; AQ = audit quality; FSIZE = firm size; FAGE = firm age; FPRO = profitability; LEV = leverage; LIQ = liquidity; IO*SC = the interaction between the institutional ownership and the sustainability committee. *** p < 0.01, ** p < 0.05, * p < 0.1.

presents the regression results for this moderation analysis.

As shown in Table 8, when BOARD, ACEFE, AQ, FSIZE, FAGE, FPRO, LEV, and LIQ were entered as control variables into the hierarchical regression model in Step 1, the coefficient of determination adjusted R² was found to be 15 percent. This shows that control variables can explain 15 percent of the variation in CRD. Further, by adding the independent variable IO in Step 2, the R² increased to 28 percent. This R² change (13 percent) is significant, indicating that the independent variables explain an additional 13 percent of the variation in CRD. According to Table 8 (Step 2), the independent variable IO is positively and significantly related to CRD, with a Coef = 0.418, at a t-value of 5.93 and a p-value < 0.01. Therefore, the hierarchical regression results obviously support the primary discussion (direct effect—Model 1). Following that, by including the sustainability committee (SC) as a moderator variable in the regression model in Step 3, the R² climbed to 43 percent. This R² change (15 percent) is significant, indicating that the moderator variable explains an additional 15 percent variation in CRD. In the final step, when the interaction between IO and SC (IO*SC) is entered into the model in Step 4, the R² increases to 45 percent. This R² change (2 percent) is significant. This indicates that the SC moderates the relationship between IO and CRD. Moreover, since the p-value was significant, all the models indicate that the SC has a moderating effect. Thus, the estimated coefficient and p-value are used to confirm if the SC significantly and statistically moderates the relationship between IO and CRD.

Comparing the beta coefficient of IO in Step 2 with the interaction term (IO × SC) in Step 4 reveals that the interaction remains positive and significant, suggesting that the presence of a sustainability committee (SC) strengthens the positive relationship between IO and CRD. This implies that firms with institutional investors and a formal SC are more likely to enhance their CRD. A possible explanation is that institutional investors can more effectively monitor firms due to their financial expertise and industry knowledge, reducing oversight costs. This efficiency may explain the direct positive effect of IO on CRD in Step 2. However, as largely external parties, institutional investors may lack full access to internal operations [18]. In this context, the SC acts as a proxy for the board’s commitment to environmental accountability and stakeholder communication [23], facilitating better engagement with institutional investors. This added support enhances investors’ awareness of environmental issues, thereby reinforcing their influence on CRD.

The reported finding is in line with agency theory and legitimacy theory. From the agency theory perspective, this finding suggests that institutional investors who act as external monitors help mitigate agency problems by encouraging greater firm transparency and accountability [46]. The SC further enhances this monitoring role by serving as an internal governance mechanism focused on environmental accountability, which aligns managerial actions with shareholder interests and reduces information asymmetry [12]. Additionally, under legitimacy theory, firms are motivated to disclose more climate-related information to meet societal expectations and maintain their legitimacy in the eyes of stakeholders [69]. The presence of institutional investors and a sustainability committee signals a firm’s commitment to responsible environmental practices, reinforcing its social license to operate and enhancing stakeholder trust [14,48]. These governance mechanisms support greater CRD and are driven by accountability and legitimacy considerations [70].

8. Conclusions, Implications, Limitations, and Future Research

This study examined the relationship between institutional ownership and climate-related disclosure (CRD) and the moderating role of sustainability committees, using a panel dataset of 990 firm-year observations from 198 Malaysian publicly listed firms in highly polluting industries from 2021 to 2024. The analysis controlled for firm characteristics and governance variables by employing fixed-effects and hierarchical regression models to estimate direct and moderate effects robustly. The findings reveal that institutional ownership is positively and significantly associated with the level of climate-related disclosure, supporting the notion that institutional investors play a pivotal role in enhancing corporate transparency on environmental issues. This result indicates that firms with higher levels of institutional ownership demonstrated markedly greater climate disclosure, highlighting the importance of investor pressure in shaping sustainability strategies. Further, these results align with stakeholder and agency theories, which suggest that institutional investors, often representing long-term, socially conscious capital, act as powerful external monitors who can influence managerial behavior and compel firms to improve their environmental accountability [71,72]. More critically, the analysis shows that a board-level sustainability committee contributes independently to higher disclosure levels and significantly strengthens the institutional ownership–disclosure relationship. This interactive effect underscores the complementary role of internal and external governance mechanisms, suggesting that climate-related transparency is maximized when firms institutionalize both investor influence and dedicated board oversight. This reinforces the view that effective CG is a matter of independent mechanisms and how internal and external forces interact to shape strategic disclosure practices. By institutionalizing climate oversight at the board level, sustainability committees enable more structured engagement with environmental issues and facilitate better alignment with investors’ expectations. These findings are particularly salient in Malaysia, a developing economy with evolving climate policies and a largely voluntary climate disclosure regime. They indicate that voluntary governance initiatives can be effective when investor pressure and board-level commitment are present.

This study offers several key contributions to CG, sustainability reporting, and climate-related disclosure, particularly within emerging markets like Malaysia. First, this study provides robust empirical evidence that institutional ownership significantly impacts the level of climate-related disclosure (CRD). The findings confirm that firms with higher levels of institutional ownership are more transparent in disclosing climate-related information. This contributes to the growing, yet still limited, body of literature that links institutional investor influence directly to climate disclosure beyond the broader categories of CSR or non-financial reporting. Second, this study makes a novel theoretical and empirical contribution by examining the moderating role of board-level sustainability committees. The results demonstrate that sustainability committees strengthen the positive relationship between institutional ownership and CRD. This interaction provides new insights into how internal governance mechanisms can complement external monitoring forces to improve the credibility and extent of environmental disclosures. While past research has focused on audit committees or board independence [73], this study extends discourse by highlighting the strategic role of sustainability-specific governance structures. Third, this study contributes a context-specific perspective from an emerging economy, addressing the empirical gap caused by the predominance of research conducted in developed countries. Given Malaysia’s evolving regulatory environment and voluntary climate disclosure framework, the findings offer valuable insights that can inform both policy and corporate practice in similar developing nations.

In addition to theoretical implications, the study findings offer several practical implications. First, for policymakers, the results support the development of more robust regulatory frameworks that mandate or incentivize climate-related disclosures in developing countries. Even within a voluntary disclosure context, institutional investors and sustainability committees have proven effective in enhancing transparency. This highlights the need for stronger institutional support, clearer reporting standards, and national policies that encourage the creation of board-level sustainability committees. Second, for institutional investors, the findings reaffirm their role as powerful governance agents capable of driving firms toward greater environmental responsibility. Institutional investors are encouraged to actively engage with investee firms, demanding standardized, high-quality climate disclosures and greater internal oversight of sustainability matters. Third, for business leaders, this study underscores the strategic importance of internal governance structures. Firms that establish sustainability committees at the board level not only improve their climate-related disclosure practices but also strengthen legitimacy and attract long-term ESG-conscious investors.

While this study offers significant theoretical and practical contributions, several limitations should be acknowledged, providing opportunities for future research. First, the study’s focus on publicly listed firms within highly regulated industries in Malaysia, although purposeful for examining climate-related disclosures, inherently limits the generalizability of the results. The unique institutional, cultural, and regulatory environment in Malaysia may produce context-specific findings that may not fully translate to firms operating in different sectors, countries, or regulatory regimes. This narrow scope constrains the ability to draw broader conclusions about the role of institutional ownership and sustainability committees globally, particularly in economies with varying governance maturity and enforcement levels. Future research should therefore seek to replicate and extend this model across diverse institutional contexts to rigorously test the robustness and boundary conditions of the observed relationships. Second, operationalizing the sustainability committee as a simple binary variable indicating only presence or absence fails to capture the complexity and heterogeneity of these governance bodies. This reductionist approach overlooks critical factors such as committee composition, expertise, frequency of meetings, mandate, and actual influence on firm strategy and disclosure practices. Such nuances are likely to have substantial implications for the committee’s effectiveness in shaping climate-related disclosure quality. Without these finer details, this study may underestimate or misrepresent the actual impact of sustainability committees. Future studies should employ more sophisticated measurement techniques, such as multi-dimensional indices or qualitative content analysis, to better reflect the committee’s functional dynamics and governance quality. Lastly, the study relies on a checklist-based climate-related disclosure (CRD) index, prioritizing the extent or quantity of disclosures rather than their substantive quality, credibility, or external assurance. This methodological choice risks overemphasizing formal compliance or symbolic reporting at the expense of meaningful, reliable information that stakeholders can trust. It also does not account for potential greenwashing or superficial disclosures. Incorporating qualitative evaluations, stakeholder perceptions, or third-party verification metrics in future research would provide a more comprehensive assessment of disclosure effectiveness and the actual sustainability performance of firms. In sum, while this study advances the understanding of governance mechanisms influencing climate disclosure, a more nuanced and context-sensitive approach is needed to capture the complexity of climate governance and reporting practices fully. Recognizing these limitations not only tempers interpretation of the current findings but also opens avenues for richer, more insightful future investigations that can inform policy and practice with greater precision.