The Role of Governance Audit Mechanisms on Environmental Sustainability and Emissions in Saudi Arabia Under ESG Regulations

Abstract

This study investigates the impact of corporate governance factors and environmental, social, and governance (ESG) regulations on environmental performance and emissions in Saudi Arabian companies to explore whether these companies are in line with the Sustainable Development Goals (SDGs). Using a pooled panel data approach for 51 Saudi-listed firms over the period from 2016 to 2023, the study examines the role of various governance mechanisms, such as audit committees, internal audits, audit quality, and leverage, in influencing companies’ environmental outcomes. The results indicate that ESG regulations have a promotive and statistically significant impact on reducing environmental emissions and improving environmental performance, particularly when supported by robust governance audit mechanisms. The results show that audit committee expertise, internal auditing, and audit tenure after ESG regulations exhibit a positive and significant effect on reducing environmental emissions and improving environmental performance. The findings have important policy, managerial, and theoretical implications, emphasizing the role of government regulations in shaping corporate sustainability practices, the need for improved corporate governance, and the theoretical link between governance and environmental performance. The study bridges an existing gap in the context of the impact of ESG regulations in emerging economies. The study contributes to the growing body of knowledge on ESG practices in emerging markets, particularly in the context of Saudi Arabia’s regulatory landscape.

1. Introduction

Recently, there has been an increased interest in companies’ exposure to environmental, social, and governance (ESG) issues and their environmental sustainability [1,2]. Accordingly, investment developments in ESG motivate companies to integrate ESG initiatives into their core strategies and governance activities to improve performance and attract more investors [3]. Investors also realize that the evaluation of an investment opportunity is incomplete if ESG factors are not taken into account and properly analyzed [4,5]. ESG regulations continue to evolve as an investment strategy and represent a significant part of the overall capital market investment [6]. As investment in ESG continues to accelerate, companies that address social and environmental issues related to their businesses and effectively report the required information to the market can benefit from achieving sustainable growth [7,8]. According to Mooneeapen et al. [9], the availability of ESG reporting frameworks and guidance can help companies identify, measure, and disclose ESG information that helps investors make more accurate assessments and more appropriate investment decisions. Moreover, environmental sustainability seeks to reduce emissions by improving energy efficiency and developing environmentally friendly technologies [10,11].

On the other hand, the audit committee is one of the corporate governance mechanisms, and it is the main committee of the board of directors’ committees [12,13,14]. It plays a pivotal role in enhancing control over financial reports and ensuring the quality of accounting information [15,16,17]. The effectiveness of this committee is determined based on a set of characteristics, including independence, financial and accounting expertise, the size of the committee, the number of meetings, coordination with external and internal auditors, integrity, and impartiality [18]. In the same context, audit quality refers to the extent to which the audit process can provide objective and accurate assurance regarding the fairness and reliability of companies’ financial reports [19,20]. Audit quality is linked to several factors, including auditors’ skills, adherence to professional standards, and effective governance mechanisms [4,21]. According to Suranta et al. [22], many factors affect auditing quality, such as corporate governance mechanisms, auditor characteristics, company size, time pressures, and technology [23,24]. Regulations on ESG disclosure and environmental sustainability are evaluated and audited to provide reasonable assurance about the extent of the soundness of companies’ environmental commitment [25]. Simultaneously, internal auditing helps corporations achieve their objectives by providing a systematic, disciplinary approach to assess and improve the effectiveness of risk management, control, and governance processes [26]. Internal audits examine the reliability and integrity of companies’ information, their compliance with policies and regulations, and the protection of resources [27,28]. Furthermore, internal audits’ role in corporate governance stems from the fact that internal audits are the basis of the truth, integrity, and reliability of the operational and financial information used for decision-making at all levels of governance [29]. Internal auditing is an essential part of the corporate governance structure [30]. It plays a dynamic role in the implementation of effective governance systems and adds value to the corporation by providing stakeholders with objective and adequate assurance and advisory services [31,32], thus contributing to the effectiveness and efficiency of governance and control processes [33].

This study’s purpose is to determine the extent of the impact of corporate governance mechanisms on environmental sustainability and emissions in light of ESG regulations in the Saudi context. The study relied on the audit committee characteristics, audit quality, and internal audits as mechanisms that express corporate governance mechanisms. The sample of this study consists of 51 companies listed on the Saudi Stock Exchange during the period from 2016 to 2023. The study relied on pooled panel data to examine its models and conclude its results. The study findings revealed the positive impact of corporate governance mechanisms represented by audit committee characteristics, audit quality, and internal audits on environmental sustainability and emissions in Saudi companies. The originality and significance of this study lies in its exploration of the impact of some corporate governance mechanisms on environmental performance and emissions in light of ESG regulations in the Saudi context. This study has practical implications for policymakers, companies, auditors, investors, and all stakeholders. The study results affect the decisions of all stakeholders as a result of the positive impact of governance mechanisms on the sustainable environmental performance of companies.

The remainder of this research is organized as follows: Section 2 provides a detailed discussion concerning the theoretical background, a literature review, and hypotheses development. Section 3 presents the study’s methodology and data sampling. Section 4 discusses the findings. Section 5 presents the study’s implications. Finally, Section 6 provides the study’s conclusion and Section 7 presents the directions for future research.

2. Literature Review and Hypotheses Development

2.1. Theoretical Background

This study derives its variables and hypotheses from stakeholder theory and legitimacy theory. Numerous studies have used these theories to understand the effects of corporate governance mechanisms and explain the factors affecting environmental sustainability [10,34]. Furthermore, many studies have adopted these theories to explain the effects of audit committee characteristics, audit quality, and internal audits as corporate governance mechanisms [35]. Stakeholder theory is one of the most vital theories for studying environmental sustainability due to the impact of sustainability on the interests of shareholders [8]. According to the stakeholder theory, ESG regulation initiatives help enhance a business’s reputation. On the other hand, the legitimacy theory in business institutions is related to the principles and rules that govern the actions and orientations of institutions in the commercial and economic fields [2,4]. When the concepts of legitimacy theory and environmental sustainability come together, companies can invest in sectors that preserve the environment and contribute to social development [36]. By focusing on ESG regulation, institutions can achieve long-term sustainability [6]. Legitimacy theory seeks to achieve a balance between economic growth and ethics, leading to the formation of a sustainable business environment.

2.2. The Role of Audit Committee Characteristics on Environmental Sustainability and Emissions in Saudi Arabia Under ESG Regulations

Several studies have examined the relationship between audit committee characteristics, environmental sustainability, and emissions [37,38,39]. This relationship is related to the extent to which the audit committee can improve corporate environmental practices and reduce emissions through its oversight role [40]. According to Jibril et al. [16], a large audit committee typically includes members with diverse backgrounds, which increases the chances of providing new insights into environmental sustainability and emissions monitoring. Increasing the size may also enhance the committee’s ability to deal with complex environmental matters [41]. Moreover, independent audit committee members are better able to make transparent and effective decisions on environmental policies and emissions reporting [18]. Independent members tend to reduce the pressure from management to ensure compliance with environmental standards [12]. The presence of members with expertise in environmental sustainability and environmental risks on the audit committee enhances the committee’s ability to evaluate environmental policies [14]. According to Fuadah et al. [35], regular audit committee meetings enable the implementation of environmental policies to be monitored and companies’ performance to be continuously evaluated, which impacts environmental sustainability. Frequent meetings also provide a platform for discussing improvements in emissions reduction [39]. The audit committee reviews environmental reports to ensure their accuracy and compliance with international standards [16]. It also helps ensure compliance with environmental legislation and emissions controls [38]. The audit committee enhances transparency by monitoring the quality and reliability of environmental disclosures [12]. Accordingly, the presence of an audit committee with effective characteristics contributes to reducing emissions and enhancing compliance with environmental standards. Furthermore, it helps improve financial performance and corporate reputation by complying with sustainability requirements. According to the previous discussions, the following hypothesis was formulated:

H1: 

Audit committee characteristics have a positive and significant influence on environmental sustainability and emissions.

2.3. The Role of Audit Quality on Environmental Sustainability and Emissions in Saudi Arabia Under ESG Regulations

Simultaneously, the relationship between audit quality, environmental sustainability, and emissions stems from the importance of the role audits play in enhancing environmental disclosures and improving environmental risk management [22,42]. According to Zahid et al. [43], high audit quality contributes to improving the accuracy and transparency of environmental and emissions reports. Highly skilled and experienced auditors ensure that environmental reports are consistent with international standards such as GRI and SASB [44,45]. Moreover, good auditing helps in the early detection of weaknesses in emissions management systems [46]. High-quality auditing encourages companies to voluntarily disclose their environmental practices, which increases the confidence of investors and other stakeholders [47]. Audit reports provide recommendations for improving environmental operations and reducing emissions [25]. According to several studies [20,21,48], quality auditing ensures the reliability of emissions data, which is important for companies seeking sustainability certifications or subject to regulatory audits. Auditing contributes to assessing the effectiveness of environmental sustainability management systems within companies and improving emissions measurement and tracking systems [49]. Suranta et al. [22] contended that companies that rely on reputable and high-quality auditing firms achieve better environmental performance, as they are more committed to reducing emissions and complying with environmental standards. Drawing from the preceding discussion, the following hypothesis is proposed:

H2: 

Audit quality has a positive and significant influence on environmental sustainability and emissions.

2.4. The Role of Internal Audits on Environmental Sustainability and Emissions in Saudi Arabia Under ESG Regulations

In the same context, internal audit activity is one of the most important tasks for corporations to enhance sustainability [8,50]. Yan et al. [31] exhibits the fact that internal audit activities contributed to enhancing environmental sustainability by evaluating the effectiveness of governance, risk management, internal control, and the effectiveness of internal audit activities. According to Kolsi and Al-Hiyari [51], internal auditors assure their efficiency and quality, then, as professional, objective, and independent entities, providing managers with information and recommendations for enhancement. Gherai et al. [26] reveals that internal auditors can enhance environmental sustainability through their oversight, risk mitigation role, and their audit reviews. Recently, the nexus between ESG and internal auditing has been catching the attention of all audit stakeholders due to increasing regulatory requirements and the emphasis on governance and risk management [29,30]. This contribution is influenced by the results of internal audit performance [51]. It is also influenced by several elements, such as regulations, laws, governance, structure, organizational characteristics, business characteristics, standards, and activities carried out by internal auditors [50]. The demands placed on the internal audit activity by internal and external stakeholders are constantly increasing and changing the attention paid to this activity [39]. Furthermore, internal audits contribute to enhancing sustainability and supporting the operations of the corporation, aiming to help the corporation achieve its objectives and enhance the effectiveness of governance [33,52]. According to the previous discussions, the following hypothesis was formulated:

H3: 

Internal audits have a positive and significant influence on environmental sustainability and emissions.

3. Research Methods and Design

3.1. Data and Sample of the Study

The sample for this study consisted of companies listed on the Saudi Stock Exchange (Tadawul). These companies spanned various industries and sectors, representing a diverse range of business operations and organizational structures. The list included both large and small companies to ensure a broad representation of the Saudi business landscape. Companies that disclosed ESG-related information in their annual reports or through standalone sustainability reports were selected. ESG reports were assessed based on the criteria set by international frameworks such as the Global Reporting Initiative (GRI) and Saudi-specific regulations, which emphasize corporate social responsibility and environmental sustainability. To focus on the influence of ESG regulations, only companies that had been affected by the recent ESG regulations implemented in Saudi Arabia were considered. This included organizations that had made significant efforts to comply with these regulations or integrate sustainability practices into their corporate governance frameworks.

The sample included data from the last eight years, spanning from 2016 to 2023 to ensure that the study reflected recent trends in ESG practices. This period allowed for the assessment of the effects of evolving ESG regulations on company performance and environmental outcomes. To account for industry-specific differences in ESG practices, the study included companies from diverse sectors such as energy, telecommunications, manufacturing, and services. This approach ensured that our findings are generalizable across different sectors, providing a comprehensive view of the impact of ESG regulations. The final sample consisted of 51 companies that met the selection criteria, providing a robust dataset for statistical analysis. A balance between companies from various sectors and sizes ensured that the results were not biased toward a specific industry or company type.

3.2. Variable Measurements

Table 1. Variable measurements.

Abbreviation	Name	Definition
ENVEMIS	Environmental Emissions	Refers to the amount of harmful substances released into the environment by corporate activities, measured in terms of pollution levels, greenhouse gases, and other environmental pollutants.
ENVP	Environmental Performance	Refers to the overall effectiveness of a company in managing its environmental impact, typically assessed through sustainability metrics such as waste reduction, energy efficiency, and carbon footprint management.
ACEXIS	Audit Committee Existence	Indicates the presence or absence of an audit committee in a company’s governance structure, aimed at overseeing financial reporting and ensuring compliance with regulations.
ACEXP	Audit Committee Expertise	Refers to the level of specialized knowledge and experience possessed by members of the audit committee, particularly in financial accounting and auditing practices.
ACIND	Audit Committee Independence	Measures the degree to which the audit committee members are free from management influence, ensuring unbiased oversight and objectivity in their decisions and actions.
ADUTNR	Audit Tenure	Refers to the length of time that an auditing firm has been engaged to audit a company, which can affect the independence and quality of audits.
BIG4	Audit Quality	Indicates whether the company’s audit was performed by one of the Big Four accounting firms, which are generally considered to have higher audit quality due to their size and reputation.
INTAUD	Internal Audit	Refers to the company’s internal auditing activities, typically involving the evaluation of risk management, internal controls, and financial reporting processes.
SH	Shareholders	Represents the ownership structure of a company, typically measured by the proportion of shares held by institutional or individual shareholders.
LV	Leverage	Refers to the degree to which a company uses borrowed capital (debt) in its capital structure, typically measured by the debt-to-equity ratio.
NP	Net Profits	Refers to the company’s net income, calculated as revenues minus expenses, taxes, and other costs, reflecting the company’s overall financial performance.
SZ	Company Size	Refers to the scale of a company, typically measured by total assets or total revenue, providing an indication of the company’s market presence and operational scale.
MC	Market Capitalization	Represents the total market value of a company’s outstanding shares, calculated by multiplying the stock price by the number of shares in circulation.
RG	ESG Regulations	Refers to the set of policies, laws, and regulations that govern the environmental, social, and governance practices that companies are required to follow. These regulations influence corporate behavior related to sustainability and ethical practices.

provides the operational definitions of the variables used in the analysis. Each variable was defined based on its relevance to understanding the relationship between audit governance factors and environmental outcomes. Table 1 below presents the abbreviation, full name, and operational definition of each variable.

3.3. Econometrics

Pooled panel data are appropriate for this study as they allow for the analysis of data that include both cross-sectional (different companies) and time-series (multiple years) dimensions. The use of pooled data enabled us to capture dynamics over time while controlling for individual heterogeneity across companies. This approach was beneficial because it improved the robustness of the results by incorporating both company-specific and time-specific effects. The pooled panel approach was utilized over a fixed effects approach as the variables of concern did not significantly change over time across the firms. Further, under circumstances with minimal periods or firms, imposing fixed effects can lead to overfitting or the loss of degrees of freedom [53,54,55]. The inclusion of a dummy variable for RG (representing the introduction of ESG regulations in 2021) further enhanced the analysis. The use of a dummy variable to capture the effect of event periods of policy implications has been acknowledged by prior studies [56,57,58,59,60]. This dummy allowed us to examine how the regulations impacted the dependent variables (environmental emissions and environmental performance) both before and after the regulations’ implementation. By examining the before and after periods, we could better understand the direct effects of ESG regulations on corporate behavior.

The study employed three models to examine the relationships between the independent variables (IVs) and the dependent variables (DVs), namely environmental emissions (ENVEMIS) and environmental performance (ENVP). The models also included a dummy for RG to account for the regulatory impact. The first model examined the relationship between the independent variables and the dependent variables without considering the effect of ESG regulations. Its equation is as follows:

$$\begin{gathered} {ENVIMIS}_{it }={\alpha }_{i }+.{\beta }_{1 }{ACEXIS}_{it}+{\beta }_{2 }{ACEXP}_{it}+{\beta }_{3 }{ACIND}_{it}+{\beta }_{4 }{ADUTNR}_{it}+ \\ {\beta }_{5 }BIG4+{\beta }_{6 }{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5{\mathrm{Y}}_{\mathrm{t}} {++\mathsf{\epsilon }}_{\mathrm{i}\mathrm{t}} \end{gathered}$$

(1)

$$\begin{gathered} {ENVP}_{it}={\alpha }_i+.{\beta }_1{ACEXIS}_{it}+{\beta }_2{ACEXP}_{it}+{\beta }_3{ACIND}_{it}+{\beta }_4{ADUTNR}_{it}+{\beta }_{5}BIG4+ \\ {\beta }_6{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5{+\mathsf{\epsilon }}_{\mathrm{i}\mathrm{t}} \end{gathered}$$

(2)

where all variables are defined in Table 1, β₀ is the constant term, β₁ is the coefficient for the independent variables, and ε is the error term.

$${\sum }_{\mathrm{k}=1}^5{\mathrm{Y}}_{\mathrm{t}}=\alpha +{\gamma }_{1 }{\mathrm{S}\mathrm{H}\mathrm{A}\mathrm{R}\mathrm{E}\mathrm{H}}_{it}+{\gamma }_{2 }\mathrm{L}\mathrm{E}\mathrm{V}+{\gamma }_{3 }{\mathrm{N}\mathrm{E}\mathrm{T}\mathrm{P}\mathrm{R}\mathrm{O}\mathrm{F}}_{it}+{\gamma }_{4 }{\mathrm{S}\mathrm{I}\mathrm{Z}\mathrm{E}}_{it}+{\gamma }_{5 }{\mathrm{M}\mathrm{C}\mathrm{A}\mathrm{P}}_{it}$$

The second model introduces a dummy variable for RG, representing the impact of ESG regulations on environmental outcomes. The equation for Model 2 is as follows:

$$\begin{gathered} {ENVIMIS}_{it }={\alpha }_{i }+.{\beta }_{1 }{ACEXIS}_{it}+{\beta }_{2 }{ACEXP}_{it}+{\beta }_{3 }{ACIND}_{it}+{\beta }_{4 }{ADUTNR}_{it}+{\beta }_{5 }BIG4+{\beta }_{6 }{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5+ \\ {\mathsf{\epsilon }}_{it} \end{gathered}$$

(3)

$${ENVP}_{it}={\alpha }_i+.{\beta }_1{ACEXIS}_{it}+{\beta }_2{ACEXP}_{it}+{\beta }_3{ACIND}_{it}+{\beta }_4{ADUTNR}_{it}+{\beta }_{5}BIG4+{\beta }_6{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5+{\mathsf{\epsilon }}_{it}$$

(4)

The third model further splits the data into two periods, before and after the introduction of ESG regulations. The data from 2016 to 2021 is considered as the “before” period, and the data from 2022 to 2023 is considered as the “after” period. The equation for Model 3 is as follows:

$$\begin{gathered} {ENVIMIS\_Before\_After}_{it}={\alpha }_i+.{\beta }_1{ACEXIS}_{it}+{\beta }_2{ACEXP}_{it}+{\beta }_3{ACIND}_{it}+ \\ {\beta }_4{ADUTNR}_{it}+{\beta }_{5}BIG4+{\beta }_6{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5+{\mathsf{\epsilon }}_{it} \end{gathered}$$

(5)

$$\begin{gathered} {ENVP\_Before\_After}_{it }={\alpha }_{i }+.{\beta }_{1 }{ACEXIS}_{it}+{\beta }_{2 }{ACEXP}_{it}+{\beta }_{3 }{ACIND}_{it}+ \\ {\beta }_{4 }{ADUTNR}_{it}+{\beta }_{5 }BIG4+{\beta }_{6 }{INTAUD}_{it}+{\mathsf{\beta }}_7{\sum }_{\mathrm{k}=1}^5+{\mathsf{\epsilon }}_{it} \end{gathered}$$

(6)

4. Analysis and Discussion

4.1. Descriptive Statistics

The results in

Table 2. Descriptive statistics.

Variables	Minimum	Maximum	Mean	Std. Dev.	Observations
ENVEMIS	0.00	81.25	14.64	21.55	408.00
ENVP	0.00	85.56	16.62	25.01	408.00
ACEXIS	0.00	1.00	0.53	0.50	408.00
ACEXP	0.00	1.00	0.25	0.44	408.00
ACIND	0.00	100.00	59.33	27.45	408.00
ADUTNR	0.00	13.00	2.67	2.24	408.00
BIG4	0.00	1.00	0.24	0.42	408.00
INTAUD	0.00	1.00	0.49	0.50	408.00
SH	0.00	98.96	47.43	28.37	408.00
LV	0.00	15.80	0.47	1.22	408.00
NP	9.98	10.28	10.02	0.04	408.00
SZ	7.66	11.33	9.37	0.91	408.00
MC	3.28	11.39	9.09	0.91	408.00
RG	0.00	1.00	0.25	0.43	408.00

ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations.

provide the descriptive statistics for the variables. The environmental performance measures, such as environmental emissions and environmental performance, show significant variability, with environmental emissions having a wide range, from 0.00 to 81.25, and an average of 14.64. This suggests a large disparity in the environmental performance of the companies in the sample. Similarly, environmental performance scores range from 0.00 to 85.56, with a mean of 16.62, indicating that companies show varying degrees of sustainability in their practices. The audit committee variables also reveal interesting patterns. The audit committee existence variable shows an average value of 0.53, indicating that more than half of the companies in the sample have an active audit committee. However, audit committee expertise is relatively low, with a mean of 0.25, suggesting that a considerable number of companies do not have highly experienced audit committees. Audit committee independence is somewhat higher, with a mean value of 59.33, reflecting that a significant portion of companies maintain a reasonably independent audit committee.

Audit tenure, on the other hand, has a mean value of 2.67, with a minimum of 0 and a maximum of 13. This wide range indicates that while some companies have short audit tenures, others have long-standing relationships with their auditors. This could affect the consistency and effectiveness of financial oversight across the sample. Audit quality, indicated by the Big Four dummy variable, shows a mean value of 0.24, suggesting that a smaller proportion of companies are audited by the Big Four accounting firms, which are typically associated with higher audit quality. Internal audit presence is also observed in the sample, with a mean value of 0.49, showing that about half of the companies have an internal audit function in place. Shareholder ownership is somewhat dispersed, with a mean of 47.43%, reflecting varying levels of control by shareholders in different companies. Leverage shows a very low mean value of 0.47, with companies having relatively low debt levels, although the standard deviation is high, indicating considerable variation in the debt structures across firms. Net profits appear to be very stable, with a mean of 10.02 and a minimal standard deviation of 0.04, indicating limited variation in profitability across the sample. Company size, as measured by total assets, has a mean of 9.37 and a reasonable variation, suggesting a diverse set of companies with different sizes. Market capitalization follows a similar pattern, with a mean value of 9.09, reflecting the relatively moderate size of the companies included in the sample. Finally, the introduction of ESG regulations in 2021 shows a mean of 0.25, indicating that ESG regulations have been adopted by only a small fraction of the companies in the sample so far. The high standard deviation (0.43) suggests considerable variation in the extent of ESG regulation adoption, which could reflect differences in sectoral practices or readiness to implement such regulations.

4.2. Correlation Analysis

The correlation matrix in

Table 3. Correlation analysis.

Probability	(1)	(2)	(3)	(4)	(5)	(6)	(7)	(8)	(9)	(10)	(11)	(12)	(13)	(14)
ENVEMIS	1
ENVP	0.72	1.00
(1)	***
ACEXIS	0.19	0.18	1.00
(2)	***	***
ACEXP	0.14	0.10	0.55	1.00
(3)	***	**	***
ACIND	0.06	0.04	0.05	−0.06	1.00
(4)
ADUTNR	0.10	0.07	0.34	0.15	0.04	1.00
(4)	**		***	***
BIG4	−0.06	0.01	−0.12	−0.01	0.03	−0.19	1.00
(5)			**			***
INTAUD	0.21	0.14	0.87	0.51	0.05	0.34	−0.11	1.00
(6)	***	***	***	***		***	**
SH	−0.04	−0.09	0.07	0.08	0.11	−0.03	0.00	0.12	1.00
(7)		*		*	**			**
LV	0.03	−0.06	0.02	0.09	0.13	−0.05	−0.06	0.04	0.13	1.00
(8)				*	**				***
NP	−0.03	−0.05	0.22	0.03	−0.07	0.14	−0.01	0.21	−0.17	−0.05	1.00
(9)			***			***		***	***
SZ	0.18	0.10	0.35	0.16	0.22	0.07	0.09	0.32	0.02	0.07	0.51	1.00
(10)	***	*	***	***	***		*	***			***
MC	0.18	0.06	0.29	0.08	0.17	0.02	−0.02	0.24	−0.08	−0.04	0.60	0.77	1.00
(11)	***		***		***			***	*		***	***
RG	0.16	0.11	0.50	0.23	0.10	0.31	−0.15	0.50	0.13	0.12	0.13	0.09	0.05	1.00
(12)	***	**	***	***	**	***	***	***	**	**	***	*

ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations. *, **, and *** indicate statistical significance at 0.10, 0.05, and 0.01.

indicates several important relationships between the variables in the study. Notably, the Environmental Emission Score (ENVEMIS) and Environmental Performance (ENVP) have a strong positive correlation of 0.72, indicating that companies with better environmental performances also tend to exhibit lower environmental emissions. Audit-related variables show varying degrees of correlation. For example, the existence of the audit committee (ACEXIS) has a weak positive correlation with both ENVEMIS (0.19) and ENVP (0.18), while audit committee expertise (ACEXP) is slightly more correlated with ENVEMIS (0.14) and ENVP (0.10). Audit committee independence (ACIND) shows very weak correlations with the environmental measures, suggesting that its role might be less directly linked to sustainability outcomes.

Among financial variables, market capitalization (MC) and company size (SZ) exhibit stronger positive correlations with several variables. MC, for instance, correlates highly with net profits (NP) and company size, reflecting the larger and more established companies being better positioned in terms of profitability and asset size. Interestingly, the introduction of ESG regulations (RG) shows a relatively low positive correlation with environmental outcomes (0.16 for ENVEMIS and 0.11 for ENVP), which indicates that the regulations are still in the early stages of implementation. Importantly, the correlation results do not show any significant signs of multicollinearity. The correlation coefficients between independent variables are not excessively high, and no pair of variables shows near-perfect correlation. This indicates that the variables are not overly collinear, and multicollinearity should not pose a significant issue in subsequent analyses.

4.3. Regression Results

4.3.1. The Impact of Governance Audit Mechanisms on Environmental Performance and Emissions

The results presented in

Table 4. Impact of governance audit mechanisms on environmental performance and emissions.

Variable	ENVEMIS	ENVP
ACEXIS	−1.731	5.132 *
	1.501	3.064
ACEXP	1.813	0.081
	2.458	1.392
ACIND	−0.054 ***	−0.062 ***
	0.016	0.021
ADUTNR	0.494 ***	0.409 **
	0.170	0.204
BIG4	−1.592 **	1.722
	0.602	1.417
INTAUD	6.543 **	2.198
	1.758	2.928
SH	−0.017 **	−0.031 **
	0.007	0.012
LV	0.121	−0.739
	0.094	0.496
NP	−72.012 ***	−101.269 ***
	16.940	12.326
SZ	4.410 ***	4.379 ***
	0.488	1.008
MC	1.472	2.253 **
	1.031	1.000
C	676.138 ***	963.842 ***
	163.088	118.883
R-squared	0.334	0.234
Adjusted R-squared	0.316	0.212
S.E. of regression	18.355	21.944
F-statistic	18.070	10.970
Prob (F-statistic)	0.000	0.000

ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations. *, **, and *** indicate statistical significance at 0.10, 0.05, and 0.01.

demonstrate the relationships between various factors, with a focus on their impact on environmental performance and emissions, as well as audit committee characteristics and firm-specific factors. Starting with environmental emissions (ENVEMIS), the coefficient is −1.731 with a p-Value of 0.000, suggesting a significant negative impact on environmental emissions. This indicates that, as certain variables change, environmental emissions tend to decrease. The results show strong evidence supporting this negative relationship, reinforcing earlier findings in the model. In contrast, environmental performance (ENVP) is positively correlated with other factors, reflected by a coefficient of 5.132 (p-Value = 0.000). This suggests that improvements in various audit and financial parameters are linked to a higher environmental performance, highlighting the importance of corporate governance in driving environmental sustainability. The p-Value being highly significant suggests a robust relationship.

Audit committee existence (ACEXIS) has a coefficient of 1.501 with a p-Value of 0.249. While the coefficient is positive, the p-Value indicates that the relationship is not statistically significant, suggesting that the mere existence of an audit committee does not strongly influence the outcomes related to environmental performance or emissions. This result agrees with the findings of Pozzoli et al. [16] and Rakipi and D’Onza [50] and is in accordance with stakeholder theory. Audit committee expertise (ACEXP) shows a positive effect on the outcome variables, with coefficients of 1.813 and 2.458. However, the associated p-Values of 0.081 and 0.954 indicate mixed results. The first p-Value is somewhat close to the significance threshold, implying some potential impact, while the second indicates no significant effect, suggesting that the expertise of the audit committee may not be a consistent predictor across the model. These findings consist with those Arif et al. [12] and Fayad et al. [40], which demonstrate the importance of the audit committee’s experience as a crucial factor in enhancing the effectiveness of the audit committee. Audit committee independence (ACIND) shows minor coefficients of −0.054 and −0.062, with corresponding p-Values of 0.016 and 0.004, respectively, indicating a statistically significant, though small, negative effect. This suggests that greater independence in the audit committee may slightly reduce environmental emissions but has less of an effect on environmental performance. This leads us to reject H1, indicating that audit committee characteristics have an insignificant influence on the level of environmental emissions and sustainability. This result is consistent with prior studies [16,40].

Audit tenure (ADUTNR) presents coefficients of 0.494 and 0.409, both with significant p-Values (0.004 and 0.046). The positive coefficients indicate that longer audit tenures tend to be associated with more favorable outcomes in both environmental performance and emissions, which is corroborated by [43]. Audit quality (BIG4) shows coefficients of −1.592 and 1.722, but the first has a p-Value of 0.009, indicating a statistically significant negative effect on emissions, while the second coefficient, with a p-Value of 0.225, indicates no significant effect on environmental performance. This suggests that audit quality, particularly through the big firms, can reduce emissions, but its impact on environmental performance remains unclear, which is corroborated by the prior literature [24,48]. Internal audits (INTAUD) have a significant positive effect, with a coefficient of 6.543 and a p-Value of 0.000, strongly supporting the importance of internal audits in improving environmental performance. This relationship aligns with the theory that internal control mechanisms foster better corporate sustainability practices. This result is comparable to the findings of Daidj [28] and Kolsi and Al-Hiyari [51], who pointed out the importance of internal auditing in supporting environmental sustainability practices within companies.

Shareholders (SH) have a minor negative impact on environmental performance, with a coefficient of −0.017 and p-Value of 0.016, indicating a small but statistically significant effect. However, their influence on emissions is minimal. Leverage (LV) does not show a strong impact, with coefficients of 0.121 and −0.739 and relatively weak p-Values (0.197 and 0.137), suggesting that a firm’s leverage does not significantly affect either environmental performance or emissions. Net profits (NP) show strong negative relationships with both environmental emissions and performance, with coefficients of −72.012 and −101.269, both highly significant (p-Value = 0.000). This suggests that more profitable firms tend to have higher environmental emissions and lower environmental performance, potentially due to a lack of incentives to adopt sustainable practices. Company size (SZ) has a significant positive relationship with both outcomes, with coefficients of 4.410 and 4.379 and p-Values of 0.000, suggesting that larger firms have a higher tendency to invest in improving environmental performance, possibly due to having greater resources. Market capitalization (MC) presents coefficients of 1.472 and 2.253, with the first being statistically insignificant (p-Value = 0.154) and the second significant (p-Value = 0.025). This indicates that while market capitalization may not consistently affect emissions, its impact on performance is more robust.

4.3.2. The Impact of Governance Audit Mechanisms on Environmental Performance and Emissions Under ESG Regulations

The results presented in

Table 5. Impact of governance audit mechanisms on environmental performance and emissions under ESG regulations.

Variable	ENVEMIS	ENVP
ACEXIS	−4.004	3.690
	3.321	3.503
ACEXP	1.336	−0.494
	2.677	1.517
ACIND	−0.060 ***	−0.065 ***
	0.017	0.021
ADUTNR	0.480 *	0.357
	0.257	0.217
BIG4	−1.761 **	2.037
	0.807	1.382
INTAUD	6.268 ***	1.948
	2.141	2.730
SH	−0.023 ***	−0.041 **
	0.008	0.016
LV	0.056	−0.874 *
	0.163	0.518
NP	−86.239 ***	−107.310 ***
	20.202	13.031
SZ	4.467 ***	5.011 ***
	0.457	1.095
MC	2.249 **	2.298 **
	1.107	1.012
RG	4.271 *	3.388 ***
	2.392	1.175
	0.075	0.004
C	812.074 ***	1019.125 ***
	193.8316	125.8205
R-squared	0.278	0.245
Adjusted R-squared	0.256	0.222
F-statistic	12.698	10.682
Prob (F-statistic)	0.000	0.000

ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations. *, **, and *** indicate statistical significance at 0.10, 0.05, and 0.01.

provide additional insights into the relationships between various factors impacting environmental performance and emissions. Comparing these results with those in Table 4, several notable differences and similarities emerge. For environmental emissions (ENVEMIS), Table 5 shows a stronger negative coefficient of −4.004 (p-Value = 0.229) compared to −1.731 (p-Value = 0.000) in Table 4. Although the negative relationship is consistent, the higher coefficient in Table 5 indicates a more significant reduction in emissions, but the p-Value here is not statistically significant, suggesting less confidence in this result. In contrast, Table 4 shows a highly significant negative relationship. This is comparable to Frecautan and Nita [6] and Plastun et al.’s [57] findings. Environmental performance (ENVP) in Table 5 has a coefficient of 3.690 (p-Value = 0.293), which is slightly lower than the 5.132 (p-Value = 0.000) in Table 4, with the latter result being statistically significant. This difference implies that while the impact on performance remains positive, Table 4’s result is more robust and significant, highlighting stronger factors contributing to environmental performance in that model.

Audit committee existence (ACEXIS) shows a stronger positive coefficient in Table 5 (3.321) compared to Table 4 (1.501), but with a less significant p-Value (0.293) in Table 5, indicating no strong statistical evidence of this relationship. Table 4’s result, though weaker in magnitude, was statistically insignificant, meaning that the absence of a significant relationship is consistent across both tables. In terms of audit committee expertise (ACEXP), Table 5 shows a smaller coefficient of 1.336 for environmental emissions, with a p-Value of 0.618, and a negative coefficient of −0.494 for environmental performance, with a p-Value of 0.745. Compared to Table 4, where the results for expertise were more variable but generally statistically insignificant, the effect of audit committee expertise in Table 5 remains similarly weak with no clear relationship.

In a similar vein, Wang and Sun [18] concluded that the audit committee expertise does not affect environmental sustainability, according to the ESG regulation. Audit committee independence (ACIND) shows similar results in both tables, with a minor negative effect on both environmental emissions and performance. In Table 5, it has coefficients of −0.060 and −0.065 (p-Values 0.001 and 0.002), slightly more significant than Table 4’s results (−0.054, −0.062), but the magnitude of the effects remains consistent. Audit tenure (ADUTNR) in Table 5 shows weaker results (coefficients of 0.480 and 0.357, p-Values of 0.063 and 0.101) compared to Table 4 (coefficients of 0.494 and 0.409, p-Values of 0.004 and 0.046). The negative relationship in both tables suggests the importance of tenure, but Table 5’s results are statistically weaker, suggesting less impact on emissions and performance.

Audit quality (BIG4) shows a similar trend as in Table 4, with negative coefficients for emissions (−1.761) and a positive one for performance (2.037). The results in Table 5 remain statistically significant for emissions (p-Value = 0.030), whereas the impact on performance (p-Value = 0.141) is not significant. This reinforces the earlier finding that audit quality significantly affects emissions but has a less consistent impact on performance. Internal auditing (INTAUD) has a slightly lower coefficient in Table 5 (6.268 for emissions, 1.948 for performance) compared to Table 4 (6.543 for emissions, 2.198 for performance). The p-Value for emissions (0.004) in Table 5 indicates a significant positive effect, reinforcing the results from Table 4 that internal audits play an important role in improving environmental performance. The p-Value for performance in Table 5 (0.476) suggests no significant impact on performance in this model. Shareholders (SH) show a similar negative relationship with both environmental emissions and performance in Table 5. The coefficients are −0.023 and −0.041, with p-Values of 0.004 and 0.011, indicating statistically significant negative effects. While these results are consistent with Table 4’s findings, they are somewhat stronger in Table 5. Leverage (LV) in Table 5 shows weak results (coefficients of 0.056 and −0.874, p-Values of 0.733 and 0.093) compared to Table 4’s results, which showed little impact, with p-Values of 0.197 and 0.137. This reinforces the conclusion that leverage has minimal effect on environmental outcomes across both models.

Net profits (NP) continue to show strong negative relationships with environmental outcomes, with coefficients of −86.239 (p-Value = 0.000) for emissions and −107.310 (p-Value = 0.000) for performance in Table 5. These results are similar to those in Table 4, emphasizing the significant negative impact of profitability on environmental outcomes. Company size (SZ) has coefficients of 4.467 and 5.011 in Table 5, showing a slight increase compared to Table 4’s coefficients (4.410 and 4.379). Both tables show highly significant results, suggesting that larger firms are more likely to invest in improving environmental outcomes. Market capitalization (MC) in Table 5 has a higher coefficient for emissions (2.249, p-Value = 0.043) and a slightly lower one for performance (2.298, p-Value = 0.024), indicating a stronger impact on environmental emissions but a consistent relationship with performance.

These results are more significant than those in Table 4. ESG regulations (RG) in Table 5 show a significant positive relationship with environmental outcomes, with coefficients of 4.271 (p-Value = 0.000) for emissions and 3.388 (p-Value = 0.004) for performance, highlighting the role of regulations in enhancing corporate sustainability. This is a marked improvement from the results in Table 4, where RG showed a weaker significance.

4.3.3. The Impact of Governance Audit Mechanisms on Environmental Performance and Emissions Before and After ESG Regulations

Table 6. Pre- and post-ESG regulation analysis.

	Environmental Emissions		Environmental Performance
Variable	Before the ESG Regulations	After the ESG Regulations	Before the ESG Regulations	After the ESG Regulations
ACEXIS	9.939 **	−14.057 ***	13.957 ***	−7.988 ***
	3.987	3.999	2.218	1.509
ACEXP	−10.097 ***	11.151 ***	−6.967 ***	7.494 ***
	1.702	0.141	1.728	1.078
ACIND	−0.022 ***	−0.164 ***	−0.026 *	−0.152 ***
	0.006	0.040	0.015	0.014
ADUTNR	0.482 ***	0.733 ***	0.685 **	−0.474 ***
	0.181	0.200	0.321	0.028
BIG4	−1.117 **	−8.570 ***	2.987 **	−12.261 ***
	0.433	1.271	1.284	2.044
INTAUD	−3.313	10.110 **	−6.258 **	4.701 ***
	3.181	4.527	2.495	0.763
SH	−0.028 **	−0.068 *	−0.015	−0.131 ***
	0.011	0.037	0.010	0.012
LV	−0.142	0.062	−2.984 ***	−0.700 ***
	0.643	0.060	0.538	0.036
NP	−49.906 **	−166.599 ***	−76.638 ***	−160.024 ***
	20.948	1.105	19.340	4.209
SZ	4.343 ***	7.583 ***	3.117 ***	9.533 ***
	0.468	0.025	0.946	2.216
MC	0.122	5.926 ***	2.305 **	1.381
	0.555	0.998	1.052	1.890
C	466.204 ***	1574.104 ***	725.640 ***	1539.455 ***
	207.490	21.830	190.078	39.466
R-squared	0.386	0.712	0.269	0.860
Adjusted R-squared	0.363	0.676	0.242	0.843
F-statistic	16.812	20.201	9.851	50.368
Prob (F-statistic)	0.000	0.000	0.000	0.000

ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations. *, **, and *** indicate statistical significance at 0.10, 0.05, and 0.01.

presents the comparison of results before and after the introduction of ESG regulations. Regarding environmental emissions (ENVEMIS), the presence of an audit committee (ACEXIS) prior to the implementation of ESG regulations exhibits a positive and statistically significant effect, with a coefficient of 9.939 (p-Value = 0.013). However, following the introduction of ESG regulations, the relationship becomes negative (coefficient = −14.057) with an even higher level of statistical significance (p-Value = 0.000). This reversal suggests that ESG regulations exert a strong moderating influence, substantially altering the previously positive association between audit committee existence and environmental emissions. These findings are consistent with those reported by Plastun et al. [36], which underscore the regulatory importance of ESG initiatives.

A comparable pattern emerges with environmental performance (ENVP). Prior to ESG regulation, ACEXIS is positively associated with environmental performance (coefficient = 13.957; p-Value = 0.000). Post-regulation, however, the coefficient shifts to a negative value (−7.988; p-Value = 0.000), indicating that ESG regulations have attenuated the initial positive effect of audit committee existence on environmental outcomes.

In the case of audit committee expertise (ACEXP), the transformation is even more pronounced. Before ESG regulations, ACEXP demonstrates a significant negative impact on both environmental emissions (coefficient = −10.097) and environmental performance (coefficient = −6.967), with both results exhibiting strong statistical significance (p-Value = 0.000). After the enactment of ESG regulations, the relationship is reversed: the coefficients become positive (11.151 for emissions and 7.494 for performance), both remaining statistically significant (p-Value = 0.000). These results indicate that ESG regulations have fundamentally altered the role of audit committee expertise, transforming its impact from inhibitory to promotive in both emission reduction and performance enhancement.

Audit committee independence (ACIND) presents a more nuanced pattern. Before ESG regulations, the coefficients are relatively small yet statistically significant (−0.022 for emissions and −0.026 for performance; both with p-Values = 0.000), supporting the acceptance of H1 regarding the existence of audit committees. However, the broader influence of audit committee characteristics post-regulation appears to be statistically insignificant, suggesting that ESG regulations may have moderated or diluted their standalone effects.

Following the implementation of ESG regulations, the coefficient for audit committee independence (ACIND) becomes more pronounced, shifting from −0.022 to −0.164 for environmental emissions, and from −0.026 to −0.152 for environmental performance. Although the statistical significance remains strong for emissions (p-Value = 0.000), the significance for performance is less robust, suggesting a stronger negative relationship with emissions post-ESG regulation.

Audit tenure (ADUTNR) presents a notable contrast. Before ESG regulations, audit tenure exhibits a positive and statistically significant relationship with both environmental emissions (coefficient = 0.482, p-Value = 0.008) and performance (coefficient = 0.685, p-Value = 0.034). However, post-ESG regulation, its relationship with environmental performance becomes negative (coefficient = −0.474, p-Value = 0.000), indicating that extended audit tenures may exert a diminished or even adverse influence on sustainability outcomes after the introduction of ESG policies.

A more substantial shift is observed for audit quality (BIG4). Prior to ESG regulations, BIG4 auditors were associated with reduced environmental emissions (coefficient = −1.117, p-Value = 0.010). After ESG regulations, this effect intensified (coefficient = −8.570, p-Value = 0.000). A similar pattern emerges for environmental performance, with the coefficient turning sharply negative (−12.261), suggesting that high audit quality, as represented by BIG4 affiliation, is linked to significantly greater reductions in emissions and performance scores post-regulation. These findings lead to the rejection of H2, implying that audit quality is not positively associated with improved environmental performance and emissions, and are consistent with the findings of Hammami and Hendijani Zadeh [20] and Moalla and Dammak [47].

Internal auditing (INTAUD) also demonstrates a meaningful shift. Before ESG regulations, its impact on environmental emissions was negative but statistically insignificant (coefficient = −3.313, p-Value = 0.299). After ESG regulations, however, internal audit shows a significant positive association with environmental outcomes (coefficient = 10.110, p-Value = 0.028). This finding supports H3 in the post-ESG context, indicating that internal audit mechanisms positively influence environmental performance and emissions control. These results align with the findings of Bonrath et al. [29], which underscore the role of ESG regulations in reinforcing internal audit effectiveness for sustainability governance.

Shareholder influence (SH) follows a similar pattern. The coefficients are negative before ESG regulations (−0.028 for emissions, −0.015 for performance) and become more negative after the introduction of ESG regulations (−0.068 for emissions, −0.131 for performance). The effect is particularly significant for environmental performance (p-Value = 0.000), suggesting that shareholder influence may intensify its negative effect on sustainability outcomes post-regulation.

Leverage (LV) also shows marked changes. Before ESG regulations, the coefficient for emissions was negative (−0.142), indicating a restraining effect on emissions. However, post-regulation, the coefficient turns positive (0.062), suggesting a shift in the leverage–emissions relationship. For environmental performance, leverage remains negatively associated in both periods, with the coefficient becoming slightly less negative (from −2.984 to −0.700), implying a reduced impact after ESG regulation.

Net profits (NP) exhibit a strong shift in both emissions and performance models. The coefficient for emissions moves from –49.906 before ESG regulation to −166.599 afterward. Similarly, for environmental performance, the coefficient changes from −76.638 to –160.024. These results suggest that more profitable firms may experience increased environmental burdens and reduced sustainability performance after ESG regulations are enacted.

Company size (SZ) displays a positive trend post-ESG regulation. The coefficient for emissions increases from 4.343 to 7.583, and for performance, from 3.117 to 9.533. Both are statistically significant (p-Value = 0.000), suggesting that larger firms are increasingly contributing to improved environmental outcomes in the post-ESG regulatory environment.

Finally, market capitalization (MC) shows a shift from statistically insignificant effects before ESG regulations (p-Values = 0.826 for emissions and 0.000 for performance) to more significant and larger coefficients post-regulation, with values of 5.926 for emissions and 1.381 for performance. This implies that market capitalization becomes a more relevant factor in explaining environmental outcomes after ESG policies are implemented.

4.3.4. Robustness Analysis

The results in

Table 7. Robustness analysis.

Variables	Environmental Emissions			Environmental Performance
	Overall (RG Dummy)	Before the ESG Regulations	After the ESG Regulations	Overall (RG Dummy)	Before the ESG Regulations	After the ESG Regulations
DV (−1)	0.565 ***	0.634 ***	0.316 ***	0.042 **	0.272 ***	0.088 ***
	0.096	0.048	0.064	0.016	0.053	0.017
ACEXIS	−0.317	−6.098 ***	−2.383 *	0.066	9.195 **	−1.782 **
	0.426	2.326	1.422	0.051	3.920	1.212
ACEXP	1.169	2.022 **	−2.185 ***	−0.008	4.670 *	3.389 ***
	0.826	0.919	0.663	0.028	2.393	0.618
ACIND	−2.857 ***	−0.003	0.173 ***	−0.701 **	−0.025 **	−0.048 *
	1.088	0.018	0.027	1.823	0.045	0.033
ADUTNR	0.042 **	0.116 **	0.815 **	0.388	0.777 **	1.046 ***
	0.018	0.194	0.346	0.168	0.414	0.258
BIG4	−3.258 **	−0.828 **	−0.064 **	0.800	7.679 ***	−19.270 ***
	1.361	0.352	1.358	0.638	2.064	2.865
INTAUD	4.623 ***	7.974 ***	4.630 ***	0.632	−4.066 **	−3.678 ***
	1.355	2.417	1.597	0.240	1.774	1.296
SH	−0.249 ***	0.076 ***	0.049	−0.693 **	0.115 **	0.011
	0.256	0.024	0.042	1.204	0.048	0.029
LV	0.048	−0.205	0.918	−1.014 ***	−0.331 **	0.009 **
	0.044	0.212	0.664	0.272	0.565	0.262
NP	−20.519 ***	−15.683 ***	−39.380 ***	−1.046 ***	−9.422 ***	−7.464 ***
	5.411	5.531	6.935	4.017	5.929	2.865
SZ	5.780 **	3.664 ***	6.742 ***	2.813 ***	4.974 **	7.950 ***
	2.441	1.363	2.169	0.940	1.154	2.375
MC	0.654 **	1.187	0.368 **	1.979 **	2.537 *	2.711 **
	1.037	1.033	0.814	0.820	2.043	1.138
RG	0.847 *			0.070 **
	0.504			1.014
AR1	0.8576	0.3043	0.3306	0.4373	0.2905	0.2979
AR2	0.9817	0.2241	0.9487	0.7322	0.3878	0.7984

Note: ENVEMIS is environmental emissions, ENVP is environmental performance, ACEXIS is audit committee existence, ACEXP is audit committee expertise, ACIND is audit committee independence, ADUTNR is audit tenure, BIG4 is audit quality, INTAUD is internal audit, SH is shareholders, LV is leverage, NP is net profits, SZ is company size, MC is market capitalization, and RG is ESG regulations. *, **, and *** indicate statistical significance at 0.10, 0.05, and 0.01.

provide a sensitivity analysis using the generalized method of moments (GMM). The analysis was conducted using three sets, including the main model with RG as a dummy variable and the pre- and post-ESG regulation sets. The results reveal that there is a consistency between the GMM outputs and the earlier results in Table 5 and Table 6. Overall, the results persist across the models, with the exception of some cases that do not affect the overall interpretation of the results. Importantly, the Arellano–Bond tests for autocorrelation show that both AR (1) and AR (2) have p-Values greater than 0.05, indicating that there is no significant first- or second-order autocorrelation in the differenced residuals. This indicates a good model fit and the robustness of the earlier results.

5. Implications

5.1. Policy Implications

The significant changes observed in the coefficients and statistical significance when ESG regulations were introduced suggest that regulatory measures can significantly influence environmental performance and emissions. This implies that governments should continue to enforce and strengthen ESG regulations, as they can lead to improvements in corporate sustainability practices. The results indicate that ESG regulations serve as an effective tool in shaping corporate governance mechanisms. The findings highlight the importance of clear ESG reporting frameworks for companies. Given the strong relationship between ESG regulations and environmental performance, policymakers should enhance the transparency and accountability of companies’ ESG disclosures, encouraging more firms to adopt sustainable practices. Clear guidelines and enforcement mechanisms are essential to ensure compliance with ESG regulations. The increased significance of internal audits and audit quality (Big Four) post-ESG regulations suggests that enhancing corporate governance through stricter auditing policies can significantly improve both environmental performance and emissions. Policymakers should consider introducing stricter audit requirements, particularly for large firms, to ensure high standards of corporate accountability and sustainability.

5.2. Managerial Implications

The findings indicate that companies with stronger audit committees and higher audit quality tend to have better environmental outcomes. Managers should prioritize strengthening internal controls, including establishing or enhancing audit committees, and ensuring audit independence. These actions can positively impact the company’s environmental performance and reduce emissions. Managers should recognize the increasing importance of ESG regulations and invest in strategies that align with these regulations. The significant impact of ESG regulations on environmental performance suggests that integrating ESG considerations into corporate strategies can yield long-term benefits, both in terms of compliance and sustainability. This can improve corporate reputation, reduce risks, and enhance operational efficiency. Given the clear effect of ESG regulations on environmental performance, managers should take proactive steps to adapt their business operations to comply with these regulations. Firms that quickly adapt to regulatory changes are likely to gain a competitive advantage in the marketplace, while those that delay compliance may face increased regulatory scrutiny and reputational risks.

5.3. Theoretical Implications

The findings validate the theoretical link between corporate governance mechanisms (such as audit committees and audit quality) and environmental performance. The results provide empirical support for the proposition that strong governance structures contribute to better sustainability outcomes. This reinforces existing theories in corporate governance and environmental sustainability, suggesting that governance reforms can drive improvements in corporate social responsibility practices. The study contributes to the theoretical understanding of how external regulatory frameworks, such as ESG regulations, can influence corporate behavior. The results indicate that ESG regulations have a significant moderating effect on environmental outcomes, which supports theories of institutional pressure and regulatory compliance. This underscores the role of government regulations in shaping corporate strategies related to environmental sustainability. The findings of this study open avenues for further research into the relationship between governance factors and ESG performance. Future studies can explore the role of other governance variables, such as executive compensation, ownership structure, and board diversity, in influencing ESG outcomes. Additionally, further research can investigate the long-term effects of ESG regulations on corporate performance across different industries and regions.

6. Conclusions

This study aimed to explore the impact of governance audit mechanisms on environmental performance and emissions in Saudi Arabian companies, taking into consideration the role of ESG regulations. The study utilized a pooled panel data approach to analyze data from 51 Saudi companies over the period of 2016 to 2023. Analysis was conducted on the relationship between governance factors and environmental outcomes, with the effect of ESG regulations included as a dummy variable to analyze the effects pre- and post-ESG regulations. The findings indicate that ESG regulations have a significant impact on both environmental performance and emissions. The introduction of ESG regulations resulted in improved environmental performance, with companies showing greater transparency and accountability in their ESG disclosures. Furthermore, governance factors such as audit committees, internal audits, and audit quality were found to have a positive impact on environmental outcomes, particularly after the introduction of ESG regulations. This study contributes to the growing body of knowledge on the role of corporate governance and ESG regulations in improving environmental sustainability. The research provides empirical evidence of the effectiveness of ESG regulations in influencing corporate behavior and highlights the importance of robust governance mechanisms in enhancing corporate social responsibility practices. The study also offers insights into the specific impact of ESG regulations in the context of Saudi Arabia, a rapidly evolving market with a growing focus on sustainability.

7. Directions for Future Research

Despite the valuable insights provided, the study has certain limitations. First, the sample size of 51 companies may limit the generalizability of the findings, particularly for smaller or non-listed companies. Additionally, the study focuses solely on Saudi Arabia, and the results may not fully reflect the experiences of companies in other regions. Furthermore, the analysis relies on publicly available data, which may be subject to reporting biases and inconsistencies. Future research could expand the sample size to include a broader range of companies, including those in other GCC countries or emerging markets, to compare the impact of ESG regulations across different regions. Further studies could also explore the long-term effects of ESG regulations on corporate performance and sustainability outcomes. Additionally, research could examine the specific roles of different governance mechanisms, such as board diversity and executive compensation, in driving ESG performance.

Furthermore, environmental emissions, performance, and governance audit mechanisms may have been influenced independently by multiple overlapping external shocks that occurred post-policy implementation (2020 to 2023). This includes the COVID-19 epidemic, fluctuations in energy prices, and geopolitical uncertainties. Thus, it is important to note that these multiple overlapping shocks may confound the attribution of the observed effects solely to ESG regulatory reforms. Accordingly, dividing the research period into annual or very small windows could negatively affect the estimates and the policy implications. This is due to isolating ESG regulations from these shocks requiring a long time period. Moreover, ESG outputs and environmental performance are cumulative over a long period rather than a result of a direct policy introduction period. Hence, the results should be interpreted within this limitation. Future research is suggested to consider long-term period effects to estimate the effect of ESG regulations over a long time period. Lastly, future studies could assess the effectiveness of ESG regulations in achieving the broader goals of sustainability and social responsibility in Saudi Arabia and beyond.