A country's culture and reporting of sustainability practices in energy industries: does a corporate sustainability committee matter?

Energy industries, encompassing oil and gas, electricity, renewable energy, and consumable fuels, are inherently environmentally sensitive. Their production processes, operations, and impacts necessitate strategies to promote sustainable practices. Energy firms face increasing regulatory pressures, stakeholder scrutiny, and a growing desire for environmental responsibility, aligning with the UN Sustainable Development Goals (SDGs). While energy production can positively contribute to economic development (SDGs #7 and #9), concerns exist regarding high carbon emissions and anti-environmental activities within the sector. This study addresses a gap in the literature by examining the influence of both external (national culture) and internal (sustainability committee) factors on sustainability reporting (SR) within the energy industry. National culture, encompassing norms, values, and beliefs, has been shown to influence corporate disclosure practices, but its specific impact on sustainability reporting in energy firms remains largely unexplored. Similarly, the role of sustainability committees, crucial governance mechanisms managing social and environmental performance, in shaping SR has been overlooked. Therefore, this study investigates (1) the extent to which country culture dimensions impact sustainability practice reporting in energy firms and (2) whether a corporate sustainability committee moderates the relationship between country culture and sustainability reporting. The study's novelty lies in its focus on environmentally sensitive industries, utilizing a holistic approach considering multiple cultural dimensions and the moderating role of sustainability committees.

Existing research explores the link between national culture and corporate disclosure, including CSR and SR. Studies like Ho and Wong (2001), Hope (2003), and others have investigated the correlation between cultural dimensions and corporate disclosure, but the energy sector remains largely under-researched. While the influence of national culture on accounting practices and mandatory disclosures has been studied, the evidence concerning voluntary disclosures such as sustainability reports is still inconclusive. The GLOBE and Hofstede models provide frameworks for understanding cultural dimensions. Studies examining the relationship between cultural dimensions and sustainability reporting have yielded mixed results, with some indicating positive associations and others showing negative or no significant impact. Legitimacy and stakeholder theories suggest that companies adapt their reporting practices to meet stakeholder expectations and maintain legitimacy. The institutional perspective emphasizes the influence of both formal and informal institutions (including culture) on organizational behavior. Prior research has not adequately investigated the moderating role of sustainability committees in this context.

The study employs a dataset of 1978 firms across 18 countries from the energy sector (2010–2019). The dependent variable, Sustainability Reporting Score (SRS), uses Bloomberg ESG disclosure scores incorporating environmental, social, and governance (ESG) indicators. The independent variable, Country's Culture, is a composite index based on six Hofstede cultural dimensions (power distance, individualism, masculinity, uncertainty avoidance, long-term orientation, and indulgence). A higher index suggests higher power distance, lower individualism, higher masculinity, higher uncertainty avoidance, higher long-term orientation, and lower indulgence. A sustainability committee score (dummy variable: 1 if present, 0 otherwise) serves as the moderating variable. Control variables include firm size, leverage, investment opportunities, GDP growth rate and population growth rate. Due to the longitudinal nature of the data, a linear mixed model (LMM) was used to account for serial correlation and time-invariant variables. Two models were developed: Model 1 assesses the impact of culture and the sustainability committee score on SRS. Model 2 adds the interaction term between culture and the sustainability committee score to explore the moderating effect. Model robustness was ensured through higher-order polynomial terms, different variance-covariance structures, and stepwise regression using AIC for model comparison. Data analysis was performed using the ‘Ime’ function from the ‘nlme’ package in RStudio.

Descriptive statistics showed an increase in average SRS over time, particularly after 2015, with similar trends observed for the sustainability committee score. The average SRS across countries was 36.12 (SD = 38.7), reflecting variability in reporting practices. The average cultural index score was 38.9 (SD = 7.1). Pearson correlations revealed a positive and significant association between SRS and the cultural index score (0.155), and a strong positive correlation between SRS and the sustainability committee score (0.761). SRS correlated negatively with individualism and indulgence. Model 1 (testing H1) showed a significant positive relationship between the cultural index score and SRS (β = 0.61, p < 0.01), supporting the hypothesis that national culture influences sustainability reporting. The sustainability committee score also showed a significant positive effect on SRS (β = 0.61, p < 0.01). Model 2 (testing H2), including the interaction term, showed that the sustainability committee significantly moderates the relationship between culture and SRS (interaction coefficient β = 0.004, p < 0.01), supporting the hypothesis. Further analysis, including individual cultural dimensions, revealed that only power distance had a significant positive association with SRS. Sensitivity analyses, including additional country-level control variables (GDP and population growth rates) and excluding US and Canadian data, produced qualitatively similar results, demonstrating the robustness of the findings.

The results support the influence of national culture on sustainability reporting in energy firms. The positive relationship between the cultural index score and SRS suggests that firms operating in countries with specific cultural traits (higher power distance, lower individualism, etc.) tend to report more sustainability information. This aligns with institutional theory and previous research indicating the impact of national culture on corporate behavior. The moderating role of the sustainability committee suggests that the presence of such a committee amplifies the positive effect of cultural factors on SRS. The committee likely facilitates a more structured and consistent approach to sustainability reporting, helping companies navigate and adapt to local cultural expectations while meeting global standards. The findings are relevant to multiple theoretical perspectives, including institutional theory, legitimacy theory, and stakeholder theory. The significant effect of power distance highlights its specific impact on information disclosure. The sensitivity analyses underscore the robustness of the findings and the generalizability of the results across different country contexts.

This study contributes to the understanding of how national culture and internal firm structures interact to shape sustainability reporting practices in energy industries. The findings highlight the importance of considering cultural context when designing and implementing sustainability initiatives. The significant role of sustainability committees underscores the need for formal internal structures to effectively manage and report on sustainability efforts. Future research could explore the impact of other cultural dimensions (religious, Confucian, social trust, innovation), the impact of different types of sustainability committees, and the role of other governance mechanisms in shaping sustainability reporting practices.

The study's reliance on Bloomberg ESG data might limit the scope of the analysis, as the data's specific composition and criteria are not fully transparent. The sample, while substantial, might not be fully representative of all energy firms globally, especially given the high proportion of US and Canadian firms. Future studies could use a more diverse sample and explore alternative measures of sustainability reporting.