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Corporate Social Responsibility and Sustainability Committee Inside the

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DOI: 10.2139/ssrn.2260382

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European J. International Management, Vol. 13, No. 2, 2019 159

Corporate social responsibility and sustainability

committee inside the board

Ignacio Danvila del Valle*

Department of Business Organization,
Faculty of Economics and Business,
Complutense University of Madrid,
Campus de Somosaguas s/n, 28223 Madrid, Spain
Email: idanvila@ucm.es
*Corresponding author

José María Díez Esteban and

Óscar López de Foronda Pérez
Department of Economics and Business Administration,
Faculty of Economics and Business,
Burgos University,
Plaza Infanta Elena s/n, 09001 Burgos, Spain
Email: jmdiez@ubu.es
Email: oscarl@ubu.es

Abstract: This study examines whether the existence of a sustainability

committee with independent directors facilitates the requirements of the Dow
Jones Sustainability Index in order to include the company within the leading
sustainable companies. Our research focuses on the firms of STOXX EUROPE
600 for the year 2015. The results evidence that the existence of a CSR
committee, formed by independent directors with previous experience in
socially responsible actions, orientates the board to lead the firm’s inclusion in
DJSI Europe. This study offers a tool for executives and investment managers
of European multinational firms about the role played by boards to adopt CSR
policies with the target to get the firm’s presence in the main sustainability
indexes.

Keywords: sustainability committee; corporate governance; corporate social

responsibility; independent directors; Dow Jones Sustainability Index;
composition of board.

Reference to this paper should be made as follows: Danvila del Valle, I., Díez
Esteban, J.M. and López de Foronda Pérez, O. (2019) ‘Corporate social
responsibility and sustainability committee inside the board’, European J.
International Management, Vol. 13, No. 2, pp.159–176.

Biographical notes: Ignacio Danvila del Valle is Professor of Human

Resources Management and Business Administration and Organizational
Theory at the Complutense University of Madrid. He was Professor in the
Royal University College El Escorial, Villanueva University and European
Business School. He holds a PhD in Business Administration, a BA in
Economics. He was Chief of Studies of Segur Ibérica’s Training Department.
He has published different articles in specialised magazines of Human
Resources. In addition, he has taken part in numerous international Congresses.

Copyright © 2019 Inderscience Enterprises Ltd.

160 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

José María Díez Esteban studied Economics and Business Administration in

University of Santiago de Compostela (Spain). He is a Senior Lecturer of
Corporate Finance in the Department of Business at the University of Burgos.
He received his PhD in Economics and Business Administration at the
University of Burgos. His research has been published in international journals
such as the British Journal of Management, Journal of Intellectual Capital,
Spanish Journal of Finance and Accounting. His current research focuses on
governance, dividend policy and corporate risk taking.

Óscar López de Foronda Pérez received the degree of Business Management

and bachelor of Philosophy at University of Navarra (Spain). He is Senior
Lecturer in Corporate Finance in the Department of Business at the University
of Burgos. He received his PhD in Economy at the University of Burgos. His
main research focuses on corporate social responsibility, ownership structure in
corporate governance and social networks among directors. He has published
several papers in, among others, Corporate Governance: An International
Review, European Journal of Finance, Applied Economics, and Transnational
Corporation Review.

1 Introduction

Nowadays, an increasing number of companies show great interest in and are motivated
to approach sustainability issues. The reason is that investors, and especially institutional
investors, are more and more concerned about the social responsibility of the firms when
they make investment decisions.
While firms strive to implement CSR policies, they develop a business model that
makes profitability and market value compatible with sustainability criteria and policies
that are socially responsible. That situation leads to improved reputation and prestige,
and increases investors’ and other stakeholders’ confidence.
Once the company is socially responsible, it can, and should, make it publicly known
and benefit from that situation. The inclusion in prestigious sustainability indexes brings
this external recognition. Sustainability indexes are indicators that include companies that
meet certain corporate social responsibility criteria, and are widely renowned in the
capital markets where they are present. These indexes include companies that stand out
positively in these factors: corporate governance, code of conduct, talent management,
human capital development, respect for the environment, relationship with interest
groups, risk management, human rights defence, etc.
After the selection is made, indexes are updated at least once a year so as to check
whether the companies are still meeting criteria and performing the stated policies. If the
company overcomes the annual index revision, it may attract new investors and getting in
turn a positive impact on the market share value in the mid or long term (Belghitar et al.,
2014).
Among these indexes, the Dow Jones Sustainability index (DJSI) is one of the most
credible ones in sustainability, and it serves as an effective engagement tool for
enhancing corporate sustainability. The DJSI index can serve as an external
acknowledgement to become a firm socially responsible in several dimensions, including
 Corporate social responsibility and sustainability committee inside the board 161

economic, environmental and social aspects as corporate governance, risk and crisis
management, corruption and bribery, environmental reporting, labour practices and
human talent recruitment.
In addition, this index is calculated on the basis of a questionnaire distributed to the
CEOs. Also the index requires company documentation related to the financial
statements, the sustainability, the environmental management, the health and safety
policy, the media reports and further personal interviews with other top executives to
clarify some points of the previous information.
The Dow Jones Sustainability Europe Index covers the leading 20% of the largest
600 DJSI Europe. The index is reviewed annually to maintain accuracy of the index
composition.
Many European multinational firms decide to establish CSR Committees, at the same
level of the Audit Committee, Employees and Nominees Committee (Collier and
Esteban, 2007) to lead the socially responsible policies and achieve the firm’s inclusion
in sustainability indexes as DJSI. The committee consists of a small group of directors
precisely with the aim to orientate the decisions adopted to the requirements established
by the own sustainability indexes (Jansson, 2005). The CSR or Sustainability Committee
plays an important role in achieving the firm’s inclusion in the DJSI Europe and also to
avoid that company can be only interpreted as a kind of a window dressing socially
responsible.
Thus, it is important for independent directors, with some CSR previous knowledge
or experience and no business interest inside the firm, to belong to these committees and
lead the CSR strategies to reach the firm’s presence in the sustainable index.
Given this argument, we investigate how the presence of a sustainability committee
composed of a majority of independent directors, who have their own experienced-based
judgment in CSR aspects and no other business interest in the firm, can influence to lead
the firm’s inclusion in the DJSI.
This study contributes to the literature on CSR and corporate governance by
considering the importance of a well-balanced sustainability committee inside the board
as a mechanism to orientate the managerial actions into the CSR requirements of the
DJSI and, that way, to reduce corporate governance problems. We also assess a firm’s
commitment to a sustainability committee as a key for achieving inclusion in a
sustainability index, which serves as a way to identify leading CSR companies.
Based on a sample of European companies in the STOXX EUROPE 600, our study
proposes that the European firms with sustainability committees inside the board, headed
by independent directors with some specific previous CSR experience can likewise drive
the company to achieve the DJSI Europe requirements.
The structure of this work is divided into six sections. Section 2 reviews the role of
the board. Section 3 reviews the existence of CSR Committee with independent director
in the CSR strategies orientated to fulfil the requirements of DJSI. In this section we
formulate the hypotheses to be tested. Section 4 describes the sample and variables and
explains the empirical methodology. Section 5 shows the empirical results and assesses
the degree to which we verify the initial hypotheses. In Section 6, we draw some
conclusions from the most outstanding results and suggest some directions for future
research.
162 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

2 Theoretical framework

The area of CSR affects many economic and financial decisions adopted by managers
and directors. CSR policies refer to a firm’s concern for its social, environmental, and
ethical effect on its stakeholders (Carter and Vos, 2005; Cacioppe et al., 2008; Bondy
et al., 2012; Acero and Alcalde, 2014). Boards must take into account the CSR criteria
when they adopt strategic decisions for the company.
Following Ayuso and Argandoña (2007) and Lamar and Goodstein (1999), several
dimensions of board structure and composition are particularly important to orientate the
corporate governance to achieve a CSR attitude. Firstly, they consider relevant the
presence of several stakeholders as board directors and their appointment to monitor and
to oversee the board committees. Secondly, these studies analyse the importance of the
existence of a sustainability committee composed by stakeholders. We argue that this last
dimension is the most important factor in reflecting a firm’s true orientation toward CSR
policies. The board is likely to follow the indications of CSR policies adopted inside the
sustainability committee. Therefore, a strong composition of this committee is
particularly important because it can reduce managerial arbitrariness, and lead to actions
clearly orientated to all stakeholders.
Although independent directors are not necessarily stakeholders of the company,
independent CSR committee members, particularly when they have some knowledge
and/or CSR previous job experience, have no other business interest inside the firm and,
therefore, can control the managerial actions to drive the company towards a socially
responsible approach. In that way, they may achieve the DJSI requirements.
The international sample of European firms of our study allows us to consider the
differences by countries in the implementation of CSR policies. Particularly, the
European firms come from different legal and institutional frameworks. According to the
study of La Porta et al. (1998), in our sample we can distinguish Anglo-Saxon firms, in
countries with the common law systems, from Scandinavian, German or French firms,
that were build under the Scandinavian, German or French civil law systems respectively.
Historically, Scandinavian firms proved more habits of implicit engagement with
CSR that other firms. Through these habits, Scandinavian management is depicted as
cooperative encouraging, consensus builder, participative, power sharing, considered
towards the wellbeing of stakeholders - beyond just the shareholders or some narrowly
defined constituency, humble, and trustworthy (Grennes, 2003). Besides, cooperation is
seen positively, and the building of trust between stakeholders is highly valued, more
than in those countries under German or French civil law systems. The Scandinavian
region can effectively serve as inspiration for CSR and sustainability.
The “Scandinavian cooperative advantage”, as mentioned by Strand (2015), can have
a positive influence on the preferred inclusion of these companies in the DJSI. This
geographical region has been a pioneer in sustainability reporting, including the three
dimensions – economic, environmental and social, considered by the questionnaire given
to companies by the DJSI index.
In our empirical research, we take into account the institutional origin of the
companies of STOXX EUROPE 600 in order to comprise the possible influence in the
results obtained.
 Corporate social responsibility and sustainability committee inside the board 163

3 Research model and hypotheses

3.1 CSR and composition of board

The presence of independent directors can control managers, thereby reducing private
interests and improving CSR policies (Aguilera et al., 2006). Thus, a diverse or plural
board reduces agency problems. In fact, board independence is the answer to some
specific policies and practical problems (Johnson and Greening, 1999; Fernández et al.,
2011). In particular, previous empirical studies show that the existence of a majority of
independent directors on a firm’s board reduces the expropriation of wealth by managers
(Baysinger and Hoskissons, 1990; Pearce and Zahar, 1992; Agrawal and Knoeber, 1996;
Hermalin and Weisbach, 1998; Laux, 2008). In addition, a well-balanced board prepares
a firm to adopt CSR actions.
To increase board diversity independence is a common recommendation in corporate
governance codes all over the world (as the codes Vienot II (1999) for France, Winter
(2002) for EU and FRC (2016) for UK among others). Board independence is key to the
effectiveness of board monitoring because the incentives of independent directors are not
compromised by dependence on the CEO or the organisation (Ayuso and Argandoña,
2007). A greater presence of independent directors on a board is positively related to
corporate social performance and some empirical studies suggest that outside directors
show greater concern for the philanthropic component of corporate responsibility than
inside directors (Ibrahim et al., 1995; Johnson and Greening, 1999).
These outside directors exert their independence on the board when they move
decision making toward socially responsible policies. In so doing, they not only follow
the recommendations of good practices on corporate governance but they also drive the
strategy of the company toward a CSR perspective to meet the stringent requirements to
a sustainability index. Hence, a board that is controlled by independent directors is more
likely to orientate the company toward CSR policies and, therefore, to achieve the
inclusion in the DJSI. Accordingly, we formulate our first hypothesis as follows:
Hypothesis 1: A greater presence of independent directors is positively related to the
firm’s presence in the DJSI.

3.2 The existence of a CSR committee inside the board

In recent years, many European firms have created a CSR or a sustainability committee
inside their boards, showing an interest in driving the decisions made by directors
concerning sustainable development. This committee is specifically responsible for
guiding the CSR policies. Furthermore, it provides assistance to the board of directors of
the company in fulfilling their responsibility towards the shareholders with regard to the
policies and practices that relate to the sustainable growth of the company on a global
basis. The members of a sustainability committee assist management in the formulation
and implementation of policies, principles, and practices to achieve sustainable
development, and they review the company's annual sustainability report prior to its
issue. According to Mackenzie (2007), the activities performed by CSR committees of
the majority of large firms indicate that they tend to focus on reviewing CSR issues and
establishing policies to meet the inclusion criteria as a strategic target in CSR indexes
such as FTSE4Good or DJSI to increase the value of the company.
164 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

Therefore, we formulate our second hypothesis:

Hypothesis 2: The existence of a CSR committee inside the board is positively related
with the firm’s inclusion in the DJSI.
A persistent question about CSR is the scepticism about the real intentions of companies
with these policies. This type of committee may only be a hollow response by a firm with
a primary aim of making up a board structure in which managers control decisions. These
managers then seek private benefits or take actions that are not socially responsible but
are rather profitable for the main shareholders. In other words, CSR committees may be
only a window-dressing aimed at distracting attention from real problems related to
corporate governance and control (Bakan, 2004). In these cases, CSR committees do not
have a relevant function. Thus, executive directors use the committee in an attempt to
legitimise other attitudes and actions of the firm that are not socially responsible
(Aguilera and Cuervo-Cazurra, 2009).
However, when independent directors have decision-making power on sustainability
committees, the trust in board sincerity increases compared when a board is under
managerial control. Thus, a good indicator that a sustainability committee is not simply a
window dressing is the presence of independent directors on the board. Credibility is
enhanced further if these independent directors have some CSR previous experience. To
summarise, in order to avoid the managerial discretion, we suggest that the Sustainability
Committee should not form only by executive directors. A large presence of insiders
increases the risk that the CSR committee serves only a mask for non-socially
responsible, profit-making actions, following the fashion of many European companies.
So, in line with Finkelstein, Hambrick and Cannella (2009), we argue that independent
directors are the key to reducing private interests and to avoiding the risk of a “transient
fad” by managers in terms of CSR. We suggest that an effective sustainability committee
consists of independent members, particularly those who have experience in CSR from
previous jobs in this area.
The vast majority of the sustainability committees include at least one independent
member. He/she aims to defend minority shareholder interests, supervise the fulfilment
of the CSR targets, and avoid power overacting from top firm executives. Thus,
Sustainability Committee decisions are not under the control of managers and CSR
policies may more easily fulfil all the DJSI requirements.
Other multinational firms include a new director inside the board: The Chief
Sustainability Officer (CSO). The presence of the CSO on the board could be a solid
factor, even more important than the CSR Committee, because it interacts directly on the
board (Strand, 2013). The CSO plays a critical role for the CSR policies and he/she is at
the same level as other important directors such as the Chief Financial Officer (CFO)
and/or the Chief Commercial Officer (CCO). The CSO can reinforce the functions of the
Sustainability Committee and lead the meetings and the decisions adopted or, even, can
replace completely the Committee (Miller and Serafeim, 2016). In the following
empirical research, we also include a dummy variable to consider if the company of our
sample has a CSO that directly implements the CSR strategy from the board of directors.
Therefore, considering the second hypothesis, we specify that the CSR criteria of a
firm are not only a window-dressing in sustainability committees formed by
independents with CSR previous experience. In turn, these firms are most capable of
accomplishing the requirements for being part of a sustainability index. Therefore, we
state our third hypothesis:
 Corporate social responsibility and sustainability committee inside the board 165

Hypothesis 3: A greater presence of independent directors who are proficient in CSR

policies on the Sustainability Committee is positively related to the firm’s inclusion in the
DJSI.

4 Research methodology

4.1 Sample
Our sample is drawn from two databases. We obtain data from financial statements
(balance sheet and profit and loss statements) of the firms from the THOMSON ONE
database. The information on the composition of board is obtained directly from the
corporate governance report of each firm.
Our sample consists of 484 European multinational firms from STOXX EUROPE
600. The STOXX Europe 600 Index derives from the STOXX Europe Total Market
Index (TMI) and is a subset of the STOXX Global 1800 Index. With a fixed number of
600 components, the STOXX Europe 600 Index represents large, mid and small
capitalisation companies across 17 countries of the European region: Austria, Belgium,
Czech Republic, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.
Table 1 provides descriptive statistics by country and reports the number of observations
and the proportion that each country represents in the index. As Table 1 shows, 107 firms
of the STOXX EUROPE 600 were included in DJSI in 2015.
Table 1 Composition of the sample by countries

Country Firms in DJSI (n) Sample in DJSI (%) Total Firms (n) Sample (%)
Austria 0 0.00 4 1.45
Belgium 1 0.83 10 2.60
Switzerland 9 6.67 40 7.30
Germany 10 15.83 59 11.30
Denmark 3 3.33 15 2.56
Spain 9 13.33 21 4.90
Finland 4 5.83 14 4.05
France 25 10.81 73 15.35
Great Britain 24 20.83 149 27.29
Greece 0 0.00 2 0.85
Ireland 0 0.00 7 1.92
Italy 4 9.17 19 4.48
Luxembourg 0 0.83 3 0.43
Netherlands 10 5.83 23 5.12
Norway 2 1.67 10 2.77
Portugal 1 0.83 3 1.28
Sweden 5 3.33 32 6.40
Total 107 484
166 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

4.2 Variables
We analyse the board structure by the following variables: (a) the variable (INDEP) is
the proportion of independent directors inside the board in each firm, (b) the variable
(SUST) is a dummy variable that equals 1 if the firm has a sustainable committee, and
zero otherwise, and (c) the variable (CSO) is a dummy variable that equals 1 if the firm
has a Chief Sustainability Officer, and zero otherwise.
Also, we include the variable (INDEPKNOW), which is the number of independent
directors with CSR knowledge and skills. We obtain this information by reviewing the
corporate governance report and the curriculum vitae of each outside member of the
board per the firm’s web site. The only criterion considered for this measure is the
member’s indication of previous job experience in CSR actions. We know this
information because there is a need to inform with a short bio of each director in order to
explain their suitability for any Committee of the board. Particularly, all European
companies indicate in the Annual Corporate Governance reports their specific experience
in CSR actions of the members of the Sustainability Committee, in the case where they
exist.
Our model also includes some control variables. Although they are not direct
determinants of CSR actions, these variables provide significant information about the
size, the leverage and the market value of the firm which are relevant indicators of the
financial situation of the firms as causes of the decisions adopted by managers.
Market-to-book assets ratio (MB) measures the ratio of the firm’s market value to its
book value. Although several different alternative measures of growth opportunities are
available, such as price-earnings ratios and market-to-book ratios, a recent study by
Adam and Goyal (2008) showed that the market-to-book assets ratio has the highest
informational contents with respect to investment opportunities. The market value of the
firm is the sum of the equity market value plus the debt book value, as is commonly
defined in current research (Maury and Pajuste, 2005; Villalonga and Amit, 2008).
Higher the MB is, the lower the value of the assets in place and, in turn the higher the
value of growth opportunities.
We also control for capital structure (LEV), measured as the financial leverage ratio
(i.e., debt-to-equity ratio). To account for firm’s size (Udayasankar, 2008; Holder-Webb
et al., 2009), we calculate the log of total assets (LOGAST). Because international
business can be affected by the legal and institutional setting of both the home and the
host country (De Clercq et al., 2010), we also set a control for national factors with a
group of national dummy variables. These variables check regional or geographical
effects and cross-national diversity of corporate governance in Europe.
Besides, we use the study of La Porta et al. (1998) to define the variable (ANGLO)
that equals 1 if the firm belongs to a Anglo-Saxon common law country, and zero
otherwise. Subsequently, the variables (CIVILSCA), (CIVILGE) and (CIVILFR), equal
1 if the firm belongs to countries with Scandinavian, German or French civil law systems
respectively, and zero otherwise.
All the variables are calculated for each firm in each year, so that the model is
expressed as
DJSIeu it   0  1 INDEPi ,t   2 SUSTi ,t   3CSOi ,t   4 MBi ,t   5 LEVi ,t   6
(1)
LOGASTi ,t  1 Country dummies + i   i ,t
 Corporate social responsibility and sustainability committee inside the board 167

where i denotes the firm, t denotes the time period, ηi is the fixed-effects term of each
firm or unobservable and constant heterogeneity, and εi,t is the stochastic error used to
introduce possible errors in the measurement of the independent variables and the
omission of explanatory variables. In a second model, we include the percentage of
independent directors with knowledge and skills in the CSR area on the sustainability
committee, and we eliminate from the model the variable (INDEP), that measures the
total number of independent directors, by correlation problems.

4.3 Empirical analysis

The empirical analysis is divided into two stages. First, we offer a descriptive analysis to
show the main characteristics of our sample and to explore possible differences in the
structure of the board depending on the degree of social responsibility. Second, we test
our hypotheses through an explanatory analysis to validate the relation between the roles
of independent directors toward stakeholders’ interests measured by the corporate
attitude toward CSR. The descriptive analysis includes two tests for means comparison.
The explanatory analysis is based on the regression analysis. Due to the dichotomous
nature of the dependent variable, the most suitable method is the logit analysis, which
relies on maximum-likelihood estimations. Thus, rather than the usual (adjusted) R2
coefficient, the assessment of the goodness of fit is based on the maximum-likelihood
ratio and on the percentage of correctly predicted observations. Accordingly, we report
the percentage of observations correctly predicted, this percentage is quite high in all the
estimations. However, goodness of fit is not as important as the statistical significance of
the explanatory variables in this type of model (Wooldridge, 2002).

5 Results

5.1 Descriptive analysis

Table 2 shows the breakdown of the relation between EUROSTOXX600 companies that
have a sustainability committee and belong or not to the DJSI. Fewer than one in four
companies belongs to DJSI, and, among those, almost 40% (43 out of 107 firms) have a
CSR committee. In comparison, only 19% (64 of 360 firms) of non-DJSI firms have a
CSR committee. These results confirm that DJSI firms included in EUROSTOXX600
have a higher presence of sustainability committees compared to non-DJSI firms.
Table 2 EUROSTOXX companies with sustainability committees by DJSI membership

Committee Non-committee Total

DJSIeu 43 64 107
Non-DJSIeu 82 296 378
Total 125 360 485

Table 3 shows the mean, median, standard deviation, maximum, and minimum values of
the most characteristic variables. To explore whether firms included in the DJSI show
differences from those not included, the values of the mean are split into two groups.
Table 3 also shows that the p-value or maximum level of significance rejects the null
168 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

hypothesis of equality of means according to both the t-test and the Mann-Whitney test.
Specifically, the means of the market value and the presence of independent directors are
higher in DJSI firms, and these differences are significant.
Table 3 Descriptive statistics

Mean
t-test
Non-DJSIeu DJSIeu Median Std. dev. Max. Min.
p-value
*
INDEP 0.59 0.61 0.56 0.214 0 1
INDEPKNOW 0.19 0.44 0 0.350 0 1
**
MB 3.30 4.02 2.539 2.867 0.282 22.013
CSO 0.23 0.23 0.156 0.192 0.021 0.092
***
LOGAST 22.61 23.70 22.472 1.359 19.470 26.291
LEV 0.38 0.60 0.609 0.163 0.079 0.948
Notes: Mean, median, standard deviation, maximum, and minimum value of the
variables according to the inclusion in the Dow Jones Sustainability Index
(DJSI). INDEP is the proportion of independent directors on the board; MB is
the market-to-book ratio of assets; OWN1 is the proportion of ownership of the
largest shareholder; LOGAST is the log of total assets; LEV is measured as
total debt divided by total assets. The t-test value is the maximum level of
significance (p-value) to reject the null hypothesis of equality of means
between both subsamples according to the parametric t-test, whereas MW-
TEST is the maximum level of significance to reject the null hypothesis of
equality of means between both subsamples according to the Mann-Whitney
nonparametric test. ***, **, and * indicate significance at the 99.9%, 99%, and
95% confidence level, respectively.
Table 4 provides the bivariate correlation matrix. As the results show, the correlation
coefficients are low enough so that multicollinearity is not a big concern. Also, the pairs
of variables with higher correlations are not put together as explanatory variables.
Table 4 Matrix of correlations

DJSI LOGAST MB LEV SUSTAIN INDEP INDEPKNOW

DJSIeu 1 0.496 –0.111 0.147 0.239 0.069 0.267
LOGAST 1 –0.458 0.349 0.296 –0.036 0.270
MB 1 0.028 –0.045 –0.049 –0.052
LEV 1 0.065 –0.128 0.035
SUSTAIN 1 0.122 0.934
INDEP 1 0.200
INDEPKNOW 1

5.2 Explanatory analysis

Tables 5 and 6 report the main explanatory results from the logit analysis of equation (1).
As shown, estimations are correct according to the log-likelihood ratio. We run these
regressions through the maximum likelihood procedure. In these cases, the main measure
of goodness of fit is the percentage correctly predicted. As our findings show, this
percentage is quite high in all the estimations. As additional indicators of goodness of fit,
in Tables 5 and 6 we provide the pseudo-R2 coefficient.
 Corporate social responsibility and sustainability committee inside the board 169

Table 5 Results of the logit estimation

(1) (2) (3)

–33.161*** –29.377*** –31.673***
CONSTANT
(–3.765) (3.665) (3.849)
3.492*** 2.868*
INDEP
(2.210) (0.810)
1.694** 1.652**
SUSTAIN
(0.451) (0.458)
11.051*** 11.363*** 10.954***
CSO
(7.455) (7.768) (7.213)
1.171** 1.145** 1.162***
MB
(0.051) (0.050) (0.052)
2.079*** 1.951*** 1.962***
LOGAST
(0.234) (0.234) (0.228)
0.661 0.681 0.724
LEV
(0.505) (0.524) (0.561)
0.320 0.350** 0.307***
ANGLO
(0.110) (0.119) (0.107)
0.671 0.734 0.661
CIVILGE
(0.194) (0.212) (0.190)
0.513* 0.540* 0.531*
CIVILSCA
(0.193) (0.200) (0.200)
Sector dummies Yes Yes Yes
n obs. 485 485 485
Pseudo R2 0.158 0.156 0.164
Likelihood ratio –215.46 –216.02 –213.81
Notes: Estimated coefficients (standard errors) form the logit estimation of equation.
Standard errors are robust to heteroskedasticity of equation (1). The dependent
variable is the inclusion in the Dow Jones Sustainability Index Europe
(DJSIeu). INDEP is the proportion of independent directors in the board;
SUSTAIN is the existence of a sustainable committee inside the board; MB is
the market-to-book ratio of assets; LOGAST is the log of total assets; LEV is
measured as total debt divided by total assets; (ANGLO) is a dummy variable
that equals 1 if the firm belongs to a country with Anglo-Saxon common law
system, and zero otherwise; (CIVILSCA), (CIVILGE) and (CIVILFR) are
dummy variables that take value 1 if the firm belongs to a country with
Scandinavian, German or French civil law systems respectively, and zero
otherwise. ***, **, and * indicates significance at the 99.9%, 99%, and 95%
confidence level, respectively.
The coefficient of variable (INDEP), that measures the percentage of independent
directors (Table 5, columns 1–2), is positive and statistically significant, which is
consistent with our first hypothesis. That is, a major presence of independent directors
can monitor the managerial discretion better and, hence, drive the CSR policies to
achieve the DJSI requirements.
170 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

The coefficient of the variable (SUSTAIN), that measures the existence of a CSR
Committee inside the board, in Table 5, is positive and significant. This result suggests
that the existence of a sustainability committee inside the board is a good indicator that
the board may take CSR actions to enable the firm to be included in a sustainability index
such as the DJSI. However, in many cases the CSR committee may only serve to
legitimise other non-socially responsible policies and action. To determine the intentions
of the firm to establish real CSR strategies we must analyse the composition of the
sustainability committee.
The coefficient of the variable (CSO), that measures the existence of a Chief
Sustainability Officer, in Table 5, is positive and significant. And the value is high. This
result suggests that the existence of a Chief Sustainability Officer inside the board is
relevant for leading the CSR actions inside the board. Nevertheless, only 25 firms in our
sample have the CSO, so it will be necessary a future research with more companies in
order to consider better the high relevance of this officer to assess adequately their
influence on the CSR practices.
Furthermore, results confirm differences by countries. The coefficient of the variable
(CIVILSCA), that measures if the company belongs to the Scandinavian countries, is
significant and positive. This result indicates that, following recent studies (Stiglitz et al.,
2009; Strand et al., 2014, 2015), Scandinavia-based companies perform disproportionately
well in CSR and sustainability performance measurements as DJSI. Particularly,
Scandinavian countries are pioneer in sustainability reporting. And the coefficient of the
variable (ANGLO), that measures if the company belongs to the Anglo-Saxon countries,
is significant and positive only in two cases. These companies are also more sensitive to
CSR policies than other countries where the interest on this area is growing at a slower
pace. The variable (CVILGE) includes the companies of German civil law systems and it
is not significant. The variable (CIVILFR) is not included to avoid multicollinearity
problems.
Table 6 provides the results of the logit estimation for STOXX EUROPE 600 firms
with a sustainability committee inside the board. The positive and significant result for
the coefficient of the variable (INDEPKNOW), that measures the percentage of
independent directors inside the sustainability committee with CSR previous knowledge
and skills, is positively related to fulfil the DJSI requirements by the company.
As regards to the control variables, Table 6 shows that market value (MB) is
positively related to CSR for the firms of STOXX EUROPE 600. This result provides
evidence that the companies that belong to the DJSI adopt CSR policies that benefit
all stakeholders and create market value for the firm. Regarding financial structure,
leverage (LEV) is negatively related to CSR. This coefficient can be explained by
underinvestment theory (McConnell and Servaes, 1995): too much corporate debt can
have a negative effect on the value of the firm, as it may motivate managers to forgo
profitable investment projects. Because bondholders’ priority over the firm’s cash flow is
relative to shareholders, managers may forgo projects with positive net present value if
the project’s earnings target the creditors (López-Iturriaga and López de Foronda, 2011).
Finally, the size of the firm has a positive influence on CSR, which may be because large
firms have more ability and better opportunities to invest in social initiatives.
 Corporate social responsibility and sustainability committee inside the board 171

Table 6 Results of the logit estimation by firms with sustainable committee

(1)
–28.292***
CONSTANT
(6.436)
6.317**
INDEPKNOW
(6.177)
1.098
MB
(0.122)
1.490***
LOGAST
(0.324)
9.362
LEV
(14.464)
Country dummies Yes
Sector dummies Yes
n obs. 125
Pseudo R2 0.063
Likelihood ratio –64.61
Notes: Estimated coefficients (standard errors) form the logit estimation of equation.
Standard errors are robust to heteroskedasticity of equation (1). The dependent
variable is the inclusion in the Dow Jones Sustainability Index Europe
(DJSIeu). INDEPKNOW is the proportion of independent directors, experts in
CSR areas; MB is the market-to-book ratio of assets; LOGAST is the log of
total assets; LEV is measured as total debt divided by total assets; *** and **
indicates significance at the 99.9% and 99% confidence level, respectively.

6 Discussion

The result of this study provides useful insights for practitioners in order to orientate the
board to establish a CSR committee composed of independent directors with CSR previous
experience, with the target of becoming a member of the most outstanding sustainability
indexes.
This study contributes to the literature on CSR and corporate governance by
considering the importance of a well-balanced sustainability committee inside the board
as a mechanism to orientate the CSR requirements of the DJSI. Many large European
firms can be interested in belonging to a prestigious sustainability index, and particularly,
the firm’s inclusion in DJSI can serve as an external recognition in capital markets of a
good CSR practice. This challenge is key to identify leading CSR companies.
In our study, we specifically analyse the positive influence of the board on CSR
policies in order to achieve the firm’s inclusion in the DJSI. Particularly, company’s
management needs to develop a strategy and implement initiatives proposed to overcome
successfully the questionnaire set. As for the board, it has only to monitor the CSR actions.
Based on a sample of European companies in the STOXX EUROPE 600, our study
empirically verifies that the role of the independence of the board is positively related to
CSR. In addition, the existence of a Sustainability Committee, recently established in
172 I. Danvila del Valle, J.M. Díez Esteban and O. López de Foronda Pérez

many European companies, may lead to the firm’s inclusion in the Dow Jones Sustainability
Index. In fact, around 40% of the DJSI Europe firms have a CSR committee. That indicates
the importance of this committee for leading the CSR strategies adopted by managers.
However, the existence of this committee could frequently be part of a board
structure in which managers control decisions to seek private benefits. Scepticism about
the intentions of managers on CSR policies is due to possibility that these committees
may be only a window-dressing for distracting attention from real problems (Bakan,
2004).
Our research provides evidence that the large European firms with a sustainability
committee inside the board, that are headed by independent directors with some CSR
specific experience and criteria, are more likely to fulfil the requirements of DJSI.
Therefore, for multinational firms, a more independent board is not only a recommendation
from good practices in corporate governance but also a CSR strategic target. By
increasing commitment to CSR actions, firms can fulfil the membership criteria of elite
sustainability indexes such as the DJSI, which includes the top leading sustainability
companies from around the world.
More specifically, as our results evidence, the presence of a Chief Sustainability
Officer (CSO) is a relevant factor to add better CSR policies in the companies.
Nevertheless, only 25 companies in our sample have a CSO, and, therefore, the role of
Chief Sustainability Officer (CSO) is still relatively new. Consequently, it should be
necessary that more firms incorporate this officer to better assess the board decisions
related to the firm’s inclusion in the DJSI Europe.
Several tracks for future research may appear. Our research is a cross-sectional study
of the companies in 2015 and it is not possible to analyse more efficiently the influence
of the independent directors and CSR committees in a group of companies that may enter
or leave the DJSI from one year-to-year. Another limitation to our study is that we have
to consider more institutional and legal aspects. Particularly different levels of investors’
protection and cultural traditions in companies of diverse European countries may lead to
a differential impact of firm characteristics on CSR actions.

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Appendix A
Variable Definition Source
DJSIeuit A dummy variable that takes value 1 DJSI Europe 2015
if the company belongs to Dow Jones
Sustainability Index and zero otherwise
INDEPi,t The proportion of independent directors Corporate Governance
inside the board in each firm. Report of each company
in 2015
SUSTi,t A dummy variable that equals 1 if the firm Corporate Governance
has a sustainable committee, and zero Report of each company
otherwise. in 2015
CSOi,t A dummy variable that equals 1 if the firm Corporate Governance
has a Chief Sustainability Officer, and zero Report of each company
otherwise. in 2015
INDEPKNOWi,t The proportion of independent directors Corporate Governance
with CSR knowledge and skills according Report of each company
to the bio information of each outside in 2015
member of the board per the firm’s web
site.
MBi,t The ratio of the firm’s market value to its THOMSON ONE BANKER
book value. Database
LEVi,t Total debt divided by total assets. THOMSON ONE BANKER
Database
LOGASTi,t The log of total assets THOMSON ONE BANKER
Database
ANGLO A dummy variable that equals 1 if the firm LaPorta et al. (1998)
belongs to a country with Anglo-Saxon
common law system, and zero otherwise.
CIVILSCA A dummy variable that equals 1 if the firm LaPorta et al. (1998)
belongs to a country with Scandinavian
civil law system, and zero otherwise.
CIVILGE A dummy variable that equals 1 if the firm LaPorta et al. (1998)
belongs to a country with German civil law
system, and zero otherwise.
CIVILFR A dummy variable that equals 1 if the firm LaPorta et al. (1998)
belongs to a country with French civil law
system, and zero otherwise.

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