Board ties and ESG performance of Saudi-listed firms: The moderating effect of the sustainability committee

In the modern business world, companies are increasingly judged not just on how much money they make, but on how they treat the planet, their workers, and the communities around them. This broader measure of success is known as environmental, social, and governance performance, or ESG for short. It acts as a report card for a company's ethical behavior and long-term sustainability. To navigate these complex expectations, many organizations rely on their board of directors—the group of people elected to guide the company's strategy. A key feature of these boards is the network of connections their members hold. When a director sits on the boards of multiple companies, they carry with them a wealth of experience, contacts, and knowledge from different industries. This phenomenon, often called board ties, is thought to act as a bridge, allowing ideas and best practices to flow between organizations. However, having these connections does not guarantee good results; it depends on how the company uses them. In some cases, directors with too many outside commitments might be too busy to pay close attention to a single company's needs, potentially weakening their oversight.

Researchers in Saudi Arabia recently set out to understand how these board connections influence a company's ESG performance and whether having a specific team dedicated to sustainability changes the outcome. Focusing on 128 non-financial companies listed on the Saudi Stock Market between 2017 and 2024, the study examined whether directors who serve on multiple boards help their companies perform better in sustainability. The researchers also investigated the role of a sustainability committee, a specialized group within the board tasked with overseeing environmental and social goals. They wanted to know if this committee acts as a filter or amplifier, ensuring that the valuable knowledge brought by well-connected directors is actually turned into effective action. The study found that board ties generally have a strong positive impact on ESG performance. Companies with directors who hold multiple board seats tend to have higher sustainability scores. This suggests that the experience and networks these directors bring help firms adopt better practices and engage more effectively with their stakeholders.

The research went a step further to see if the presence of a sustainability committee made a difference. The findings revealed that when a company has a dedicated sustainability committee, the positive effect of board ties becomes even stronger. In other words, the committee acts as a powerful partner to the connected directors. It helps translate the broad expertise and social capital that these directors possess into concrete, actionable strategies for the company. Without such a committee, the valuable insights from a director's other board roles might remain underutilized. With one, those insights are actively processed and integrated into the company's decision-making, leading to significantly better environmental and social outcomes. This relationship held true even when the researchers accounted for other factors like company size, profitability, and ownership structure, and remained consistent when they used advanced statistical methods to rule out the possibility that the results were caused by hidden variables.

The study also looked at whether company size played a role in these dynamics. The results indicated that the beneficial combination of board ties and a sustainability committee works for both large and small firms, though the effect appears particularly robust in larger companies, likely due to their more established internal controls. The researchers concluded that the presence of a sustainability committee is crucial for maximizing the benefits of having well-connected directors. It serves as a governance mechanism that aligns the diverse resources brought by the board with the company's long-term sustainability goals. This is particularly relevant in Saudi Arabia, where national initiatives like Vision 2030 are pushing businesses to prioritize sustainability. The findings suggest that regulators and company leaders should encourage the formation of these specialized committees to ensure that the networks and expertise of board members are fully leveraged to build more sustainable and responsible businesses.