Formal Governance or Compliance Constraint: ESG Committee Establishment and Corporate Environmental Penalties

Abstract

Board-level ESG committees are increasingly used to formalize corporate sustainability governance, yet formalization does not ensure implementation. Existing research mainly evaluates disclosure, ESG ratings, and other favorable sustainability outcomes, and it remains unclear whether these committees are associated with changes in regulator-confirmed environmental noncompliance. Using Chinese A-share listed firms from 2010 to 2023 and a staggered difference-in-differences framework, this study examines whether committee establishment is followed by lower environmental penalties. The negative post-establishment relationship remains across specifications addressing treatment timing, observable selection, reverse causality, and potential self-selection. Mechanistic evidence points to two complementary forms of implementation: green innovation expands firms’ technical capacity to meet environmental requirements, whereas internal control quality strengthens risk identification, responsibility allocation, and corrective execution; the former explains only a limited share of the overall relationship. CEO duality provides marginal evidence of a weaker association, while analyst attention is associated with a stronger relationship. The findings suggest that the relevance of an ESG committee lies less in its formal presence than in its connection to organizational processes that translate sustainability concerns into compliance action. In China, where committee establishment is largely voluntary but environmental enforcement is externally imposed, the evidence is also consistent with internal ESG governance and external regulatory discipline operating as complements.