Journal of Business and Tourism Volume 07 Number 01

January – June, 2021

Corporate Governance Characteristics and Environmental, Social &

Governance (ESG) Performance: Evidence from the Banking
Sector of Pakistan
Samina Rooh
Lecturer, Ph.D. Scholar, Department of Management Sciences
University of Buner, Pakistan
samina.ali.bangash@gmail.com

Muhammad Zahid
Associate Professor, City University of Science and IT, Peshawar, Pakistan
mianmz11@gmail.com

Muhammad Farooq Malik

Independent Researcher
muhammad.farooq@wlcb.co.uk

Muhammad Tahir
Assistant Professor Department of Economics and Business Administration
Division of Management& AdministrationScience
University of Education Lahore, Pakistan
drtahirkhan@ue.edu.pk

Abstract
The purpose of the paper is to examine the impact of corporate governance on
environmental, social, and governance (ESG) performance.This paper alsoinvestigates
the influence of corporate governance on environmental, social, and governance (ESG)
disclosure.The majority of previous empirical research studies have either centered on
ESG disclosure in developed economies, but the present problem concerning the
corporate sector is defining the role of corporate governance in improving ESG
performance inthe banking sectors of Pakistan.This paper is based on quantitative and
secondary data approaches. The datawas collected fromthe annual reportsof 17 public
and privatecommercial banks of Pakistan through an adapted ESG index. This study
applied the Stata 13.0 panel data approach to analyzing the effect of corporate
governance on ESG performance. Theresults showed that gender diversity, board
independence,and return on assets(ROA) positively affect ESG performance. The board
size and firm size havean insignificant impact on the ESG performance. Furthermore,
firm age and previous year ESG practices (lag of ESG) have a significant positive role in
the improvement of ESG performance.However, in contrast, firm leverage has a negative
significant effect on the ESG practices of the banking sectors.This papertries to fulfill the
gap by examiningcorporate governance and ESG performance in the banking sectors

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ofPakistan. The findings of the study have significant implications for the top
management of the banks, financial experts, regulatory bodies, investment advisors,
academics practitioners, and Pakistan stock exchange towards the better implementation
of corporate goverance and ESG practices.

Keywords: Corporate Governance Characteristics,ESG performance, Banking

Industry, Developing Country

1. Introduction
In the previous twenty years’ consideration toward issues identified with corporate
governance has been growing because of sequences of financial and economic occasions
happening around all over the world. According toSolomon (2020)financial crisis, high
profile financial scandals, and unanticipated corporate failure have determined countries
to support their corporate laws to raise confidence in financial markets.Corporate
governance, according to Vo and Nguyen (2014), is concerned with relationships
between the company's controlling system, board leaders' functions, investors,
shareholders, and stakeholders. It also includes the structures and procedures that govern
how businesses operate and how organizations are managed.According to Crifo, Escrig-
Olmedo,& Mottis (2019),corporate governance is the cornerstone for a company's long-
term sustainability, decision criteria in a business, and basis for performance.CG is a
framework and system of management, controlling, and directing businesses and
organizations (Al-ahdal, Alsamhi, Tabash, & Farhan, 2020).Pacy & Sifuna
(2012)elucidated thatthe problem of corporate governance was highlighted following the
collapse of Enron and WorldCom, two prominent U.S. firms, in 2002 and the East Asian
financial crisis, and an Act called Sarbanes-Oxley was passed, emphasizing corporate
governance's role in the prevention of financial embezzlement, fraud, and administrative
delinquencies.Corporate governance is critical to the long-term sustainability of financial
markets and, as a result, improves company success(Rooh et al., 2021).
Corporate sustainability is another apprehension of contemporary-day
organizations(Zahid et al., 2018). As indicated by Aras,& Crowther (2009) and
Blowfield, & Murray (2008) recommends that bothsustainability and corporate
governanceare fundamental for the consistent activity of any company and that
subsequently, much consideration ought to be paid to these ideas and their applications.
They also sharp out that the idea of sustainabilityis less clear than the notion of
corporate governance, which is well recognized. Good corporate governance is
normallyanticipated to have asignificant positive influence on the sustainability
presentation execution, revelation, and disclosure (Bebbington, Larrinaga,& Moneva,
2008).Nowadays, companies set upcorporate governance and corporatesustainability
into business practice to accomplish a competitive advantage over
opponents(Mahmood, Kouser, Ali, Ahmad, & Salman, 2018).Differentnations and
strategycreators have also begun advancing these ideas together.According to Ghosh

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(2017),corporatesustainability(CS) and corporate governance (CG) are meeting through

the thought of the “triple-bottom-line” in the corporate meeting room. Throughout
sustainability disclosures, companies are representing their sustainability governance
and presentation. However, given the acknowledgment of the presence of the
connection between these two ideas and given the way that guidelines creators are
suggesting new instruments (e.g., CSR panel) for guaranteeing superior governance and
sustainability, there is an absence of research that empirically looks at the influence of
various corporate governance components on the various elements of corporate
sustainability reporting.
As a result of these transformations, empirical studies have begun to focus on the level of
disclosure of environmental, social, and governance (ESG) initiatives implemented by
companies.A company's ESG activities are significant because both institutional and
individual investors comprehend that ESG indicates the company's possibilities and
hazards(Lagasio & Cucari, 2019; Limkriangkrai, Koh,& Durand, 2017).Despite the
reality that ESG disclosure is mandatory (Cucari, Esposito de Falco, & Orlando, 2018),
every business should disclose its ESG activities to its stakeholders since greater
accountability leads to greater financial gain(Dellaportas, Langton, & West,
2012).Environmental (for example, climate change), social responsibility (for example,
human rights), and corporate governance are all examples of ESG (e.g., shareholder
protection).In regarding financial performance, ESG has become a leading indicator of
non-financial performance(Boerner, 2011; Galbreath, 2013).There has been worldwide
dissemination of reporting standards(Ioannou,& Serafeim, 2017).This research looked
into the effects of corporate governance on ESG performance in the Pakistani banking
sector to fill this gap.
Non-financial performance indicators, such as Environmental, Social, and Governance
(ESG) measures, are potentially driving predictors of a firm's financial performance,
according to (Khan, 2019). This studyexamines earlier scholarly work and also the
notion of ESG materiality in order to build innovative corporate governance and ESG
indicators.
Customers, personnel, open special interests, and regulatory agencies have all showed
interest as to how an organization's performance on environmental, social, and
governance (ESG) issues has been growing.As a result of the examination, companies
have attempted inside activities to increase performance on ESG problems, targeted non-
bargain the executive's street engagements with investors to emphasize their ESG
procedures, and openly highlighted their ESG efforts in their financial reports. In the
context of this, investors have challenged whether ESG performance affects stock
returns(Khan, 2019).Rooh et al. (2021) elucidated that company governance advocacy
agencies have considered ESG issues in their decision-making of investment.
The current problem for the corporate sector is to clearly define the function of
corporate governance in enhancing ESG in Pakistan's financial sectors. Despite the fact
that numerous studies have been conducted on corporate governance in the non-

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financial sector and other problems, only a few have investigated the effect of corporate
governance on ESG performance.Nonetheless, there are only a few published
studiesthat examine the impact of corporate governance on ESG performance in
Pakistan's banking sector(Lagasio, &Cucari, 2019). Crifo, Escrig-Olmedo, &
Mottis(2019)In France, corporate governance was evaluated as a significant driver of
economic sustainability.andShakil, Tasnia, & Mostafiz(2020)examined the relationship
between board gender diversity and the performance of US banks in terms of the
environment, social, and governance issues: the moderating effect of environmental,
social, and corporate governance controversies
The study's objective is to look into the influence of corporate governance on ESG
performance and the research question is: What is the influence of corporate governance
on ESG performance?
The study will add to the extended discussion on corporate governance systems that
lead to improved ESG performance and reinforces the need for a modern take on these
problems. As a result, this research contributes to the existing literature by fulfilling a
gap in knowledge. From numerous perspectives, this paper adds to the nonfinancial
reporting literature. This research provides additional transparency to the relationship
between corporate governance and ESG transparency. In reality, policymakers have
been calling for greater concernabout the critical role of business construction in
improving non-financial reporting in recent years.

2. REVIEW OF LITERATURE
2.1Theoretical Framework
The board of directors is regarded as the most important component affecting the
company and the interests of the owners in corporate governance. In that position, the
issue of "but what were the features of a board of directors and how to do these impact a
firm's performance" has attracted the curiosity of academics and researchers over the
past fifty years or so.Zahra,& Pearce(1989)observed the role of a board of directors on
financial performance by measuring and participatingin four viewpoints: (i) agency
theory (ii) Stakeholder Theory, and. In the meantime, stewardship theory, which
explained the board's responsibility in a variety of ways (Davis, Schoorman, &
Donaldson, 1997).
2.1.1 Agency Theory
This theory is seen to be the most significant in describing how board directors
influence business success.This theory proposed that there is a difference between the
benefits of principals and agents. Zahra, & Pearce (1989)havinga similar view on
agency theory.The owner has the propensity to increase the benefit of shareholders in
the future. On the other hand, the manager tends to workwith firms for their interests.
(Khan, Arifur., Muttakin, Mohammad Badrul., and Siddiqui, 2013) discovered that by
appropriately designing the mechanism and practice of corporate governance, the
agency cost can be reduced. Elghuweel, et al.,(2016) discovered that managers take

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advantage of the resources of concerned corporations more than the firm's

needs.According to Filatotchev and Boyd (2009), corporate governance is controlled by
goals and objectives, including the protection of shareholders' interests and the
alignment of interests between the principal party and the agent.According to
Erkens(2009), agency theory serves as a check on management's evil schemes,
compelling them to work in the best interests of the shareholders. This is based on the
reality that the principal and the agent have an inherent conflict of interest. When
management (agent) fails to make judgments that are in the best interests of the
shareholders, a conflict between Principal and Agent occurs (principal). The
management offers benefits to itself (agent) at the expense of the shareholder's benefits
(principal).
2.1.2 Stakeholder Theory
This theory was planned in the book, “Strategic Management” by R. Edward Freeman.
Stakeholder theory is awarded to him like the father.ByPost, Preston, & Sauter-Sachs
(2002), this is a system of organizational management that covers ethical principles in
organizational management as well as dominating corporate values.Ordinary
stakeholders incorporate suppliers, employees, consumers, creditors, government,
communities, and shareholdersincluding the limits of a business's activities(Zahid et al.,
2020). The stakeholder theory offersto underpin to any studyassociated to business
stakeholders and society. The theory proposes that as companies are part of society,
they have a responsibility to compensate for the damage they cause by making a lot of
noise and polluting the environment (Freeman, 1984). The theory suggests that an
organization's success and long-term sustainability are determined largely by how well
it serves its stakeholders. This new trend is expanding companies' obligations by
moving their focus from mainly on shareholders to a broad range of stakeholders. The
author elucidated that stakeholders are the individuals, who are affected or will be
affected by an organization's operations.As a result, the stakeholders include the
government, society, and the general public, and also shareholders, creditors,
employees, suppliers, and the natural environment.As a consequence, companies must
consider the interests of shareholders whilst emphasizing the well-being of individuals
and society (Donaldson, & Preston, 1995).The stakeholder theory's descriptive approach
assumes a strategic approach toward stakeholder satisfaction as well as the
maximization of shareholder wealth.

2.2 Empirical Studies

2.2.1 Gender Diversity

The composition of the management board is the most critical factor impacting ESG
performance in corporate governance (Velte, 2016).The background, psychological
characteristics, and experience of female board members influence their participation in
strategic decisions that affectstakeholdersand banks' ESG performance (Manita, Bruna,

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Dang,& Houanti, 2018).The resource dependence theory can explain board gender
diversity andESGperformance. According to resource dependence theory, board
members' important resources, Like the background, psychological attributes, and
capability, have such an effect on the company(Kyaw, Olugbode, & Petracci, 2017;
Manita, Bruna, Dang,& Houanti, 2018).Furthermore, some research looks into the
sound effects of board gender diversity on firm ESG performance &discovers both a
positive and negative influence(Arayssi, M., Jizi, M., & Tabaja, 2020; Cucari, N.,
Esposito de Falco, S., & Orlando, 2018; Husted, B.W. and Sousa-Filho, 2019; Zahid et
al., 2019).

2.2.2 Board Independence

Within and outside directors, according to Bhagat, & Black (2000)have distinct
attributes. Outsiders, such as affiliated directors, could provide a wide range of
experience, abilities and capabilities to the panel, Insiders, on the other hand, might also
be desirable at organizing& deciding when it comes to decision-making. The board's
combined abilities may lead to excellent business performance.Inside and outside
executives as facilitators of board arrangement on financial success was the basis of a
study led by(Klein, 1998). To find the difference in company performance affected by
board composition and director motivating drivers, Hermalin, B. E., &
Weisbach(1991)used a tool method to discard false connections among dependent and
independent variables.According to the findings, do both within and outside executives
have a similar impact on firm execution?Furthermore, because each board of directors
in each corporation has an ideal structure that includes both within and external
directors, it is challenging to predict that has a significant association between board
composition business success. Every organization strives to keep agency costs as low as
possible.
2.2.3 Board Size
The board's main duties, according to the agency theory, are to regulate management's
operations in order to make sure the company's integrity, objectivity, accountability, and
transparency(Hegazy, M., & Hegazy, 2010; Rahman, Zahid, & Khan,
2021).Transparency in the boardroom improves with a larger boardLevit, & Malenko
(2016)argue that it is more efficient since it has a wider range of knowledge, skills, and
capacities to monitor and supervise the organization's actions(Almutairi, & Quttainah,
2017; Tawfeeq et al., 2019).on the other sideAdnan, Htay, Rashid, & Meera(2011)A
larger board is inefficient due to the slow nature of decision-making, which makes
achieving corporate consistency difficult.Board's primary job, according to Al Azeez,
Sukoharsono, & Andayani ( 2019), is to oversee the firm’s internal and external
operations to create positive outcomes.The next step is to assess the administration's
performance. It contributes to the company's growth, drives management toward certain
goals, and communicates the major goals of the firms.In addition, by agency theory, the
board size has an influence on the organizational environment. The first benefit of a

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larger board is that it can handle more challenges, and the second benefit is that it can
broaden the organization's impact on society because of the relationships among board
members.Consequently, businesses with a large number of directors will waste a bigger
amount of assets from the outside rather than improving their performance.

2.2.4 Firm Age

Another independent variable included in this study is firm age, and there are two
perspectives on how to measure firm age. The first group believes that counting a firm's
age from the date of its stock market listing, as advocated byFama, & French (2004),
will change ownership building and increase development,chances.The second group
advocates that firms' ages be calculated from their commencement date; proponents of
this position compriseLoderer, & Waelchli(2010), who feel that firm age is related to
lawful entities and market knowledge.This author agrees with the second viewpoint,
hence the current study practicessimilar criteria to determine the firm's age, that is the
sum of years from its foundation to 2018.The study's definition of firm age is as under.
Firm Age = the periodfrom the company's foundation to the year 2018.

2.2.5 Firm Size

have that the size of a company has a significant influence on its success and is linked
to a range of corporate characteristicsdiscovered by Numerous research studies. In this
study,firm size is used as an independent variable to see how closely board structure
and firm performance are linked.According toAl-kake, & Ahmed (2019),firm size has a
substantial impact on board structure decisions, and they also believe that firm size is
linked to a company's market growth potential.The firm size will be measured in this
study in the same way that it was inAl-Matari, et al. (2012)did (1998). They computed a
firm's size that uses the natural logarithm of its total assets and using firm size as a
controlling variable. The size of the firm, on the other hand, will be used as a normal
independent variable in this study because, at the end of the day, it is the size of the firm
that concerns, it is still an independent variable, even if it is used as a dependent
variable.
Firm Size = the logarithm of a company's total assets

2.2.6 Firm Leverage

Firm leverage also referred to as financial leverage, is stated as the debt-to-total-assets
ratio.according to Weill (2005), Shareholders borrow money to invest in securities, which
is known as firm leverage. The leverage of a company is measured in percentages
(Rahman, Zahid, & Muhammad, 2021; Yolanda & Utama, 2021).
Many research publications have employed company leverage to examine the link
between corporate governance and business presentation. Other academic research, such
as Bhagat, & Black (2000), have employed firm leverage as a normal independent
variable (2008). As a research method, leverage will be used:

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𝐅𝐢𝐫𝐦𝐥𝐞𝐯𝐞𝐫𝐚𝐠𝐞= 𝐓𝐨𝐭𝐚𝐥𝐅𝐢𝐫𝐦𝐀𝐬𝐬𝐞𝐭𝐬/𝐓𝐨𝐭𝐚𝐥𝐄𝐪𝐮𝐢𝐭

2.2.7 Return on Assets

The proportion derived by dividing a company's net profit by its total assets is called a
return on assets. The formula for ROA is as follows:
𝐑O𝐀 = 𝐍𝐞𝐭P𝐫𝐨𝐟𝐢𝐭/ 𝐓𝐨𝐭𝐚𝐥𝐀𝐬𝐬𝐞𝐭𝐬 × 𝟏00

2.3Conceptual Framework

Independent Variables Dependent

Variable

Corporate Governance
Independent Variables
o Gender Diversity
o Board Independence Environmental,
o Board Size Social, &
o Firm Age Governance (ESG)
o Firm Size
o Firm Leverage
o Return on Assets
2.4Hypotheses of the Study
The following set of hypotheses are based on the theoretical framework derived from the
literature review:
H1: Gender Diversity has a significant impact on ESG Performance in the banking sectors
of Pakistan.
H2: Board Independence has a significant impactonESG Performance in the banking
sectors of Pakistan.
H3: Board Size has a significant impact on ESG Performance in the banking sectors of
Pakistan.
H4: Firm Age has a significant impact on ESG Performance in the banking sectors of
Pakistan.
H5: Firm Size has a significant impact on ESG Performance in the banking sectors of
Pakistan.
H6: Firm Leverage has a significant impact on ESG Performance in the banking sectors
of Pakistan.
H7: Return On Assets has a significant impact on ESGPerformance in the banking sectors
of Pakistan.

3. Data and Methodology

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The current research is empirical in nature, therefore it looked at financial data from both
public and private institutions. Since descriptive statistics were used, the variables
measurement and quantitative research technique were deductive and aimed to evaluate
hypotheses and theoretical assumptions.The goal of the paper is to see how corporate
governance influences ESG performance in the banking sector on the Pakistan Stock
Exchange.The population of the current study is made up of both public and private
banks, and the sample size is balanced. This research isgroundedon secondary data,
thedata for ESG has been composed using the index(Zahid et al., 2018), while secondary
data for corporate governance has been gathered from the annual reports of the selected
banksregistered on the Pakistan Stock Exchange, and the State Bank of Pakistan.Pakistan
Stock Exchange has 34 public and private sector banks listed by 2020. In 2020 NBP,
HBL, and UBL declared that Pakistan's banking system is made up of commercial banks,
foreign banks, Islamic banks, development financial institutions, and microfinance banks.
There are around 31 banks in the industry, with five public sector banks, 22 private
banks, and four international banks.The population includes all 31 Public and Private
Sector banks. This study has been taken 17 commercial banks as a sample.The purposive
sampling technique, Stata 13.0 has been employed to analyze the data.The influence of
corporate governance on ESG performance has been examined with the help of
correlation relation analysis.

4:Data Analyses and Results

Table 1: Descriptive Statistics

Min Max Mean Std. Dev. Skewness Kurtosis
Statistic Statistic Statistic Statistic Statistic S.E Statistic S.E
ESG 13 50 28.80 13.092 .440 .337 -1.373 .662
Gender Diversity .0000 .8000 .124 .223 2.256 .337 4.530 .662
Board Independence .200 .666 .279 .082 2.707 .337 9.328 .662
Board Size 6 13 9.78 1.951 .443 .337 -.681 .662
Firm Age 15 75 43.60 22.539 .076 .337 -1.911 .662
Firm Size 274437 2400000 893015.18 529690.907 1.004 .337 .320 .662
Firm Leverage .762 1.062 .854 .024 .174 .337 .421 .662
Return on Assets -.013 .062 .014 .023 .230 .337 -.421 .662

Table 1 shows ESG has minimum and maximum values of 13 and 50 respectively. The mean
value of ESG is 28.80. The minimum value of gender diversity is 0.000 and the maximum of
.800. The mean value of gender diversity is .124. Board independence shows .200 minimum and
.666 maximum values respectively. Likewise, the mean value is .279. The board size shows a
minimum of 6 and a maximum value of 13, while the mean value is 9.78. The control variables
having the mean value of 43.60 for firm age, 0.854 for firm leverage, and 0.014 for return on
assets.

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Table 2: Pearson’s Correlation Matrix

(1) (2) (3) (4) (5) (6) (7) (8)
ESG (1) 1
Gender Diversity (2) 0.215 1
**
Board Independence (3) -.532 0.016 1
Board Size (4) 0.077 .306* -0.180 1
*
Firm Age (5) 0.242 -0.277 -.354 -0.029 1
**
Firm Size (6) 0.086 -0.109 -.442 -0.079 .821** 1
Firm Leverage (7) -0.251 0.041 .405** .296* -.407** -.362** 1
Return on Assets (8) .513** -0.105 -.501** -0.234 .489** .366** -.796** 1
**. Correlation is significant at the 0.01 level (2-tailed).
*. Correlation is significant at the 0.05 level (2-tailed).
Pearson’s correlation identifies the problem of multicollinearity. Table 2 shows that the
maximum value of correlation is -0.532 which is below the maximum limit of .85, hence, there is
no issue of multicollinearity.

4.1: Findings and Discussion

The regression analysis for the hypotheses reports in the following Table 3.
Table 3: Regression Analysis
(OLS) (GLS-RE) (GLS-FE)
ESG ESG ESG
Gender Diversity 1.308*** 1.308*** .523***
(.39) (.39) (.185)
Board Independence 2.811** 2.811** 2.048
(1.374) (1.374) (2.172)
Board Size -.043 -.043 .077
(.049) (.049) (.108)
Firm Age .303* .303* .962**
(.174) (.174) (.382)
Firm Size -.269 -.269 -.29
(.187) (.187) (.196)
Firm Leverage .484*** .484*** .124
(.146) (.146) (.142)
Return on Assets .594*** .594*** -.057
(.159) (.159) (.114)
Lag of ESG .515*** .515*** .128**
(.099) (.099) (.061)
Constant .726 1.05 -1.374
(.735) (.759) (1.609)
Observations 49 49 49
R-squared .8 .80 .758
Years Dummies Yes Yes Yes
Hausman Test (Chi2) - 6.67 -
Prob. > Chi 2 - .453 -
Standard errors are in parentheses
*** p<.01, ** p<.05, * p<.1

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The research analyzes the impact of corporate governance on the ESG policies of
Pakistan's banking industry using the panel data random-effect (RE) and fixed-effect (FE)
models of the Generalized Least Squares (GLS). Furthermore, the study also robust the
results using ordinary least squares (OLS) estimator. The GLS random-effect as
recommended by the Hausman test (Prob. Chi2 =0.453) reported in Table 4 shows that
gender diversity has a significant positive impact on the ESG practices which supports
hypothesis 1 of the study. The findings are in line with the previous studies Lagasio, &
Cucari (2019); Garde Sánchez et al. (2017);Majumder, Akter, & Li (2017);Liao, Luo, &
Tang (2015).Similarly, board independence has also a significant positive impact on the
ESG practices of sample banks and supported hypothesis 2 of the study. Results are
consistent with the results of Lagasio, & Cucari (2019);Majumder, Akter, & Li
(2017);Liao, Luo, & Tang (2015) However, in contrast, board size has no impact on ESG
practices and hence, rejected hypothesis 3 of the study. The finding of the previous study
is similar toAslam & Haron(2020). This is in no line with earlier academic outcomes by
Garde Sánchez et al. (2017; Giannarakis (2014); and Majeed, Aziz, & Saleem (2015).In
the control variables firm age, return on assets, and previous year ESG practices (lag of
ESG) have a positive role in the improvement of ESG standards and supports hypotheses
4, 7, and 8 of the study. The findings are the same as the results of Hossain et al.
(2016),and in contrast, the result is insignificant (Al-Kake & Hamawandy, 2019).
However, in contrast, firm leverage has a significant negative effect on the ESG practices
of the sample banks and hence, supports hypothesis 6 of the study. Hence, The results are
in line with the prior studies of(Al-Kake & Hamawandy 2019); and (Rooh,& Malik,
2021). The findings further noted the insignificant impact of firm size on the ESG
practices and hence not supported hypothesis 5 of the study. The study is not consistent
with (Garde Sánchez et al., 2017); and(Al-Kake & Hamawandy, 2019).

5. Conclusion and way forward

This research examines the specific characteristics of the CG of banks about the reporting
of ESG practices that the banking sector engages in. This study builds on prior research
on the evolution of ESG standards in Pakistan's banking sector. Outcomes-based on the
Stata analysis showing that variables that are positively linked with the degree of
disclosures are Gender Diversity, Board Independence& Return on Assets. Gender
Diversity and Board Independence suggests that the greater the size of a firm's or bank's
board independence, the greater the degree of ESG disclosure. This research also shows
that firm leverage and ESG practices have a substantial negative relationship.As a result,
there is no link between company leverage and ESG performance. In addition, the results
of board size and firm size had little bearing on the bank's ESG practices. Firm age,
return on assets, and previous year ESG practices (lag of ESG) all show a positive role in
the improvement of ESG practices in the control variables.This confirms that the longer a
company has been in business and the higher its profitability, the more participation,
improvement, and support it receives for ESG operations. ESG Disclosure, on the other

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hand, can be used to entice institutional investors to invest actively in firms that have
well-established ESG platforms. As can be seen from the aforementioned findings, this
study has a variety of potential implications for the CG and ESG literature. First, this
study provided insight into firms'/banks' CG and ESG reporting practices, expanding on
earlier work that had mostly focused on ESG practices.As a result, it offers up new
research opportunities to compare and contrast these findings with corporations from
other developing and developed countries' stock exchanges. Second, the earlier CG and
ESG study has been expanded to include the Pakistani industry.Third, our research adds
to the current ESG literature by demonstrating that the inclusion of female board
members and board independence has a significant impact on bank ESG
performance.Regulators, users of bank annual reports, and foreign researchers will be
interested in the conclusions of this study. The result gives stakeholders, especially
shareholders, significant insight into the bank's ESG performance and helps them
comprehend how CG affects the ESG operations of banking sectors.The outcomes will
help regulators tighten corporate governance policies, which will improve bank
accountability and increase female representation on bank boards. It also requires banks
to adhere to good governance practices. The findings will aid the Securities and
Exchange Commission in establishing an acceptable ESG policy.The regulation will
serve as a guide for the listed banks, and any violation of the rule's structure will result in
a specified punishment for the banks.
Even though this study has significant practical consequences,the study also delivers
practical understandings to public and private listed companies, regulators, and
practitioners on how to increase the representation of women directors on boards of
directors, as well as improve compliance with economic, environmental, and social
sustainability disclosures, through effective participation of women directors on boards.
These, in turn, are expected to add to the company's existing development goals. The
study's practical implications also include that the financial sector of any country plays a
significant role in the nation's prosperity, and similarly, corporate governance plays an
important role in the organizations' prosperity; they are interconnected in this regard.
Managers carry full responsibility in this case, and they should emphasize corporate
governance and ESG performance in Pakistan's banking sector.The research reveals that
agency problems influence managers' decisions about corporate governance and ESG
disclosure and that it has a significant impact on firm performance in terms of agency
costs. To improve firm ESG performance, managers should minimize agency costs,
which could only be achieved if they establish a strong corporate governance structure in
the workplace.
The major limitation of the research isthe lack of ESG data the study only analyzed
commercial banks. As a result, investment banks and Securities and Exchange
Commission businesses registered on the Pakistan Stock Exchange were excluded from
the study.Data collecting was a time-consuming and labor-intensive task. The researcher
had much trouble obtaining data for specific factors and had to visit many financial

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institutions. Furthermore, the delimitation of the study is that it covers all banking sectors
in Pakistan rather than also commercial banks. Similarly, the second delimitation of the
study is that data of banking sectors will be collected from annual reports and the state
bank of Pakistan for 10 years.
The current study focused on corporate governance's internal mechanisms and ESG
practices, while future research may look at the external mechanisms of corporate
governance. Further research should investigate a larger sample size and representation
from industries other than banking.Future research should look into the intersection of
corporate governance and other sub-factors.By pursuing a relative examination of
corporate governance procedures amongst different financial and non-financial
organizations, the current study could be extended to additional stock exchanges around
the world by a future researcher.Future research could look into the impact of corporate
governance and environmental, social, and governance (ESG) on conventional and
Islamic banks listed on the Pakistan stock exchange. Future research should further look
into the impact of board qualities on ESG performance by including different Pakistani
banks, financial institutions, and non-financial institutions.

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