This study aimed to demonstrate the impact of corporate governance mechanisms on enhancing social and environmental responsibility disclosure in basic materials companies listed on the Saudi Stock Exchange, in light of the Kingdom’s rapid economic and regulatory transformations and in line with the transparency and sustainability requirements of Vision 2030. The study relied on manually collected data from the annual reports of 41 basic materials companies during the period 2019–2022, which was then analyzed using panel data models. The results revealed that governance mechanisms do not have the same impact on the social and environmental dimensions. Regarding social responsibility, the size of the audit committee was found to be the only statistically significant factor with a negative impact. In other words, the larger the committee, the more complex the coordination became, and the greater the focus on financial aspects at the expense of social responsibility disclosure. Board independence, separation of roles, meetings, and diversity of expertise did not show a significant impact. Conversely, in the environmental dimension, the independence of board members was the most positive factor in promoting environmental disclosure, while the separation of the board chair and the CEO had a negative impact. Board size, audit committee size, and the frequency of its meetings did not show any significant impact. The study recommended strengthening board independence, improving the effectiveness of audit committees by reducing their size and increasing the competence of their members, and developing more rigorous and transparent disclosure policies.
Amid growing challenges facing companies—especially the need to redefine their roles within a rapidly changing and highly competitive economic environment—corporate governance emerges as a key mechanism to enhance transparency and ensure sustainable institutional performance. The concept of corporate governance has attracted increasing attention in many emerging and advanced economies, particularly after global economic collapses and financial crises, alongside mounting environmental challenges such as climate change and pollution, and social problems that require collective efforts by governments and companies for society’s benefit. Consequently, the role of companies has expanded to include social and environmental responsibilities in addition to traditional economic dimensions, so that corporate evaluation now covers not only financial performance but also the extent of adherence to sustainable socio-environmental practices.
Current business environments exert growing economic, social, and environmental pressures, pushing companies to recast their strategies and integrate social and environmental responsibility into operational policies to balance shareholder interests with societal and environmental needs. Corporate governance has become essential for its pivotal role in enhancing social and environmental responsibility, extending from building investor and stakeholder trust to ensuring long-term sustainable development. Companies have hastened to adopt governance mechanisms, committing to society through reinforced CSR programs and applying its dimensions in line with governance principles.
The basic materials sector is particularly important in the Saudi national economy, as its activities involve raw material industries with direct environmental and social impacts through natural resource consumption, potential environmental changes, job creation, community development, and occupational health and safety. Studying the relationship between governance mechanisms and the level of social and environmental disclosure in this sector enables assessment of the extent to which these firms adhere to sustainable practices and mitigate negative impacts, providing practical recommendations to enhance sustainability and protect society and the environment, thereby serving the public interest and improving the sector’s image long term. Observations of trading suspensions for some sector firms during 2023–2025 due to non-disclosure or delayed reports underscore the need to evaluate governance effectiveness in these institutions and raise core questions about their ability to enhance transparency in financial information and socio-environmental performance.
Accordingly, this study analyzes the effects of various governance mechanisms—such as board independence, board size, audit committees, and separation between board chair and CEO—on CSR and environmental responsibility in basic materials firms listed on the Saudi capital market. It seeks to present a practical framework to help companies improve disclosure and practices related to CSR and environmental responsibility, thus supporting sustainable development and strengthening trust among all stakeholders.
This study differs from prior work by focusing on a single sector for depth and precision, jointly examining social and environmental dimensions to provide a comprehensive view of governance’s role in corporate sustainability, and offering detailed analysis of governance mechanisms and their effects on disclosure using measurable indicators. It also provides a local application aligned with international standards, offering clear practical value to firms and investors to improve governance and socio-environmental responsibility practices.
Governance mechanisms—transparency, disclosure, accountability, and internal control—constitute the organizing framework that directs corporate behavior and aligns practices with sustainability principles. In CSR, governance shapes policies to protect employee rights, improve working conditions, and foster corporate engagement in local development, ensuring fair treatment for all stakeholders—shareholders, beneficiaries, and partners. Governance mechanisms also enable monitoring of CSR program execution and assessment of their actual impact, enhancing alignment with corporate commitments and stakeholder trust.
Governance is fundamental to economic development and societal welfare, reinforcing transparency, equal opportunity, and reducing conflicts of interest. Governance balances diverse internal and external stakeholder interests, aligning profit-seeking with social and human needs. Effective practice—not merely formal systems—is required. CSR goes beyond donations or symbolic charity to encompass active engagement in education, supporting vulnerable groups, and advancing human rights in work, health, and education.
Several theories clarify the relationship between governance and CSR. Stakeholder theory views governance as balancing stakeholder interests, positioning CSR to meet expectations and promote fairness. Institutional theory highlights CSR as a response to legislative and social pressures. Legitimacy theory sees CSR as a means to gain social legitimacy and strengthen reputation through transparency and disclosure encouraged by governance. Social capital theory frames governance as building trust networks and positive community relations that enhance competitiveness. Agency theory indicates that, under effective governance, CSR can reduce risks and improve reputation, serving long-term shareholder interests. Collectively, these theories show governance mechanisms play a strategic, not voluntary, role in embedding CSR to support sustainability.
On the environmental side, governance integrates environmental considerations into corporate strategies, enabling effective natural resource management, strict controls on emissions and pollution, and investments in clean technologies. Governance links corporate performance to sustainable development, balancing economic, social, and environmental dimensions. In industrial firms, governance is even more critical due to intensive resource use and significant environmental footprints. Effective mechanisms—transparency, disclosure, accountability, and internal audit—allow clear policies for resource use, emissions reduction, energy efficiency, recycling, clean technologies, and compliance with local and international standards. Integrating environmental factors is strategic to reduce risks, legal exposure, and reputational harm, bolstering long-term competitiveness.
Sustainable governance theory treats governance as an integrated system embedding environmental dimensions into decision-making. Resource dependence theory notes firms rely on environmental resources, making prudent environmental policies strategic; governance organizes this dependence and ensures efficient, transparent resource management. Institutional theory emphasizes regulatory and societal pressures: governance helps adapt and codify environmental practices. Legitimacy theory views environmental responsibility as a tool to bolster legitimacy through disclosure and accountability. Thus, governance is a regulatory and strategic tool enabling environmental integration at the core of corporate activity.
Evidence from Arabic and international studies generally supports the pivotal role of governance mechanisms in enhancing CSR disclosure and practice. Feliana and Angir (2025) on 718 Indonesian listed firms (2021–2023) found board size and ownership concentration key determinants of CSR disclosure, while board independence was not significant. Alduais et al. (2022) on Chinese firms found governance moderates the relationship between CSR and information asymmetry, with strong governance reducing asymmetry via CSR disclosure. Sandhu and Alshareef (2024) using a Saudi case study showed board diversity integrates CSR into governance, especially via board and audit committees. Das et al. (2025) on 33 Indonesian industrial firms found governance implementation and CSR disclosure raise firm value. Murgolo (2024) conceptually argued that embedding ethical values in governance effectively supports sustainability and CSR.
Cek and Hamad (2023) across OECD firms found CSR moderates the link between governance and financial performance. Pop et al. (2025) in a cross-country review found effective governance improves CSR quality, especially via transparency and accountability. Al-Oudai (2024) on SABIC showed governance reduces environmental risks and enhances socio-environmental disclosure. El-Metwally and Samir (2022) on six Egyptian industrial firms (2014–2021) found governance plus CSR improves EPS, market and book value; governance also improved ROA and ROE, while CSR alone had a negative effect on ROE in some models. Hafez and Mohamed (2025) on Egyptian listed firms found board independence and size and audit committee effectiveness positively related to CSR disclosure; CEO duality also showed a positive relation. Alnaim (2025) on Saudi industrials found more independent directors associated with lower CSR disclosure; board size, member compensation, and state ownership were not significant. An Algerian survey of 30 firms found better governance correlated with CSR adoption. Al-Anzi (2025) in Kuwait found governance reports improve risk disclosure quality; ESG reports enhance transparency, and combined good governance with ESG yields greater risk transparency. Abdelaziz (2023) on Egyptian firms found tax governance mechanisms plus CSR reduced tax risks.
In Saudi banks, Al-Sayegh and Al-Juwaid (2023) found board size and audit committee size positively affect CSR disclosure, while board independence and audit committee meetings did not; they recommended a unified CSR disclosure index.
International evidence consistently shows governance mechanisms enhance environmental performance and sustainability; Arabic studies are fewer. Al-Oudai (2024) case on SABIC found governance (audit committees, compliance policies) improved environmental risk management. Alnor (2024) on 131 Saudi listed firms (2015–2021) found audit committee size and independence positively affect performance (including environmental sustainability), while more audit meetings negatively affected performance; integrating governance with environmental sustainability improved performance. Almaqtari et al. (2023) analyzing 8,000 firms in Asia and Europe found environmental disclosure and board characteristics positively affect ESG performance. Yang et al. (2024) found stronger governance structures in China improve ESG (including environmental) performance. Marzolla and Cenni (2025) on European banks found board independence and diversity enhance ESG, including environmental performance. Aksoy and Erdogan (2025) on Borsa Istanbul found combining governance index and environmental performance raises firm value. Singh and Kumari (2024) on 67 polluting Indian firms found those improving environmental performance and disclosure post-COVID achieved better market performance. Khatib and Amosh Al (2023) found firms with strong governance maintained stable ESG performance during crises. Ni (2025) systematic review concluded combining governance and sustainability practices forms a strategic framework for long-term environmental performance improvement. Alwadani et al. (2023) on Saudi firms showed internal environmental governance (clear policies, effective controls) significantly improves environmental performance.
Prior studies highlight governance’s pivotal role in CSR and environmental performance, though effects vary by mechanism and context. In the Saudi basic materials sector, despite its environmental and economic importance, few studies link governance with socio-environmental responsibility. This study fills the gap by analyzing governance mechanisms and their effects on CSR and environmental disclosure in Saudi basic materials firms listed on Tadawul, integrating both dimensions within one framework, and focusing on influential internal governance mechanisms (audit committees, independence, compliance policies). Using firm-level panel data enhances credibility, and findings are aligned with national sustainability goals and Vision 2030 to guide decision-makers.
With rising economic, social, and environmental pressures, corporate governance has become an essential mechanism to improve management and protect stakeholder rights. Societal expectations extend beyond financial performance to ethical and developmental roles and responses to environmental and social issues. Despite growing attention to governance in the Saudi capital market, levels of socio-environmental disclosure and practice vary, especially in basic materials—a sector with high industrial impact and recent trading suspensions for non-disclosure. This raises the question: What is the impact of governance mechanisms on supporting and enhancing social and environmental responsibility disclosure in basic materials companies listed on the Saudi capital market?
(1) Contributes to the literature—especially Arabic—by examining governance and socio-environmental responsibility in the Saudi context and in the basic materials sector, which needs more specialized studies.
(2) Integrates governance with CSR and environmental responsibility, developing theoretical models linking these aspects and clarifying how governance mechanisms affect sustainable practices.
(3) Uses score-based indicators to measure socio-environmental disclosure levels, enhancing credibility and comparability across firms and sectors.
(4) Addresses a research gap by focusing on the basic materials sector, under-studied despite its environmental and social importance.
(1) Provides results to help corporate decision-makers select and apply governance mechanisms to raise socio-environmental responsibility and improve sustainability disclosure and transparency, strengthening investor and stakeholder trust.
(2) Offers recommendations for regulators (e.g., Saudi Capital Market Authority) to develop policies and standards that enhance governance and sustainability, especially in high environmental impact sectors.
(3) Helps investors make more informed decisions by assessing non-financial performance amid rising interest in sustainability.
(4) Supports responsible environmental and social practices in basic materials firms, reducing negative industrial impacts and improving community relations.
Main objectives:
Identify the role of governance mechanisms in enhancing CSR disclosure in basic materials companies listed on the Saudi stock market.
Determine governance mechanisms that enhance environmental disclosure in these companies.
Specific objectives:
Examine the effect of board size on social and environmental disclosure.
Analyze the effect of board independence on CSR and environmental responsibility.
Measure the effect of board meeting frequency on socio-environmental disclosure.
Assess the effect of separating board chair and CEO roles on socio-environmental responsibility.
Analyze the effect of multiple directorships on sustainable practices.
Evaluate the effect of audit committee size on socio-environmental disclosure.
Examine the effect of audit committee meeting frequency on socio-environmental disclosure.
What is the effect of board size on CSR and environmental disclosure?
What is the effect of board independence on CSR and environmental disclosure?
What is the effect of board meetings on CSR and environmental responsibility?
What is the effect of separating the board chair and CEO on CSR and environmental responsibility?
What is the effect of multiple directorships on CSR and environmental responsibility?
What is the effect of audit committee size on CSR and environmental responsibility?
What is the effect of audit committee meetings on CSR and environmental responsibility?
Main hypothesis H1: Governance mechanisms are expected to have a positive statistically significant effect on enhancing CSR disclosure in Saudi basic materials companies.
H1-1: Board size has a positive significant effect on CSR.
H1-2: Board independence has a positive significant effect on CSR.
H1-3: Board meetings have a positive significant effect on CSR.
H1-4: Separation of board chair and CEO has a positive significant effect on CSR.
H1-5: Multiple directorships have a positive significant effect on CSR.
H1-6: Audit committee size has a positive significant effect on CSR.
H1-7: Audit committee meetings have a positive significant effect on CSR.
Main hypothesis H2: Governance mechanisms are expected to have a positive statistically significant effect on enhancing environmental responsibility disclosure in Saudi basic materials companies.
H2-1: Board size positively affects environmental responsibility.
H2-2: Board independence positively affects environmental responsibility.
H2-3: Board meetings positively affect environmental responsibility.
H2-4: Separating chair and CEO positively affects environmental responsibility.
H2-5: Multiple directorships positively affect environmental responsibility.
H2-6: Audit committee size positively affects environmental responsibility.
H2-7: Audit committee meetings positively affect environmental responsibility.
An analytical-deductive approach was used to test the role of governance mechanisms in CSR and environmental responsibility, via descriptive statistics and econometric tests using STATA 12 on panel data.
The population comprises basic materials companies listed on the Saudi stock market (Tadawul), a vital sector covering mining, petrochemicals, chemicals, and basic metals, with significant GDP, employment, and investment impact, subject to disclosure and governance requirements of the Saudi Capital Market Authority.
The sample includes 41 basic materials firms with available, regular financial and annual reports for 2019–2022. Initial sector size was 44 firms; some were suspended 2023–2025 for delayed disclosure. Data were manually collected from company sites, Tadawul, and CMA releases.
Model 1 (CSR):
Model 2 (Environmental):
Table 5 summarizes key statistics. Mean CSR disclosure is 0.48; environmental disclosure 0.44, indicating moderate disclosure with wide dispersion (min 0, max 1). Board size averages 8.31 (SD 1.87); independence 0.51 (about half independent); board meetings 4.93 per year; multiple directorships mean 7.68 (range 0–17); audit committee size 3.68; audit committee meetings 5.10. Firm size mean (ln assets) 18.65; leverage 0.43 (up to 3.58); firm age ~30 years.
Panel data: 164 firm-year observations (41 firms × 4 years). Model 1 (CSR): Hausman test favored fixed effects (chi2=39.97, p<0.001). Adjusted R²=0.2389; F=3.55, p<0.001. Only audit committee size is significant and negative (β = -0.0454, p=0.023). Other governance variables are not significant. Thus H1 main not fully supported; only H1-6 rejected (effect is significant but negative, not positive as hypothesized); others not supported.
Model 2 (Environmental): Hausman suggested random effects (chi2=3.72, p=0.959). Within R²=0.1191; Wald chi2=17.35, p=0.067 (10% level). Board independence positive and significant (β=0.4015, p=0.010), chair/CEO separation negative and significant at 10% (β=-0.0819, p=0.076). Other governance variables not significant. Thus H2-2 supported (positive), H2-4 contradicted (negative), others not supported.
The negative significant effect of audit committee size on CSR suggests larger committees suffer coordination problems and focus more on financial compliance, crowding out attention to social disclosure; effectiveness may decline with size and heterogeneous interests. This aligns partly with studies showing some mechanisms (board independence, meetings) not necessarily improving CSR disclosure.
Board independence positively affects environmental disclosure, indicating structural linkage between governance quality and environmental transparency. Independent directors, less tied to management, can better oversee environmental performance, reduce opportunism, and value reputational and compliance risk, consistent with agency and stakeholder theories, and with regulatory and market pressures in Saudi Arabia under Vision 2030.
The negative effect of chair/CEO separation on environmental disclosure is unexpected. Possible reasons: formal separation without real independence; dual leadership creating coordination gaps; focus on short-term financial goals; weaker unified leadership to push environmental reporting. In contexts with less stringent environmental pressures, separation may dilute authority over environmental agendas.
Other mechanisms (board size, meetings, audit committee meetings, multiple directorships) showed no significant effects, suggesting that formal structures alone are insufficient without substantive integration of socio-environmental priorities into governance culture and incentives.
Governance mechanisms affect socio-environmental disclosure differently. Audit committee size has a significant negative effect on CSR disclosure; board independence boosts environmental disclosure; chair/CEO separation negatively affects environmental disclosure. Other mechanisms were insignificant. Effectiveness depends more on quality and focus of governance on socio-environmental issues than on formal structures.
Reassess audit committee size to reduce coordination issues and broaden oversight to social dimensions; select balanced, trained members to integrate CSR into internal control.
Embed CSR into corporate strategy; mandate sustainability reports with standardized social disclosures (e.g., GRI) for transparency and comparability.
Strengthen board independence to enhance environmental disclosure and oversight of environmental policies and practices.
Ensure effective, not merely formal, separation of chair/CEO with strong coordination mechanisms to support environmental disclosure.
Raise awareness of environmental disclosure importance; report key environmental KPIs (emissions, energy and water use, waste) given the sector’s high impact.
(1) Binary scoring (0/1) for disclosure items captures presence/absence, not quality or depth; future work should use graded indices to assess qualitative and quantitative aspects.
(2) Single-sector sample (basic materials) and sole reliance on annual reports limit generalizability; future studies should include multiple sectors and diverse disclosure sources.
| Dependent variable | Code |
|---|---|
| CSR disclosure index | SR |
| Environmental disclosure index | ER |
| Environmental disclosure (ER) | Social disclosure (SR) |
|---|---|
| Environmental protection programs; pollution control (air, water, land, noise, visual) | Direct participation in community service projects and volunteering (e.g., crime prevention, literacy) |
| Environmental awareness and protection donations/activities | Donations to health programs and public health institutions |
| Compliance with pollution laws and environmental authority regulations | Donations to educational programs and public educational institutions |
| Environmental R&D programs | Donations to government/public programs and campaigns (e.g., municipalities) |
| Use of low-pollution equipment (e.g., solar panels, air filters) | Providing training programs for students |
| Energy conservation and efficiency | Sponsoring sports, recreational, cultural, and artistic activities |
| Water conservation and recycling | Job creation and skills development |
| Packaging/material conservation and recycling | Women employment |
| Safe disposal of waste and industrial water | Employment of minorities and persons with special needs |
| Tree-planting and landscaping projects | — |
| Environmental audit by independent third party | — |
| Supplier environmental assessment | — |
| Environmental certifications and awards | — |
| Variable | Code | Measurement |
|---|---|---|
| Board size | B-Size | Total number of board members |
| Board independence | Indep-B | Independent directors / total board |
| Board meetings | Meeting-B | Number of board meetings |
| Chair/CEO separation | BChCEO | 1 if separated, 0 otherwise |
| Audit committee size | ACSize | Total audit committee members |
| Audit committee meetings | ACMeeting | Number of audit committee meetings |
| Multiple directorships | BConnect | Other board seats held by directors / number of directors |
| Variable | Code | Measurement |
|---|---|---|
| Firm size | Size | Ln(total assets) |
| Leverage | Leverage | Total debt / total assets |
| Firm age | Age | Years since incorporation |
| Variable | Mean | Std. dev. | Min | Max |
|---|---|---|---|---|
| ER | 0.441159 | 0.380544 | 0 | 1 |
| SR | 0.476220 | 0.333390 | 0 | 1 |
| ACMeeting | 5.103659 | 1.336688 | 2 | 9 |
| ACSize | 3.676829 | 0.857561 | 3 | 7 |
| Age | 29.91463 | 15.58606 | 5 | 66 |
| BChCEO | 0.597561 | 0.491891 | 0 | 1 |
| BConnect | 7.676829 | 2.943092 | 0 | 17 |
| BIndep | 0.510854 | 0.176664 | 0.14 | 1 |
| BMeeting | 4.932927 | 1.397329 | 2 | 10 |
| BSize | 8.310976 | 1.871878 | 4 | 14 |
| Size (ln assets) | 18.65304 | 3.034934 | 13.237 | 25.361 |
| Leverage | 0.431768 | 0.430426 | 0.01 | 3.58 |
| Variable | Model 1 (SR) Coef. | Std. Err. | t | p>|t| | Model 2 (ER) Coef. | Std. Err. | z/t | p>|z| |
|---|---|---|---|---|---|---|---|---|
| BSize | 0.01929 | 0.01806 | 1.07 | 0.288 | 0.01778 | 0.01936 | 0.92 | 0.358 |
| BIndep | 0.20890 | 0.14459 | 1.44 | 0.151 | 0.40154 | 0.15682 | 2.56 | 0.010 |
| BMeeting | -0.01245 | 0.01006 | -1.24 | 0.218 | -0.01402 | 0.01230 | -1.14 | 0.254 |
| BChCEO | -0.00929 | 0.03828 | -0.24 | 0.809 | -0.08185 | 0.04607 | -1.78 | 0.076 |
| BConnect | -0.00288 | 0.00961 | -0.30 | 0.765 | -0.00107 | 0.01070 | -0.10 | 0.921 |
| ACSize | -0.04537 | 0.01974 | -2.30 | 0.023 | 0.03213 | 0.02420 | 1.33 | 0.184 |
| ACMeeting | 0.00434 | 0.00839 | 0.52 | 0.606 | 0.01390 | 0.01061 | 1.31 | 0.190 |
| Size | -0.05258 | 0.03207 | -1.64 | 0.104 | 0.00374 | 0.01775 | 0.21 | 0.833 |
| Leverage | -0.03486 | 0.03309 | -1.05 | 0.294 | -0.02950 | 0.03876 | -0.76 | 0.447 |
| Age | 0.03640 | 0.00777 | 4.68 | 0.000 | 0.00121 | 0.00367 | 0.33 | 0.742 |
| Constant | 0.34954 | 0.72084 | 0.48 | 0.629 | -0.06830 | 0.41077 | -0.17 | 0.868 |
Observations: 164. Model 1 (fixed effects): within R²=0.2389; F(10,113)=3.55; Prob>F=0.0004. Model 2 (random effects): within R²=0.1191; Wald chi2(10)=17.35; Prob>chi2=0.0670. Hausman: Model 1 chi2(10)=39.97, p=0.0000 → fixed effects; Model 2 chi2(10)=3.72, p=0.9591 → random effects.