**1. Introduction**

It is undeniable that non-financial information produced by companies has gained an increasing interest in the research sphere of accounting and sustainability in recent years [1–5]. The reporting of this sustainability information is prepared through information on corporate social performance (CSP), sustainability strategy, and goals evaluated by ESG factors [6]. This increase in reporting of nonfinancial information originates from increased societal attention and demand on how firms operate, with society questioning how firm activities affect the environment [1–5]. This need for transparency from larger stakeholders leads to the need for comparable non-financial information to assess company sustainability performance [7]. The inclusion of sustainability reports includes information related to emissions, waste, human rights, and corporate governance factors that are not captured in financial reports [2,3,5]. Sustainability reports target a wider audience of users, from governments to investors, customers, suppliers, and employees [4]. ESG disclosure scores are practices that can be used to satisfy investors' information needs requirements. At a firm level, an increased level of non-financial information mitigates risk and can increase corporate financial performance from risk mitigation due to the reduction of the cost of capital by disclosing more non-financial information [8]. As suggested by Ioannou and Serafeim, the disclosure of ESGs varies between firms and countries [9]. Therefore, this

**Citation:** Helfaya, A.; Morris, R.; Aboud, A. Investigating the Factors That Determine the ESG Disclosure Practices in Europe. *Sustainability* **2023**, *15*, 5508. https://doi.org/ 10.3390/su15065508

Academic Editor: Eduardo Schiehll

Received: 12 January 2023 Revised: 14 March 2023 Accepted: 16 March 2023 Published: 21 March 2023

**Copyright:** © 2023 by the authors. Licensee MDPI, Basel, Switzerland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution (CC BY) license (https:// creativecommons.org/licenses/by/ 4.0/).

research will further this investigation to determine factors that affect ESG disclosure practices in Europe. Within the Europe region, European managers view ESG practices in a different way. Influenced by country-level factors such as cultural systems, the differences in ESG disclosure practices create an interesting discussion and analysis. The absence of the standardization of ESG reporting requires an investigation into why firms disclose ESG information and what factors play a mediating role in this disclosure [8].

In light of this, the study aims to investigate the determinants that affect higher levels of ESG disclosure. In this research paper, we investigate the impact of the CSR orientation of the board, the CSR strategy of the board, the GRI and the country–culture dimensions on the level of ESG disclosure practices of firms in Europe. When analyzing board characteristics, we expect there to be a link between board orientation and its three components, the presence of an audit committee with financial expertise, board independence, and if there is gender diversity in the board, captured by the works of Liao et al. [10]. Previous studies by Shaukat et al. have suggested that these three board attributes increase firm CSR activities and their environmental performance [11]. Further research on the orientation of the CSR board from Helfaya and Moussa suggests that a strong level of board orientation is more likely to be more environmentally responsible. Therefore, ESG scores have become a key component of CSR [12,13]. Additionally, Shaukat et al. use the board CSR strategy score and find that firms with a more clear and comprehensive CSR strategy lead to higher environmental performance due to long-term orientation. This long-term orientation means that ESG areas are considered [10]. In recent years, numerous studies have measured and evaluated the impact of both firm (i.e., micro-level) and country (i.e., macro-level) factors on ESG disclosure practices. However, these micro and macro factors that jointly affect such levels of ESG disclosure remain unexplored, as there are an increasing number of factors that affect such levels, especially in cross-country studies. Alternatively, disclosed ESG information can affect the value of the firm if investors see such information as greenwashing risks faced by the firm [5]. Cucari et al. highlights the importance of CSR influences, such as the role of the CSR committee and the number of women on the board, having influence on ESG scores in an Italian context [12]. Toumi et al. explore the region of origin of the director for CSR disclosure linking with its cultural context by separating the representation between Anglo–American and European directors in France [14].

Based on a sample of 784 European firms during the period of 2011 and 2020, this paper makes several contributions to the literature. Although this previous literature on ESG disclosure is a highly researched field, we argue that the use of country–culture dimensions based on Hofstede's cultural dimensions dummy variables, adapted from Li et al.'s classifications of Hofstede's 2010 descriptive values, adds a new contribution to the literature, as previous studies use index numbers [15]. Second, the relationship between our impacts on CSR characteristics and ESG disclosure scores further expands the theoretical contribution of the CSR literature to the CSR strategy and orientation within CSR research [14].

Our results indicate that effective CSR-orientated firms that consider long-term strategies and promote a high level of board CSR orientation and a high level of CSR strategy led to a positive effect on the quality of ESG disclosure. Furthermore, the existence of a firm that follows the GRI guidelines has a significant effect on the level of ESG disclosure within our sample. Within this research, we further present the study not only with ESG as a whole component but within the individual pillars. We find that ESG disclosure is intricately linked to these internal characteristics that are linked to CSR-orientated directors creating such a positive link. Within the cultural element of this research, our results indicate that firms headquartered within cultural dimensions that exhibit feminine with long-term collaborative concern for social and environmental issues see an increased level of ESG disclosure scores. This research also further strengthens the link between firm and country-level attributes and ESG quality disclosure scores. These results support the theories of legitimacy, stakeholder, signaling, agency, and institutional. Thus, this paper extends the predicative power to these overlapping theories. Our research findings provide

a link between both firm-level and country-level factors that affect the level of European ESG disclosure practices.

The remainder of this paper is structured as follows. Section 2 presents the relevant review of the literature, followed by a discussion of the theoretical framework and the development of the main research hypotheses in Section 3. Section 4 describes the research methodology. Section 5 discusses our empirical results, followed by concluding remarks in Section 6.

#### **2. Literature Review**

The term 'ESG' was introduced in 2004 in 'Who Cares Wins' and was introduced to find ways to incorporate the aspects of ESG into the capital market [16]. From this point on, ESG is seen as an extension of traditional CSR and socially responsible investment (SRI) [1,2]. The growing public awareness of corporate recognition of actions toward the planet has led to this increase in the implementation of sustainability strategies. Within this, an increasing number of firms have now revealed their ESG information to the public [8]. The concern around ESG issues has grown into the realm of climate change, concern over poor working conditions such as safety violations, etc. [17]. Interest in ESG is also seen from the corporate perspective, identified by the Governance and Accountability Institute. For example, in their 2018 report, the institute found that 86% of the S&P 500 companies released sustainability reports [18]. These figures reflect the increase in sustainability reporting growth and how disclosure of ESG has become a tool for communicating sustainability activities [5,9]. This increase in the number of standalone sustainability reports published and/or CSR sections in annual reports is not only seen by investors and corporate management [18]; Helfaya and Whittington note that disclosure of ESG is desirable both from a private and public perspective. From a theoretical point of view, the link between the integration of the ESG strategy and cultural values can be seen [19]. From a theoretical point of view, the link between the integration of the ESG strategy and cultural values can be seen. Toumi et al. note that the cultural system within the country has effects on managerial decision-making processes [14]. This is further examined by Baldini et al. note that culture affects voluntary and mandatory disclosure of sustainability information [20]. Ioannoi and Serafeim note that within countries operating with a low level of social cohesion and unequal distribution of opportunities, managers feel a greater obligation within key stakeholders to enforce key increase in corporate disclosure through ESG reporting [9]. There are motivations behind reporting on ESG practices, within the capital markets; such disclosure is seen as effective risk management tool [1].
