King Codes on Corporate Governance and ESG Performance: Evidence from FTSE/JSE All-Share Index

The purpose of this chapter is to assess the main content of the South African Corporate Governance Code, King III, and to explore the relationship between environmental/social performance and corporate governance practices in a sample of South African listed companies following its adoption. The main objective of King III, and the more recent King IV, is to promote good corporate governance as a driver for ethical and effective leadership at board level. In supporting companies, these codes provide recommendations for a culture of sustainability and environmental performance, adequate control by the governing body and for promoting trust in the organization’s reputation and legitimacy. These principles of “good governance” can be evaluated through the process of Integrated Reporting, which became a mandatory listing requirement for South African listed companies from 2010 onwards. This requirement is consistent with the approach suggested by the Global Governance Principles, which include the recommendation that boards should produce integrated reports. In this context, our empirical analysis is focused on the Integrated Reports drawn up by a sample of companies listed on the Johannesburg Stock Exchange (JSE), in order to evaluate whether the recent adoption of corporate governance codes enhances environmental and social performance and improves corporate governance. Our period of analysis runs from 2012, 2 years after the introduction of King III in 2010, to 2016, immediately after the publication of the draft version of King IV, and we investigate whether the release of corporate governance codes can influence environmental and social performance and improve corporate governance practices. In this regard, we found that King III does exert an influence on Environmental, Social and Governance (ESG) performance. Moreover, the presence of an active board, able to allocate tasks and responsibilities among different committees, along with the creation of an all-encompassing vision aimed at integrating financial and non-financial perspectives—an integrated thinking approach—are positively associated with environmental and social performance. Therefore, this empirical study can contribute to our understanding of how mandatory adoption of King III and Integrated Reporting affect ESG factors and board attitude to sustainability issues. Finally, we discuss a number of managerial implications, offering suggestions for managers, directors, consultants, investors and policymakers.