A Conceptual Framework of Governance Diversity and ESG Adoption in SMEs: Evidence from Emerging Economies
DOI:
https://doi.org/10.24191/aej.v12i2.14086Keywords:
ESG adoption, SMEs, Governance diversity, Strategic agility, Institutional pressure, Emerging economies, Corporate GovernanceAbstract
This study develops a conceptual framework to explain environmental, social, and governance (ESG) adoption in small and medium-sized enterprises (SMEs) within emerging economies. Despite the growing importance of ESG practices in enhancing sustainability and competitiveness, existing literature has predominantly focused on large corporations, leaving SMEs underexplored. Addressing this gap, the study introduces governance diversity as a critical driver of ESG adoption and proposes a multidimensional Governance Diversity Index (GDI) that captures board heterogeneity in terms of gender, expertise, independence, and demographic characteristics. Drawing on stakeholder theory, the resource-based view (RBV), and institutional theory, the paper argues that governance diversity enhances stakeholder responsiveness and organizational decision-making, thereby facilitating ESG adoption.
Furthermore, the study incorporates strategic agility as a mediating mechanism, suggesting that SMEs with diverse governance structures are better positioned to sense and respond to environmental changes, enabling the integration of sustainability practices into their operations. Institutional pressure is also introduced as a moderating factor, highlighting the role of regulatory frameworks, stakeholder expectations, and market forces in shaping ESG adoption. The proposed framework offers a comprehensive and context-sensitive understanding of how internal governance mechanisms and external environmental factors interact to influence sustainability practices in SMEs. This study contributes to the literature by extending ESG research to SMEs, introducing a novel multidimensional governance construct, and integrating multiple theoretical perspectives into a unified framework. The findings provide important implications for policymakers, SME practitioners, and regulators seeking to promote sustainable business practices in emerging economies. Future research is encouraged to empirically test the proposed framework across different contexts and industries.
References
Adams, R. B., & Ferreira, D. (2009). Women in the boardroom and their impact on governance and performance. Journal of Financial Economics, 94(2), 291–309. https://doi.org/10.1016/j.jfineco.2008.10.007
Agyemang, A. O., Ansong, A., & Boateng, R. (2022). SMEs and sustainability practices: Evidence from developing economies. Journal of Cleaner Production, 345, 131089. https://doi.org/10.1016/j.jclepro.2022.131089
Barney, J. (1991). Firm resources and sustained competitive advantage. Journal of Management, 17(1), 99–120. https://doi.org/10.1177/014920639101700108
Birindelli, G., Iannuzzi, A. P., & Savioli, M. (2018). The impact of board diversity on corporate social responsibility. Corporate Social Responsibility and Environmental Management, 25(4), 629–644. https://doi.org/10.1002/csr.1497
Brammer, S., Jackson, G., & Matten, D. (2012). Corporate social responsibility and institutional theory: New perspectives on private governance. Socio-Economic Review, 10(1), 3–28. https://doi.org/10.1093/ser/mwr030
Buallay, A. (2021). Sustainability reporting and firm performance: The moderating role of ESG. Journal of Applied Accounting Research, 22(3), 457–473. https://doi.org/10.1108/JAAR-03-2020-0060
Cegarra-Navarro, J. G., Soto-Acosta, P., & Wensley, A. K. (2016). Structured knowledge processes and firm performance. Journal of Knowledge Management, 20(6), 1280–1297. https://doi.org/10.1108/JKM-07-2015-0284
Clauss, T., Kraus, S., Kallinger, F. L., Bican, P. M., Brem, A., & Kailer, N. (2022). Organizational ambidexterity and competitive advantage: The role of strategic agility. Technological Forecasting and Social Change, 174, 121241. https://doi.org/10.1016/j.techfore.2021.121241
DiMaggio, P. J., & Powell, W. W. (1983). The iron cage revisited: Institutional isomorphism and collective rationality. American Sociological Review, 48(2), 147–160. https://doi.org/10.2307/2095101
Freeman, R. E. (1984). Strategic management: A stakeholder approach. Pitman.
Frias-Aceituno, J. V., Rodríguez-Ariza, L., & García-Sánchez, I. M. (2013). The role of the board in sustainability reporting. Corporate Social Responsibility and Environmental Management, 20(4), 219–233. https://doi.org/10.1002/csr.1297
García-Sánchez, I. M., Gómez-Miranda, M. E., David, F., & Rodríguez-Ariza, L. (2023). Sustainability disclosure and SMEs: A systematic review. Journal of Business Research, 154, 113345. https://doi.org/10.1016/j.jbusres.2022.113345
Haque, F., & Ntim, C. G. (2020). Executive compensation and corporate sustainability. Business Strategy and the Environment, 29(6), 2485–2502. https://doi.org/10.1002/bse.2513
Hossain, M. S., Islam, M. A., & Andrew, J. (2024). ESG practices in SMEs: A developing country perspective. Accounting, Auditing & Accountability Journal.
Jenkins, H. (2006). Small business champions for corporate social responsibility. Journal of Business Ethics, 67(3), 241–256. https://doi.org/10.1007/s10551-006-9182-6
Johnson, M. P., & Schaltegger, S. (2016). Two decades of sustainability management tools. Sustainable Development, 24(5), 333–349. https://doi.org/10.1002/sd.1608
Kamarudin, K. A., Ismail, W. A. W., & Zain, M. M. (2022). ESG disclosures and firm performance in emerging markets: Evidence from Malaysia. Journal of Cleaner Production, 362, 132378. https://doi.org/10.1016/j.jclepro.2022.132378
Khan, I., Khan, I., & Saeed, B. B. (2023). Board diversity and ESG performance in emerging economies. Corporate Governance: The International Journal of Business in Society, 23(4), 987–1005. https://doi.org/10.1108/CG-03-2022-0123
Neville, F. (2011). Board governance in SMEs. Corporate Governance: An International Review, 19(6), 527–540. https://doi.org/10.1111/j.1467-8683.2011.00872.x
Nguyen, T. H., Tran, Q. T., & Nguyen, H. T. (2023). Institutional pressures and ESG adoption in developing countries. Sustainability, 15(3), 2456. https://doi.org/10.3390/su15032456
OECD. (2023). Financing SMEs and entrepreneurs 2023. OECD Publishing.
Post, C., & Byron, K. (2015). Women on boards and firm performance: A meta-analysis. Academy of Management Journal, 58(5), 1546–1571. https://doi.org/10.5465/amj.2013.0319
Rahman, R. A., & Hashim, F. (2023). Corporate governance and ESG disclosure in ASEAN: A comparative study. Asian Journal of Business Ethics, 12(2), 155–174. https://doi.org/10.1007/s13520-023-00173-1
Revell, A., Stokes, D., & Chen, H. (2010). Small businesses and the environment. Business Strategy and the Environment, 19(5), 273–288. https://doi.org/10.1002/bse.628
Scott, W. R. (2014). Institutions and organizations (4th ed.). Sage Publications.
Shams, S. M. R., Vrontis, D., & Belyaeva, Z. (2021). Strategic agility in international business. Journal of Business Research, 134, 124–136. https://doi.org/10.1016/j.jbusres.2021.05.037
Soundararajan, V., Jamali, D., & Spence, L. J. (2018). Small business social responsibility. Journal of Business Ethics, 151(2), 317–336. https://doi.org/10.1007/s10551-016-3268-8
Teece, D. J., Peteraf, M., & Leih, S. (2016). Dynamic capabilities and organizational agility. California Management Review, 58(4), 13–35. https://doi.org/10.1525/cmr.2016.58.4.13
Terjesen, S., Aguilera, R. V., & Lorenz, R. (2016). Legislating a woman’s seat on the board. Journal of Business Ethics, 128(2), 233–251. https://doi.org/10.1007/s10551-014-2083-1
World Bank. (2022). Small and medium enterprises (SMEs) finance. World Bank.
Zaid, M. A. A., Wang, M., & Adib, M. (2020). Boardroom diversity and corporate performance. Journal of Business Research, 107, 10–23. https://doi.org/10.1016/j.jbusres.2018.12.034
Zheng, Q., Luo, Y., & Wang, S. (2022). Institutional pressure and corporate sustainability. Business Strategy and the Environment, 31(5), 2200–2215. https://doi.org/10.1002/bse.3010
Downloads
Published
Issue
Section
License
This work is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License.
